A missed opportunity - Reflections on the “Raw materials strategy of the German Federal Government

Introduction

The German Federal Government will present its raw material strategy on Tuesday, 26th October 2010. It seems the goal of the strategy is to secure sustainable supply of raw materials for German industries. The strategy in its current form is problematic in some key areas. For example, it says very little about the governance, rights and environmental issues associated with mineral wealth in many developing countries. Its lack of specifics on these contextual issues, such as how implementation of the strategy would take into account governance, rights and environmental issues in areas where these raw materials would be sourced, is worrying. The implications for Africa, in light of the continent’s vast mineral wealth that is one of the targets of the German strategy, could be negative if some of these obvious weaknesses are not addressed. But more worrying is the suggestion that the strategy has become necessary because countries like China and India are already pursuing similar strategies. 

The reflections contained in this brief are based a rapid reading of the strategy. It is not intended as an exhaustive critique of the strategy and neither should it be considered as one. It is the product of one key guiding question – how will it impact on countries with vast mineral wealth, especially those in Africa. 

Key concerns

Intensifying the race for Africa’s mineral wealth
The German Federal Government strategy states: “important developing and emerging nations that consume raw materials, China and India in particular, have strategically aligned their raw materials policies and undertaken measures to pursue their raw material interests”. This statement confirms the fear of many within African civil society that a new form of colonialism or resource colonization is taking shape and that if left unchecked could see another partitioning of Africa, disintegration or reduced levels of economic and political cooperation on the continent. Africa is still struggling to overcome the impacts of colonization a new form of resource colonisation will only make it harder.  

A second concern is that China’s obvious policy of prioritizing access to raw materials over governance, human rights and environmental considerations creates challenges for civil society efforts to hold corrupt governments and bad actors in the private sector to account. Chinese investments in the extractive sector in some African countries, Sudan for example, shows disregard for good governance, respect for human rights and environmental safeguards. China, therefore, is not an ideal example for other countries interested in Africa’s resources to follow sadly the German strategy seems to do just that.          

For many years, African civil society actors have turned to European countries to bring pressure to bear on countries and corporations that do not uphold the principles of good governance in the extractive industries. Albeit slow, progress on this front is having effects on governance in Africa as more and more countries are signing up to international initiatives that aim to deepen good governance, especially transparency and accountability in the extractive industries on the continent. The Kimberley Process Certification Scheme and the Extractive Industries Transparency Initiative are two examples of movement towards transparency and good governance in the extractive industries in Africa. Competition that would lead to lowering standards for corporations and countries seeking access to natural resources on the continent would be detrimental to the continent’s future; Germany would do well not to fuel such reckless competition.    

The strategy could undermine sustainable development in many African countries

The Liberia Poverty Reduction Strategy of 2008 states:

“Thus, while building on its comparative advantage in natural resources, Liberia will aim over the medium-to-long term to diversify into and increase the share of labor-intensive downstream processed products, other manufactures, and services as the basis for generating sustained growth in productivity, skill levels, wages, and income. Producing for export is essential, as export markets can expand, provide competition to ensure efficiency, and provide access to new technologies that are central to productivity growth” (p. 37).

At odds with this stated objective of Liberia’s Poverty Reduction Strategy is the emphasis on “securing a sustainable raw material supply for Germany”, which suggests a preference for maintaining the status quo in current unequal relationships between many African countries and Europe both in business and politics. In this context African countries continue to provide raw materials to feed European industries, receive unfair prices for its raw materials, and import European finished products at very high costs. Africa’s overdependence on the export of raw materials is partly to blame for the slow pace of sustainable development on the continent but yet it remains the primary model of business relations between many African countries and the rest of the world. As a result the economic potential of the continent’s resource wealth has not been fully utilized to its advantage.

The German Federal Government strategy also states that “reducing export restrictions plays an important role in securing the supply of raw materials. The poor/poorest developing countries should be given a certain amount of flexibility such as transitional periods for getting rid of customs duties so that they can identify alternative sources of state revenue”. Considering the already unfair prices that several European multinationals negotiate for raw materials from Africa, efforts to get rid of custom duties will severely affect the national budgets of many producers of primary commodities in Africa. Secondly, creating favorable conditions for German companies to invest in the extraction and export of raw materials in unprocessed forms requires undermining or blocking efforts to encourage processing or manufacturing in host countries. 

African countries, perhaps more than Germany and other European countries, need to create jobs at home, reduce unemployment and lift their citizens out of poverty. The German strategy will in many ways undermine efforts or block progress in this direction.  

The strategy is vague on governance issues

The strategy is vague on governance and rights issues in producer countries. The failure of the drafters to adequately discuss and outline how broader governance issues would be taken into account when sourcing raw material is particularly worrisome. For example, would Germany in line with its plans to “concentrate on giving efficient and vigorous support to the private sector in its efforts to secure raw materials...” ignore bad governance and rights abuses in areas where there is a German interest in accessing raw materials? Passing references to the need for German companies to comply with the OECD guidelines is inadequate and does not suffice for the depth of discussion that governance and rights issues merit in the strategy.  

There is evidence to suggest that good governance is an absolute prerequisite for sustainable development, broadly, and specifically for turning natural resource wealth into capital for sustainable development. Poverty and the lack of basic opportunities for personal development and overall wellbeing in many resource-rich countries are directly linked to bad governance and poor management of their resource wealth. The Government of Liberia notes this in its Poverty Reduction Strategy:

Liberia’s economic history before the conflict became a classic but sad example of growth without development a story that the Government is determined not to repeat. In the decades leading up to the conflict, the country recorded relatively rapid growth. But most of the income was channeled to a small elite and there was relatively little poverty reduction for the majority of Liberians. The inequities in growth were a major source of the resentment that fueled the conflict. (p 35)

It is therefore disturbing that the German strategy neither discusses these critical issues in depth nor outline very clearly measures that would be taken to ensure that its implementation takes these issues into account.

Conclusions and recommendations

As stated above, the German Federal Government strategy signals intensifying the race for raw materials from other countries. This could undermine sustainable development in many resource rich and resource dependent countries. The strategy is also vague on governance, rights and environmental issues in countries where German companies would source raw materials. If Germany is to maintain its position amongst countries that can honestly claim to support good governance and sustainable development in resource rich countries, especially in Africa, it must review and revise its strategy to take into account governance, rights and environmental issues.    

Sources:

• Government of Liberia (2008) Poverty Reduction Strategy, Republic of Liberia, Monrovia
• German Federal Government (2010) Raw materials strategy of the German Federal Government: securing a sustainable raw material supply for Germany with non-energy mineral raw materials, German Federal Government, Berlin