Mining FDI and urban economies in sub-Saharan Africa: Exploring the possible linkages

Introduction

It has been widely reported that the African continent has, during the past decade, experienced a profound shift in the scale and character of capital investment and economic growth (McKinsey Global Institute, 2010; UNCTAD, 2012). The focus of much of this investment has been in oil exploration and extraction, concentrated in a handful of countries, and mining investment in a wider array of countries. The growth in global demand that has resulted in these investments has had much to do with emergent economically powerful regions of the world, and in particular countries such as China, India and Brazil, seeking mineral and energy commodities to help drive their growth. Whilst such investment, almost all of it in the form of inward foreign direct investment (FDI), has grown from a low base and Africa’s share of global inward FDI remains low at around 2.8% for 2011 (UNCTAD, 2012: 39), this change has been nonetheless significant in raising rates of Gross Domestic Product (GDP) growth across the continent. Average rates of growth have moved from below the 4% average of the 1994–2003 period through to 5.1% in 2011 after a peak of 7.1% in 2007 (IMF, 2012: 197). The importance of inward FDI is highlighted by the fact that for many of the countries on the African continent, FDI-related activities by Trans-National Corporations (TNCs) are the dominant contributors to national economies across a range of measures. For instance, UNCTAD (2012: 32) notes that: ‘Africa is the region where TNCs contribute most to the economy in terms of value added  … and wages’.

Despite these macro-economic level impacts, the debate around more spatially defined impacts of mining investment has been rather muted and has tended to fall within two prominent discourses. The first of these relates to negative environmental and social impacts in places where mining occurs. The second echoes the ‘enclave’ ¹ thesis of mining projects described at some length in studies of colonial, and some post-colonial, cases where supporting infrastructure served the exclusive interests of the dominant commodity extraction players and not local let alone national interests.

This article does not seek to contest the character of these other effects in general terms, but proposes that, in the context of the relatively significant scale of this mining investment in many African economies, there is some benefit in drawing out possible local economic impact trajectories. This is done, in part, through looking at three levels of settlement associated with mining: that around the combination of large-scale mining and artisanal mining locations; that of large-scale regional service towns (or cities) that are located in regions with a concentration of mining activity; and finally that of primary national economic hubs. From a conceptual perspective the article will begin with a discussion of FDI effects in a national economy. This will be followed with an exploration of some case material about the domestic economic linkages of mining FDI projects that have been reported on in some contemporary studies. The article will then conclude with some pointers around policies that might be of use in potentially improving the economic prospects of a variety of settlement types.

Inward foreign direct investment and economic impacts in developing countries

Perspectives on the impacts of inward FDI in developing countries reflect a wide variety of views including those which talk to a range of benefits as well as costs that might arise (Blomström and Kokko, 1997; Hanson, 2001). Much of this analysis has focused on fiscal and regulatory matters such as taxation or on macro-economic factors such as those related to the GDP, balance of payments or export performance. However, there is also a considerable body of literature exploring more discreet impacts such as those relating to the spillovers around skills or business processes that might accrue, and have in some cases been demonstrated, in the context of inward FDI.

On the benefit front, attention is often given to the gains a country’s current account (often under stress in developing countries) might receive from the inflow of capital as well as from enhanced foreign exchange earnings related to exports. Others have also sought to measure general economic impacts from enhanced local expenditure in direct terms (such as purchasing of inputs) and indirect terms (second round expenditure effects such as business services or transport suppliers). Studies have also reported on possible ‘spillover effects’ from such projects which might include enhancements arising from an injection of new skills or technology that could have ripple effects beyond the FDI firm itself – either through purposive action (a contract with a supplier involving training) or through more informal effects (such as an FDI firm ex-staff member starting their own business) (Blomström and Kokko, 1997).

The character of linkages between FDI firms and domestic enterprises, or the muted character of such linkages, has been widely discussed (Blomström and Kokko, 1997; UNCTAD, 2010). The prospect of such linkages has often been used as part of a case for how: ‘Foreign investment can result in benefits for host countries …  For instance, local firms may be able to improve their productivity as a result of forward or backward linkages with MNC affiliates … ’ (Blomström and Kokko, 1998: 2). In support of this, influential policy makers have argued that: ‘business linkages represent one of the best ways for SMEs to enhance their competitiveness … ’ (UNCTAD, 2010: 9). In this regard, it has been argued by some authors that important sectoral and value-chain variations can be noted where firm strategies, particularly those of the most influential value-chain players, can have a considerable impact on what arrangements transpire where different elements of production and servicing are distributed across nations and continents (Gereffi et al., 2005).

As has been mentioned, there is also a wide variety of literature pointing out negative effects ranging from social impacts, such as where there are displaced communities and also extensive commentary on environmental costs (Fisher, 2007; Kitula, 2006; Pegg, 2006; Viega et al., 2001 reflecting on mining in particular). It has also been pointed out that in some cases FDI projects displace existing economic activity in direct terms or generate business environment challenges for domestic firms as they crowd in dedicated public expenditure and services (for example drawing more power from the grid, leaving domestic firms with power cuts). Authors such as Jenkins (2005) have also cast doubt as to the extent to which programmes such as those related to corporate social responsibility (CSR) have any meaningful impact on problems of poverty in developing countries.

Critics have also pointed out that there has been much evidence of TNCs avoiding formal linkages out of concern that such relationships might present a variety of risks compared to tried and tested relationships they might have in other markets (Castel-Branco, 2004). It has also been suggested that in some cases TNCs might displace local enterprises through bringing to bear economies of scale or through anti-competitive market practices if host governments do not have access to policy instruments to strengthen domestic firms (Chang, 2003). Others, such as Globerman and Shapiro (2002) point out that countries with weak governance systems are also likely to see weak FDI effects.

Much of this literature generalises about FDI impacts as a broad category with mining often seen as an exception, categorised under the ‘resource curse’ perspective which would suggest that mining FDI impacts might have some short-term benefit but often reinforce problematic tendencies such as exposure to commodity cycles and undermining other forms of investment. For example, Morris et al. make reference to Sachs and Warner’s (1997) study concluding that: ‘resource abundance, measured as the ratio of primary commodities exports to GDP, was negatively correlated with GDP growth’ (cited in Morris et al., 2011a: 9).

Although mining investment in developing countries is not particularly well covered in these discussions, Morris et al. (2011a) do report on the dominant reflections about often weak impacts of mining FDI on domestic productive capacity, pointing out that: ‘it is widely believed that the exploitation of commodities and industrial development do not go hand-in-hand, particularly in low income countries and economies which are heavily dependent on the export of natural resources’ (p. 6). Interestingly, these authors suggest that this tendency to view the sector as often bypassing interactions with domestic productive capacity needs some reassessment on the basis of their discussion of case material from a number of African countries which suggests that some benefits do accrue to local firms and that there is scope in firm strategy and government policy to enhance this (Morris et al., 2011b). The authors suggest that: ‘there are reasons to question the “hard version” of this conventional wisdom, partly because it misreads history, and partly because of profound changes which are now occurring in the global economy’ (Morris et al., 2011a: 6).

Settlement and mining FDI economic impacts in selected sub-Saharan African countries

In order to link the discussion of FDI, and more specifically mining FDI with particular geographic spaces, it is worth exploring some of what has been written about these interactions. Boserup (1985), in reporting on African economic and demographic interactions, sometime before the more recent boom in mining-related investment, makes the point that despite the enclave character of colonial and post-colonial mining activities they have nonetheless had a lasting impact on settlement patterns and processes in that they did influence migration and production. However, she also states that in many cases, excluding what are viewed as exceptions in the form of the Witwatersrand and the Zambian Copperbelt:

The population in each town and enclave was too small to make industrial production economical, and the large under-developed regions that separated them prevented creation of larger markets. The mining towns did not, as they do in more developed and densely populated regions attract processing industries, except for some crude processing of ore by the mining companies. … The level of urbanization is lower than in other parts of the world; most towns are still mainly service towns, separated by large rural areas with poor, if any, transport facilities. (Boserup, 1985: 385)

Also writing with a demographic angle, Bryceson and Yankson (2010) reflect further on more recent urbanisation patterns. They note that that the bulk of countries in Africa have seen, during this time, a steady growth in the share of total population living in urban settlements. Whilst this cannot be ascribed to mining investment alone, it and other forms of FDI are cited as reinforcing processes of urbanisation. In this regard it becomes important to enquire about the degree to which these processes are also associated with shifts in spatial patterns of economic activity. Although urbanisation is widely associated with rising economic output, the place of mining activity in this association is not that well reported on. Economic geography approaches, such as those pointing to agglomeration effects arising from a concentration of economic activity in space (most often urban), have further influenced perspectives that what economic gains are to be had from mining investment in more remote areas, are more likely to accrue in a narrow band of existing dominant settlements rather than in remoter mining regions themselves (see for instance World Bank, 2009). Although the World Bank (2009) points out that various anti-urbanisation policies, promoted by some governments, might have weakened agglomeration in both primary and secondary cities.

Whilst there are some very important cases of major mining activity being spatially co-located with major present-day economic development conurbations such as Johannesburg or the wider Witwatersrand, the bulk of mining investment in the past two decades has tended to be one of mines often located somewhat remotely from primary urban settlement centres. In much of Africa this has been aggravated by the fact that for most of the past century countries displayed a relatively low density of mining operations. The Gold Coast in Ghana, along with the Copperbelt in what is today Zambia, as identified by Freund (2007), provide examples of higher concentrations of mining activity co-located with significant urban settlement, although at a much smaller scale than the agglomerations of economic activity that Johannesburg has demonstrated. It is for this reason that, with reference to the past, Freund has argued that: ‘Some towns and cities developed as sites of capitalist production particularly in the case of mining operations’ [author’s emphasis] (Freund, 2007: 65). Interestingly Freund goes on to suggest that of greater influence in these 20th-century patterns of African urban settlement was that of centres of colonial administration and refers to these as ‘Primate’ cities that: ‘attracted both rural migrants and outsiders to the continent towards capital cities which contained the greatest variety of new services’ (Freund, 2007: 67).

In a raft of recent writings on mining in Africa, considerable attention has been given over to discussions of artisanal, or what in Ghana’s goldfields are called ‘galamsey’, mining (Banchirigah and Hilson, 2010; Fisher, 2007; Hilson, 2009). This refers to small-scale, most often informal, mining that takes place around areas with deposits of mainly higher value minerals and gems. As Hilson (2009: 1) points out:

In Ghana, for example, as many as one million people (or in the range of five percent of country’s population) could be directly employed in the sector (Banchirigah, 2008). The employment estimates presented for a number of other countries, despite being outdated in many instances, further underscore the sector’s growing economic importance in rural sub-Saharan Africa: Tanzania, 500,000 (Fisher, 2007); Mali, 200,000 (Keita, 2001); Burkina Faso, 200,000 (Gueye, 2001); and Sierra Leone, 500,000 (Maconachie and Binns, 2007).

Often these concentrations of artisanal mining are associated with some significant settlement over and above that noted by Kitula (2006) around formal large-scale mining operations, which the author notes attract migrants as job seekers, the families of miners and those seeking to make a living off raised spending associated with mining employment. In a number of cases it has been reported that the growth of settlement from work seekers and artisanal miners has significantly increased the scale of existing proximate settlements too. Bryceson and Yankson (2010: 192) emphasise this point, stating that: ‘High-value minerals and gemstones – gold or diamonds – are superb catalysts for capitalist enterprise, long-distance trade and urbanisation processes’. The authors go on to point out (pp. 192–193) that:

the high value of mineral production relative to local agricultural output and the in-migration of mine labourers with the multiplier effects of the service sector that springs up around them catalyse the population growth upon which urban populations, urban divisions of labour and urban exchange relationships congeal.

Over and above the suggestion that artisanal mining around some higher-value commodities holds out some potential for deepening economic processes in existing or emergent urban nodes, it is also worth examining some recent research that has proposed that the economic impacts of mining investment in developing countries in Africa deserve another look. For example, Morris et al. (2011b: 1–2) conclude that:

contrary to the widespread belief that commodity-exploiting lead producers sought to promote enclave import-intensive activities, the reality is that lead commodity firms have strong incentives to increase the level of outsourcing in general, and near-sourcing in particular in their non-core activities. This provides a substantial opportunity for a win-win alliance between lead commodity firms, existing and potential suppliers, national governments and supporting institutions.

These authors, reporting on their multi-country study, discuss some extensive case study research capturing a variety of host country impacts, including some where these impacts are reflected on in terms of how they intersect with settlement dynamics. For instance, the report on the Gabonese hardwood export industry (Terheggen, 2011) talks to specific policies within certain import market regions that influenced the development of a degree of deepening of production capacity for sawn timber within Gabon’s capital, Libreville. Mbayi (2011), points to nascent efforts by policy makers in Botswana to deepen linkages, particularly forward linkages in the form of grading, cutting and polishing of diamonds in the capital, Gabarone. Within the same research project, Mjimba (2011), writing primarily about the experience of gold mining in Tanzania, points to a range of linkage activity – primarily backward linkages – that have become a feature, albeit a relatively limited one, of a some of the dominant foreign-owned mining companies. These studies also suggest spillovers in skills development, and in some knowledge services that have emerged as the scale of operations has begun to justify some measure of localisation choices by mining companies and their larger suppliers in operations.

Perkins and Robbins (2011) report on intentions in both Tanzania and Mozambique to secure deeper spatial impacts of major mining projects by integrating these with renewed infrastructure investments along major transport corridors linking major port cities with hinterland areas. Modelled, in part, on the success of the Maputo-Johannesburg corridor initiative, this involves a combination of institutional facilitation and programmed investment with the express purpose of leveraging economic opportunities at either end of the corridor and at key nodes along its route. Whilst the authors note that this has not gone much beyond planning in Tanzania, it is being enthusiastically adopted as part of the framework linking the major Tete coal mining area with the Mozambican coast, initially at Beira and later through the proposed deep-water port facilities at Nacala. Advanced planning, including that of multi-national companies such as the Brazilian company Vale (CVRD) point to the imperative to secure settlement development opportunities to allow for a more sustainable model of mining-influenced development than that which might have prevailed in the past. Here it is noteworthy that the authors suggest that strategies of different multi-national corporations can be an important determinant on the character both of very localised impacts and of those that have relevance on a country as a whole.

Also of interest, in the above-mentioned body of case studies, is material by Bloch and Owusu (2011) reflecting on the experience of the Ghanaian gold mining sector – the second largest producer of gold in Africa. Early in their report the authors cite a two-decades old document of the Bank of Ghana Research Department in which it was argued, at the time, that the country’s mining sector had little impact other than that of generating foreign exchange (Bloch and Owusu, 2011: 10). However, in reporting on the more recent experience of the gold mining sector, the authors, point to a growing set of backward linkages around a wide range of supplies, including that of some higher skill service supplies that has some significance in the wider Ghanaian economic context. This is in contrast to the work of Larsen et al. (2009), also cited by Bloch and Owusu (2011), which pointed out that, at least in terms of firms owned by Ghanaians, there was little in the way of forward and backward linkages to speak of.

Bloch and Owusu (2011) argue that there is value within the domestic economy in also exploring linkages beyond a narrow ownership lens. In this regard they discuss the absolute level of business directed to enterprises operating within Ghana (regardless of ownership) and the distribution of such in spatial terms to examine, inter alia, the degree to which the enclave thesis might still apply. First, they highlight that: ‘consumption linkages, although difficult to measure, can also be seen to be expanding, as incomes from increased mining activities flow through mining communities, stimulating new business activities’ (Bloch and Owusu, 2011: 38). Second, they also argue that there is growth in important categories of backward linkages and suggest that: ‘The most significant recent development has been the emergence at national level of a mining inputs cluster of firms which supply and service both producing and exploration mining companies across the country’s various mining communities’ (Bloch and Owusu, 2011: 39). Third, and of particular interest to this study, is the authors’ reflection on the spatial distribution of these linkage activities and their highlighting, that contrary to just being supply or dispatch points, the cities of Accra and Tema have developed an array of activities and conclude that: ‘The cluster appears to be strengthened by localisation economies as knowledge and information, labour supply and subcontracting opportunities are shared, and a platform for lobbying government is created” (Bloch and Owusu, 2011: 39).

Despite the worsening global economic climate in the post-2008 period, high levels of exploration and relatively high levels of capital investment have been sustained in many parts of the African continent. Of late this might have been more biased to the hydrocarbon sector as numerous countries such as Uganda, Tanzania and Mozambique secure exploration and development deals. However, the issues remain pertinent for these and other countries where mining investment, generally from foreign companies, will dominate the economic landscape for some time to come. Beyond the hydrocarbon investments, new mining processes, such as those relating to mineral sands exploitation along the African east coast, as well as investment interest from growing economies of Asia in sustaining gemstone demand are also pressing for regulatory approval from governments. Whilst it is undoubtedly true that some of these operations can take place with minimal investment commitments to a locality and be designed with limited planning for local linkages, a growing intensity and scale of operations in many regions has, and will continue to reveal new sets of impacts across the spectrum discussed.

Some policy considerations around urban economic development and mining investment

From this rather limited evidence base it nevertheless does appear that there is a case for stakeholders, at all levels, to look more seriously at prospects for enhanced economic impacts from mining across a range of localities, from the immediate mine precincts, to regional service towns and ultimately at the level of major economic hubs. The Ghanaian experience demonstrates that a critical mass of mining activities, developed in a country over time, can also be associated with a slow but meaningful development of local capabilities and firms operating within the domestic sphere (even if they are foreign owned). For a variety of reasons, including the access to better infrastructure, a stronger human resources platform and global connectivity, this can often be concentrated in a major city rather than in a mining locality. Policies should thus appreciate the scope that exists to, over time, through sustained action, support a network of mining services as well as deepen benefits to localities. Considering the track record of many mining companies and the often weak governance frameworks in the countries they operate in it is likely that this: ‘will require attention at the level of international trade organizations and decision-making bodies; they will involve financial institutions, governments, non-governmental organizations, and mining associations’ (Veiga et al., 2001: 201).

The indirect gains that come from a growing profile mining activities, often spread across a number of sectors and localities, would include not only these mining-type services but also construction, engineering and metal working, should the appropriate linkages between mining companies and domestic-based enterprises be supported. Furthermore, there is also evidence that suggests that a process to cultivate greater levels of downstream processing, such as has been noted in the Zambian Copperbelt and in the Witwatersrand areas is associated with deeper locality impacts around employment, investment and innovation than in cases where such downstream activities are limited or non-existent (Fessihae, 2011; Kaplan, 2011).

It is also worth noting that some studies have reported on a growth in the diversity of activities associated with potential mining investment value chains (Viega et al., 2001). For instance, rehabilitation of mined areas is now far more common than it was even a decade ago and this could in turn be associated with a growing demand for a range of local services that would have not featured prominently in the past. Scope also exists to develop potential economic activities related to environmental and public health management during a mines operational phase which could support labour-intensive demand in a variety of skill categories. Companies such as AngloGold Ashanti and African Barrick Gold reflect in their annual reports and on their corporate web pages on the growing imperative to manage parallel investment streams into alleviating negative social and environmental impacts, and stimulating positive social and economic returns from their activities. However, it is also worth appreciating that in some less secure fields of operations, for example the eastern Democratic Republic of Congo, investments in security infrastructure and services often tend to far outweigh these other dimensions.

Closer to the mining locales, regional or district centres also have scope to host some service and production activities associated with mining. Satterthwaite and Tacoli (2003) point out that in the past these centres have often been viewed exclusively in terms of their roles in servicing the agricultural sector. A more diversified approach to encouraging other economic activities could help reinforce their longer-term economic prospects. Examples exist, for instance, of the benefit of the development of technical colleges that provide a supply of an appropriate mix of skills to the high-labour-turnover mining sector. These centres can also gain from the growth in demand associated with formal mine purchases as well as from the economic diversification associated with a stronger pattern of wage income and expenditure in a region. Should the density of mining operations grow in a region, the prospects to secure some of the benefits are likely to grow. In the more immediate surrounds of mines there is often the development of some significant settlement, which can in turn support a growing diversity and scale of local economic activity.

The taking advantage of some of these opportunity streams is by no means guaranteed for various localities. Mining companies can often be resistant to deepening their engagement with local or national economic processes beyond the bare minimum. Governments at a national level often struggle to see beyond the debates on taxes, royalties and macro-economic impacts, thus letting other opportunities pass by. Municipal level actors, be they local government structures or others are often too weak to too distracted by other obligations to make commitments around the upgrading of infrastructure associated with a profile of economic activities related to mining. They also show some resistance or a lack of capacity to enhance local regulation to support a measure of planned development to deepen their integration with mining related benefit streams, or often even to respond to negative impacts of mining.

National level governments often aggravate these shortcomings through inadequate support to localities. Here it is worth noting Satterthwaite and Tacoli’s (2003: 50) statement that:

policies intended to support more successful ‘local economic development’ outside the larger cities, including those to support small and intermediate urban centres, need to ensure that they are not being undermined by the structure of government and the ‘non-spatial’ policies and priorities of higher levels of government.

Whilst cases illustrating this are few and far between, the imperative to work towards a better set of locality specific outcomes remains one requiring attention, in a context where mining activity is unlikely to be curtailed. On the African continent the nascent efforts being made to generate deeper downstream connections need to be accelerated and deepened. Lessons associated with both the success and failures, whether it be in the highly contested platinum mining areas in South Africa, in Botswana’s diamond sector, or in remote gold mines in north western Tanzania need to be evaluated. These evaluations need to inform ongoing policy development as well as scrutiny into activities underway. This could help ensure actors can see beyond the often shallow efforts that characterise mining corporation, government and even donor actor agendas with regard to the sector.

Other regions of the world have also struggled with these challenges and some benefit might be found in exploring lessons learned. For example, Storey (2001) points to the ‘adjacency principle’ which has been adopted in many Canadian mining sites whereby surrounding communities are prioritised in terms of employment and enterprise opportunities related to mining activities. Veiga et al. (2001) also suggest that there is much to be learned from the Canadian experience where regional development impacts, with specific reference to mining, have been part of the government policy agenda and were also encouraged through negotiated processes with mining companies. These authors also make specific reference to the need for different spheres of government to also ensure that forms of regulation related to heath and environmental matters are attended to, as it is often these issues that generate a net negative impact in mining communities and are often sustained long after mines close (Storey, 2001; Veiga et al., 2001).

Conclusion

It is undoubtedly true that: ‘Mining is an unpredictable driver of urban settlement’ (Bryceson and Yankson, 2010: 195) One might add to this that it could also be rather unpredictable in terms of the spatial pattern of its economic impacts. However, in a context where for many countries, new injections of investment are both desired and often concentrated in a only few activities, there is a case to explore economic gains that could be associated with these activities beyond the standard fields. All too often these potential gains are discussed with inadequate reference to spatial elements and are compromised by fragmented actions and low levels of commitment.

Africa continues to urbanise around a range of settlement typologies and it is important that the actual and potential localised economic impacts of an investment source as central as that related to mining be subject to scrutiny. Even on the more informal end of the mining spectrum – in terms of artisanal mining – there are a range of benefit streams that are helping create what Jane Jacobs (1970) described as new forms of work in settlements both proximate to and remote from actual mining operations. It has often been the case that observers write off some of these emergent, and perhaps at times illusive, streams of impact as mere short-term effects that could just as easily disappear. However, in a context of higher urbanisation than might have been the case in previous eras of mining investment across the continent, these impact streams are likely to have more traction as processes around larger scale mining endeavours become more embedded, not just in local economies but also in government policy and corporate strategies. The mining experience for many countries and communities has often been one that has generated much controversy over well-documented negative impacts. It is therefore imperative that generating deeper and more widespread economic gains from mining-related foreign direct investment be part of attempts to ensure some progress is made towards sustainability.