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Africa: Reviewing the Bank

AfricaFocus Bulletin
Sep 27, 2004 (040927)
(Reposted from sources cited below)

Editor's Note

As the International Monetary Fund and the World Bank gather for their annual meetings on October 2 and 3, World Bank reports not yet released are said to indicate a continued failure of the Heavily Indebted Poor Countries (HIPC) program to provide debt sustainability, even by the Bank's own criteria. The U.S. and British governments are reported to have two competing plans for writing off more of the debt owed by the poorest countries.

African countries and debt relief campaigners are watching closely to see if any significant new debt cancellation will result from decisions in these meetings. However, campaigners and critics also are taking advantage of this 60th "unhappy birthday" of the World Bank to detail other critiques of the two giant international financial institutions which play such a prominent role in Africa.

Today's Bulletins highlight two such critiques. This issue includes an essay by an analyst at Third World Network Africa, focused on the World Bank's Extractive Industries Review, one of a series of multi-year exercises in which the Bank has engaged with critics and outside reviewers only to end up rejecting their advice. Another issue sent out today includes excerpts from a new report from several Washington-based groups highlighting the contradiction between IMF-imposed guidelines on government budget policies and the need to commit adequate resources to combat the HIV/AIDS pandemic.

For additional references to previous issues of AfricaFocus Bulletin on related topics and to other sources, see the links at the end of this Bulletin.

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Many thanks to those of you who have already sent in your voluntary subscription payment to support AfricaFocus Bulletin. If you have not yet made such a payment and would like to do so, please visit http://www.africafocus.org/support.php for details.

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Ignoring the EIR {Extractive Industries review): How Industry, Government and the Bank Chose Profits over People

Abdulai Darimani*

Pambazuka News
http://www.pambazuka.org/index.php?issue=174

* Abdulai Darimani is Programme Officer, Environment Unit, Third World Network-Africa. This is an edited and updated version of an article that was published in African Agenda, Issue volume 7 No.3, 2004.

[See http://www.africafocus.org/docs04/wb0404b.php for additional background and links on the Extractive Industries Review.]

Mining always seems to have had an exploitative nature, representing massive wealth for some and grinding poverty for others. Take the case of gold mining in South Africa, where under apartheid enormous profits were made by wealthy mineowners while their workers toiled underground for low wages, only to be sent home to die when they developed occupational diseases. The World Bank's Extractive Industries Review (EIR) was supposed to change all of this, but any hope that it would fizzled out last month with a few outraged NGO press releases. Bank management had met and failed to adopt the recommendations that would have placed people over profit.

This year marks what many activists have dubbed the unhappy birthday of the World Bank and International Monetary Fund. It is 60 years since the creation of these institutions in Bretton Woods, New Hampshire, and in that time period both have come to have a profound and controversial influence on the world. Pambazuka News is profiling a series of articles that aim to examine the role of these institutions in the context of Africa. This week in our Comment and Analysis section we carry the fifth article in this series which looks at Extractive Industries Review of the World Bank. Abdulai Darimani from Third World Network Africa explains some of the political machinations that conspired against the adoption of the review's recommendations.


The Extractive Industries Review (EIR) final report was particularly critical of the World Bank's role in policy reforms in the extractive industry sector which have led to negative impacts on communities, the environment and human rights abuses and recommended that the bank radically change its approach to funding such projects and even stop supporting some.

The President of the World Bank Group Mr. James Wolfenson set up the extractive industries review (EIR) secretariat under the Chairmanship of Dr. Emil Salim, former Environment Minister of Indonesia. The EIR secretariat was tasked to assess the impacts of the World Bank Group's intervention in the extractive industries, and to recommend its future role in the oil, gas and mining industries. The secretariat was specifically tasked to identify the negative impacts of the Bank's operations in extractive industries; assess whether the Bank's activities in these sectors can advance its mandate of poverty reduction through sustainable development; and recommend whether, or under what circumstances, the Bank should continue to support extractive projects.

The review, a consultative process that included regional workshops, research projects, visits to four project sites, attendance at international conferences and informal consultations with a range of rights holders, released its final report following the final consultative meeting in Mid-December 2003. The report affirmed the criticisms and concerns long expressed by African civil society and many other groups across the world.

The recommendations demanded that the Bank adopt significant reforms including doing more to reduce poverty; immediately ceasing funding for coal projects worldwide and phasing out its support for oil production by 2008; enhancing human rights protection; prior informed consent for indigenous peoples and communities affected by extractive sector activity; and an end to support for destructive mining technologies.

The report also recommended that the Bank should prepare and publish net-benefit analyses; update and fully implement the Natural Habitat Policy as a basis for clear No-Go-Zones, and should not finance any oil, gas or mining projects or activities (including through policy lending and technical assistance) that might affect existing World Heritage properties, current official protected areas, or critical natural habitats or areas planned in the future to be designated by national or local officials as protected.

Some African governments and mining industry representatives and their associations viewed these recommendations with scepticism, calling them anti-development indicators for mineral-endowed African countries. During the consultative process some governments and industry tried to water down many of the progressive recommendations. However, facts could not be beaten and African civil society and their global colleagues worked hard to retain them in the report.

In the past years, the World Bank Group (WBG) have promoted extractive sector reforms in Africa through support in trade and investment liberalisation; privatisation of state-owned companies; institution and capacity building; apparently to improve conditions for foreign direct investment in the extractive sector; and direct finances of private sector extractive industry projects through equity investments, loans and guarantees.

The World Bank affiliates have helped fund major but highly controversial private sector extractive projects in Africa. In the oil/gas sector the Bank supported the Chad-Cameroon pipeline project. In the mining sector, the Bank has supported highly-controversial projects in Zambia, and Tanzania. Former artisanal and small-scale miners from Tanzania claimed that a Canadian company and the Tanzanian authorities forced tens of thousands of villagers away from the site of the Kahama Mines in the Bulyanhulu gold tract in 1996. The Multilateral Investment Guarantee Agency (MIGA), a private guarantee arm of the World Bank Group, supported this project three years later.

Early this year, a group of African Ministers of Mines meeting in Johannesburg, South Africa, expressed misgivings about the recommendations of the EIR final report. They called on the World Bank not to adopt all the recommendations of the EIR final report, which they believed could spell disaster for mineral endowed poor countries banking on mining projects in these sectors for development.

The Ministers were reported to have indicated that the EIR final report had not given sufficient consideration to the fact that the extractive industries are essential to economic growth and poverty reduction, and that for some countries the extractive industries represent a very important means of creating revenue for government programmes. The ministers also expressed concern about the precondition of WBG investment in countries that have robust and transparent governance criteria in place. They believed that a country's inability to meet WBG governance criteria should not prevent that country from gaining access to the support, both financial and structural, that is required in order to develop such governance mechanisms. Otherwise, countries that are most in need of such developmental assistance could be excluded and would either remain mired in poverty or find less desirable paths to develop their extractive potential.

Two reasons could have influenced the ministers to present this view. The first is a response in self-defence. The second is the apparent influence from industry and their home governments. For a very long time, the extractive sector in Africa has been one of the areas for endemic corruption and abuse of power. The endemic corruption in the sector benefits those in power and the rich while marginalising the poor and local communities.

The unequal distribution of benefits also explains why many governments in Africa continue to supervise the abuse of community and citizens rights, lowering of standards and net benefits of mining, oil and gas extraction on the continent. The EIR recommendations were a signal not just to the World Bank but also to all major players in extractive industries to put an end to the corruption and abuse of power. Even more so implementation of the recommendations would have set the stage for up-scaling similar recommendations for governments, which would have meant ripping governments of their dictatorial powers and minimising corruption in the sector.

The view of the African ministers was echoed by mining companies and mining industry associations, in particular the London-based International Council on Mining and Metals (ICMM) and the Mining Industry Associations of Southern Africa (MIASA), which groups chambers of mines from Botswana, Namibia, South Africa, Tanzania, Zambia and Zimbabwe.

These bodies argued that many of the recommendations in the EIR final report were not based on sound research and would, in fact, inhibit poverty alleviation and sustainable development. Mark Moody-Stuart, who served as a member of the EIR advisory group during the second half of last year, expressed the view that the net effect of the EIR final report's recommendations would be a virtual disengagement of the World Bank from mining, oil and gas.

The ICMM expressed concerns at the proposed governance prerequisites for World Bank investment, which included the quality of the rule of law and the absence of conflict or even risk of conflict. The Council believed that these could be too demanding even for developed countries. The South African Chamber of Mines CEO Mzolisi Diliza shared the ICMM's concerns. Writing to the World Bank President, James W÷lfensohn, on behalf of MIASA, he noted that much of the content of the EIR report undermined the legitimate role of governments.

They all concluded that adopting the EIR report's recommendations in their entirety would result in a massive reduction in foreign direct investment going to emerging markets, for which extractive-industries projects are sometimes their only available path to development. This is all industry rhetoric and manipulative tactics rooted in the narrow conception that the only path to economic development is foreign direct investment in the extractive sector. The current paradigm of mineral resource extraction does not benefit mineral endowed African countries. While foreign direct investment in extractive industries in Africa has increased over the last two decades poverty has not reduced, if at all poverty has increased in those countries.

Southern Africa is noted for its mineral potentials and its long historical association with mineral extraction, yet the region's human development record has not improved. According to the 2003 edition of the United Nations Development Programme's Human Development Report, an estimated 20-million people - or 19% - of the total population of the six MIASA countries live on less than a dollar a day, while 47-million people - or 44% - live on less than two dollars a day. The current paradigm of mineral resource extraction in Africa is therefore exploitative.

Why was industry so concerned about the World Bank pulling out of extractive industries when the Bank provides less than 5% of the financing required for projects in the mining, oil and gas industries? It sounds amazing how when threatened the industry suddenly became the greatest advocate of the poor when ICMM's Kathryn McPhail (who used to research for the Bank) said: "What worries us most are not the implications for the mining industry as such, but the implications for development in emerging markets". This argument was carried on by a letter from the Equator Banks, an investment group to the World Bank that says: "We believe that the EIR has not given sufficient consideration to the fact that the extractive industries are essential to global economic growth and poverty reduction."

Two reasons explain why industry was concerned about the EIR final report's recommendations. First, the decision could be emulated by other financial institutions' withdrawal from the sector, which would drastically shrink lending to industry. Secondly, and even more important, was the fear of diminishing influence of the Breton Woods institutions on host governments' policies and practices which are critical to ensuring low standards for industry. The World Bank influences the development strategies and practices of developing countries by making them compromise their economic policies, investment regulations, and projects that benefit large transnational corporations.

The United States government is by far the most influential force in establishing the priorities of the World Bank. It can veto any significant shifts in policy and by custom appoints its president, who is usually a product of the financial sector. Given the new American imperialist offensive, under the so-called war on terror, the US has thrust Africa's extractive resources forward as a prize to be controlled as it seeks alternative sources of oil. Along the Gulf of Guinea now referred to as the "New Persian Gulf" the United States aggressively seeks military bases. Under these circumstances, it is not surprising that some African governments worked with the World Bank to roll back the progressive recommendations of the report.

Despite support for the recommendations made by the EIR gaining momentum worldwide, the Bank's board decided in August to act on very few of the recommendations made in the report. It thus failed to change the way the Bank does business in Africa, missing an opportunity to show a genuine commitment to respecting human rights and the needs of communities affected by extractive industries. Considering the World Bank's own vested interests, the opposition of powerful industry players, the complicity of African governments and the existing global political climate, the decision came as no great surprise.


Previous issues of AfricaFocus Bulletin on related topics

Apr 13, 2004 Africa: World Bank Industry Review
http://www.africafocus.org/docs04/wb0404b.php

Apr 13, 2004 Africa: World Bank Protests/Policy
http://www.africafocus.org/docs04/wb0404a.php

Jan 16, 2004 Africa: Oil and Transparency
http://www.africafocus.org/docs04/oil0401.php

Additional Recent Related Documents and Sources

"The International Monetary Fund and World Bank in Africa: a 'Disastrous' Record",
by Demba Moussa Dembele, Director, the Forum for African Alternatives in Dakar, Senegal
Pambazuka News
http://www.pambazuka.org/index.php?issue=175

An overview of the critique of structural adjustment and poverty reduction policies.

Operations Evaluation Department, World Bank
http://www.worldbank.org/oed

IFIwatchnet
http://www.ifiwatchnet.org

Bank Information Center
http://www.bicusa.org

Structural Adjustment Participatory Review International Network (SAPRIN)
http://www.saprin.org

World Bank Bonds Boycott
http://www.worldbankboycott.org


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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