Falling commodity prices can aid extractive sector transparency across Africa

Improving governance review arrangements for Africa’s extractive industries has become a pressing imperative as global commodity prices nosedive. This much was recognised last month by the UN Economic Commission for Africa (UNECA) when it convened an ad-hoc expert group meeting (AEGM) on “Mainstreaming the Governance of the Extractive Sectors in the Africa Peer Review Mechanism (APRM)” in Lagos, Nigeria. This author joined a score of other African and global experts in the high-level technical discussion. For this initiative launched in partnership with the APRM Secretariat to help Nigeria and other resource-dependent African economies improve accountability in their resource sectors, fourcogent questions must be urgently addressed.

First, we need clearer thinking in the design of an African extractive governance review mechanism. One option is to develop a permanent extractive industry focus within the existing APRM framework, the pan-continental mechanism launched by African leaders in 2003 to benchmark African states on their governance performance across a wide-range of political, economic and other measures. Alternatively, an extractives-focused set of measurements can be developed within the APRM, then gradually separated into a standalone framework. Whether we “embed” a benchmarking system for Africa’s extractive industries within the APRM, or use the APRM as a “nursery”, the continent urgently needs an Africa Extractive Resources Mechanism (AERM) to help Nigeria and others extract greater fiscal and broader socio-economic benefits from natural endowments. This will help towards promoting sustainable diversification of their economies and delivering social equity in a tough downturn environment.

Whatever approach is opted for, it is essential that the promised dynamism of a new extractives-focused review mechanism is anchored to the existing institutional moorings of the APRM, which enjoys high-level recognition by Africa’s leaders. Countries that have successfully leveraged extractives to develop their economies such as Australia, Chile and Botswana demonstrate that the quality of institutions plays a critical role in determining resource governance outcomes. Whether those effective institutions can flourish under the much criticized APRM review system, or a new standalone AERM is needed in its stead, is a fundamental question that experts need to help answer.

Second, measurements of extractive sector performance in Africa must look not only at the purely governance-related standards or values. They must incorporate broader questions of technical capacity as an enabler of good resource governance. This is about the effective oversight of environmental standards, social benefit and linkages (economic and otherwise) in Africa’s extractive industries. Here, most African states remain deficient, as they have failed persistently to develop the requisite technical capacities for oversight. What role can an improved governance review mechanism for Africa’s extractive industries play to remedy this technical capacity deficit, including through the promotion of mineral value addition based on informed policies and sound value chain analyses?

Third, UNECA working with African governments must go beyond its planned ‘mainstreaming’, to consider ways to also ‘streamline’ extractives-focused measurements within the APRM review process. Currently, the APRM questionnaire is more than 105 pages long, and fails to produce the type of clear verdict or report that can help guide governments seeking to make improvement. This will also respond in a real way to the yearning among some APRM participating states for clearer, concise feedback on their extractive sector governance. The end objective here is to help crystallise and consolidate APRM benchmarks on extractives into about four easily digestible scorecards that can be used to signal to governments and also guide investment decisions by market actors.

Fourth, an incentives-led approach to extractive sector governance review can even help to correct serious weaknesses identified in the APRM process. APRM opponents argue that it is based on a flawed theory of change, as it works on the questionable assumption that African peer pressure will drive positive behavioural change among participating governments. Proponents counter that a sanctions-based APRM system risks losing the support of implementing states. As a corrective to both of these extremes, an approach based on a regime of incentives is needed to reward positive behavioural change (for example, with increased investment inflows) and correspondingly raise the cost for non-compliant governments. An existing template that could guide this incentives approach is the Equator Principles, which since 2003 has been used to provide global investors with governance related information on different countries, helping to shape risk assessment and underpinning ethical investment decisions. Africa sorely needs to emulate such initiatives with a view to domesticating them into its own internal capacity to shape global corporate due diligence, particularly in view of the market volatility and negative perceptions now driving a retreat from the Africa rising paradigm.

In conclusion, Africa, in fact, needs to find galvanizing new language to breathe fresh dynamism into its governance review arrangements, including the APRM. Set targets and standards should be framed in terms of effective stewardship, perhaps along the lines of economic values generated, social values upheld, and environmental values delivered through the extractive industry. In this way, governments, communities, the private sector, civil society and other actors can clearly track how regional and global best practices are being upheld to improve governance. Ultimately, an incentives-based approach has the potential to create credible peer pressure for change, away from the idealistic and poorly defined peer pressure that has so far limited the APRM’s impact.

Ola Bello

Dr Ola Bello is executive director of Good Governance Africa (GGA) in Lagos and an adviser to the African Union on mineral sector governance.