Malawi’s new govt must ensure the people – not MNCs – benefit from its mineral wealth

In 2007, the Malawi government licensed the Australian and Canadian registered mining company Paladin Africa Limited to open Malawi’s first uranium mine.

As the first foreign company to get a mining license in the country, Paladin Africa’s general manager Greg Walker called his company a “path finder”.

Today, the Kayelekera mine in Karonga, northern Malawi is the largest in the country although since then, the government has issued no less than 26 mining licences across the country, including licences to explore for rare earth minerals.

Mining has the potential to turn around the economic fortunes of Malawi, a small southern African country of approximately 15 million, which for the past 50 years has relied heavily on tobacco, sugar and tea as its chief export commodities.

Last year, the Financial Times reported that Malawi’s extractive industry was so promising that it could become Africa’s largest rare earth elements producer.

The article further observed that if managed efficiently, proceeds from the industry could produce significant socio-economic benefits for the southern African country which – with a GDP of US$4,264 billion per capita – is frequently cited as one of the poorest on the continent.

But the experience with Kayelekera suggests that Malawi, like many other African countries, still has a long way to go before its mineral resources translate into economic wealth for its entire people.

Earlier this year Paladin Africa announced suspension of operations at Kayelekera, citing low uranium prices on the global market following the Fukushima nuclear disaster in 2011.

It was the final blow in a controversial deal that had come under harsh criticism from the start.

As well as concerns over contamination and radiation-related health issues, local activists and the general public were also outraged that Paladin, which was granted a 12-year concession to run the mine, had never declared any profits and therefore never paid any tax.

For most Malawians, it is inconceivable that Paladin Africa could run such a big mine at a loss. Thus, the suspension of the operations simply looks like a way for Paladin Africa to avoid honouring its full contractual obligations.

A local NGO, the Centre for Social Concern (CfSC), accused the government of orchestrating what it called “the Keyelekera natural resource plunder” and has mobilised the local community in protest.

But that hasn’t stopped over 300 people from losing their jobs.

In a country where the unemployment rate lies unofficially at 70 per cent, and where decent work and skilled jobs are even rarer, this is not an insignificant number.

The people of Malawi are angry that their government signed such an exploitative deal, leaving ordinary people to pay the price.

But the unfortunate fact of the matter is that the suspension was completely legal.
So the question becomes “how could the government have signed such a bad deal?”

 

No experts and no experience

Part of the problem can be attributed to the fact that the Malawi government lacks the qualified personnel to negotiate contracts and run the mining industry effectively on a policy and technical level.

Despite decades of Malawian migrants working on the mines in South Africa and Zimbabwe, they were almost entirely manual workers. And mining is still relatively new to the country.

Last June, Malawi’s former mining minister John Bande admitted that this critical lack of expertise left the country vulnerable to being “ripped off” by foreign mining companies.

His solution was to engage experts from Scotland to come and train Malawians on mining law and mining engineering.

But if the government acknowledges a knowledge gap in mining, why does it continue to new licences in the absence of indigenous experts working to ensure the best possible outcome for the people?

Last year, a joint study by Norwegian Church Aid (NCA) and a local Catholic NGO, Catholic Commission for Justice and Peace (CCJP) established that Malawi loses US$43.87 million annually through what they called “corporate incentives” – otherwise known as tax avoidance.

US$43.87 million is over 60 per cent of Malawi’s current health budget. It is nearly half of the US$103.7 million allocated to the country’s influential Farm Input Subsidies Program which helped to reduce poverty and food insecurity. And it is more than enough to finance last year’s bill for public universities, which was pegged at US$34.98 million.

Looking at these figures, one would think that mining would be at the top of the political agenda in Malawi, but it is not.

In fact of the 12 political parties running in the recent May elections, only the winning Democratic Progressive Party (DPP) discussed mining at length in its manifesto.

The manifesto emphasised that mining policies should protect the rights of citizens to fair access to natural resources. To ensure this, the DPP government promised to develop and implement transparent, accountable and efficient utilisation of natural resources for the development of the country.

But talk is cheap. Now it is time for action.

The government needs to be held accountable to the people and the mining companies need to be held accountable to the government.

In Malawi, where over 80 per cent of the population makes a living through agriculture, this is crucial. Mining uses the same land as people use for agriculture, so a lack of long-term vision means that local communities are forced to suffer long-term consequences.

But Malawi is not the only country struggling to benefit from its natural resources.
What happened at Kayelekera – the dubious mining contract, the total lack of transparency surrounding the deal by both the mining company and the government, tax evasion, transfer pricing and (not necessarily in this case but definitely elsewhere) corruption – happens all over the continent.

And this only serves to undermine the transformative socio-economic potential of the mining sector in Africa.

In 2013 the former United Nations Secretary General Kofi Annan, took the issue to G8, calling for help to end the “unconscionable exploitation of Africa’s resources.”

He referred to the 2013 Africa Progress Report which sets out a comprehensive agenda for the resource-rich continent to end poverty.

Malawi’s newly-elected President Peter Mutharika must heed these calls and not merely pay lip service to the issue as Joyce Banda’s administration did for the two years it was in power.

Even though it was his brother, the late Bingu wa Mutharika, who signed the original Kayelekera deal, the new government appears to have got off to a promising start.

It is encouraging that Botswana, which is one of Africa’s best examples when it comes to the effective management of its natural resources for the benefit of its people, has offered to help Malawi in this regard.

Mutharika must gladly accept this offer.

If the government does not have experts on mining then the new government must not sign any more mining contracts until it does.

And once those experts are in place they should follow the lead of countries like the Democratic Republic of Congo and Mozambique who have renegotiated a number of bad contracts.

The cold, hard truth is that mining corporations are not in Malawi to develop the country. They are there to make a profit.

But it is up to the government to ensure that these companies are reigned in so that the country’s natural wealth can benefit its own people for generations to come.