In Africa, business makes for a better society

Development continues to be a significant focus of New Labour’s approach to international affairs.  The government’s approach to Africa and sustainable development have been important in creating a new enthusiasm for engagement with what can appear to be intractable issues.  The work of the Commission for Africa provided us all with a well researched and considered set of ideas and priorities around which to focus work in the future.

Since 2005 investment into Africa has continued to increase.  But interestingly, though the public sectors across the developed world have struggled to maintain their commitments, the private sector has taken on a renewed interest.

The global economic boom has kept both demand and prices for commodities high.  That is good for Africa. It is private sector investment and activity that has helped raise  millions of people out of poverty across the world, most recently in China, India and South East Asia, albeit at a rate that is not fast enough.    

As the Commission for Africa report spelt out, the need for infrastructure investment and wider economic capacity building is essential if Africa is to benefit from the growing world economy.

Without investment into supportive transport infrastructure, large scale mining projects cannot be developed. But who should build the necessary ports, roads, rail, power and water networks?

Without proper business plans that go beyond mining, private investment is less likely to spur wider economic activity — indeed it can deflate other economic activity as resources of capital and labour move from traditional industries to a booming mining sector. Mining has seen this happen before and now brings a lot of experience to bear on it.

 No-one wants to see a repeat of past mistakes.  When mining operations need to scale back, as resource depletes or the market cycle turns, as it invariably will, companies want to be able to do so in an environment where other economic opportunities are available to employees and the communities from which they come. Here both communities and companies need sustainable development solutions.  

The lack of strong governance, poor accounting, and revenue flows that divert investment from the revenue generating locale to influential elites and their key constituencies are problems that need addressing.  The lessons here are clear, and plentiful.  The consequences are instability for the developing country and risk to the sustainability of the company’s operations.  In worse case scenarios conflict can arise.  So business has no choice.  It has to engage positively to ensure that the consequences of its investment are beneficial and equitable to the communities in which it operates.  

So what does a good partnership look like?  Here is a case study based in Madagascar, one of the poorest places in the world, even by African standards, with average income  around US$200 a year.  

In  one of the poorest areas of the country is a world-class deposit of ilmenite, a titanium and iron-bearing ore.  The potential for a large scale mining project and the future of the region was huge.  

But a major barrier to development was that the viability of the mine was dependent on a deep-water port and associated infrastructure. The cost of this essential infrastucture jeopardised the economic viability of the project.  As Rio Tinto, the mining company looking at developing the ilmenite deposit, was exploring its options, the World Bank was also drawing up a regional development plan for Madagascar that included the development of mining in the same region. The World Bank plans had already identified the need for multi-use port development in the region, as well as further investment in infrastructure.

Rio Tinto and the World Bank recognised the synergies between their plans and worked out a partnership whereby, as long as the whole project demonstrated broad economic benefits, the Bank would contribute to the port’s financing. A business plan had to be developed that did not just focus on the profitability of the mine, but brought prosperity to a much wider community of interests.

An independent regional development committee was established representing local stakeholders. The committee was asked to identify and prioritise extra infrastructure investment that would best contribute to unlocking the economic potential of the region, focussing on transport, agriculture, fisheries, forestry and tourism.

The committee’s work set out the potential for the region’s economic development through synergies between the port, mine and other economic activities going well beyond mining.  

The World Bank backed the report and has committed substantial funding towards the required port development; it co-operates with Rio Tinto and the government to improve water and power supply and refuse collection. World Bank investment was complemented by Rio Tinto’s community investment in areas such as HIV/AIDS programmes and micro-enterprise development.  

With the infrastructure deficit addressed, and a package of measures to secure the sustainability of the project, Rio Tinto was able to commit the substantial investment needed to develop the mine.

A good deal for everyone: south-eastern Madagascar has a regional development plan, international aid and investment flows and a long-term partnership between the national government, a global corporation and a global institution. Local literacy, employment and small business programmes as well as improvements to agricultural and fishing methods have begun.

Working together, private business and public bodies can make things happen.

Alexander Howard writes on corporate responsibility and the interface of the public and private sectors.