About: Ross Harvey - Senior Research Fellow, Governance of Africa’s Resources Programme
Downstream beneficiation and mineral wealth capture present significant hurdles for Africa’s iron and steel industries. Ross Harvey, Senior Research Fellow, Governance of Africa’s Resources Programme, South African Institute of International Affairs, spoke to Metal Bulletin Events about what African countries and governments need to be aware of in achieving such developments.
African Iron & Steel Conference
22-25 June 2015 •Hotel Avenida, Maputo, Mozambique
What are the most pressing concerns for Africa’s iron and steel industries?
The current low price for iron ore is a major inhibitor to the development of iron ore mining. In a depressed commodity-price environment, companies have every incentive to limit production and hold off on producing assets that exist in difficult political contexts with poor or limited physical infrastructure and human capital available.
Health of the steel market is obviously a function of both iron ore availability and price, and local demand. Steel manufacturers are thus in a bind at the moment. Iron ore prices are low, but for that very reason local supply is not forthcoming and steel manufacturers within Africa have to pay high transport costs to source raw materials.
Moreover, domestic demand for steel is slowing, as many infrastructure projects (requiring steel inputs) are funded by commodity-backed loans. When commodity prices drop, governments find themselves facing serious debt burdens. Local processing of iron ore (not necessarily into steel) is one potential avenue out of the current impasse, but this would only be warranted if local demand was sufficiently high for mid-value iron products such as pig-iron.
What will it take to transform development in this space?
More transparent and accountable governance in general always helps, along with improved support infrastructure – not only to ship raw material out of a country, but also to create potential economic spillovers that may trigger growth in other sectors. Development corridors, for instance, are a good policy idea. But they are difficult politically, especially if they require cross-border cooperation
Which are the most compelling regions for growth and industrial development?
West Africa has to be seen as a key growth region. It has a particularly low economic base, which means there are, theoretically, many quick development gains to be won. But it will take political genius to ensure political regional cooperation to realise these potential gains.
How can Africa’s mineral wealth be harnessed for optimal and inclusive growth?
The African Mining Vision (AMV) is built on this idea that mineral wealth should be better harnessed for inclusive development. And it sounds rational and laudable. However, implicit in the vision may be this subtle idea that, for mineral-wealthy countries, mineral rents should still play a central role in economic development. We thus look for ways to develop backward and forward linkages to the mining industry. Interestingly enough, countries that have realised great development success over the last half century, like South Korea, have few natural resources to speak of. So perhaps the answer is that mineral rents should be used to invest in physical infrastructure, human capital (a well-educated and technologically proficient workforce) and strengthening oversight institutions rather than developing these linkages per se. They may develop as part of the dynamic economic growth process, but trying to artificially create them requires overcoming great challenges.
Governments tend to get caught in a trap of thinking that downstream beneficiation of mineral resources is the only path to inclusive development. Very few countries get this right. These efforts often fail because the initial conditions that support manufacturing success are often absent, and the country thus has no obvious comparative advantage in beneficiating raw material. I'm not arguing that mineral wealthy countries should simply continue to export raw materials into perpetuity, but certainly we should stop thinking that downstream manufacturing is the only answer to our development challenges.
What are you hoping to get out of attending the African Iron and Steel Conference?
I’m really looking forward to hearing from firms on the frontline of investing in Africa that are thinking about the risks and rewards of doing business here.
Find out more...
Ross will be speaking at the upcoming African Iron and Steel on the potential for West Africa’s iron ore industry. Register now to join him and a host of excellent speakers, be part of the debate and learn how to get ahead of the major trends in the market.
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