The New Initiative on Extractive Sector and Challenges to the African Countries

Global Consumption
Photo: Jeff Deutsch / Oxfam America

One of the main concerns about extractive sector governance is the role that transnational enterprises play in sourcing minerals from conflict-affected and high-risk areas. Do they act responsibly? Armed conflicts are often related to extraction of rare minerals, gas and oil.  Furthermore, the profits linked to the extractive industry, along with the revenues it provides to governments of countries exporting natural resources, require better control and transparency.  


With this in mind, the EU has opened a period of consultation to review the relevant legal texts. This new transparency initiative aims to promote disclosure of payments to governments by the extractive companies and make public the contracts of mining concessions. However, the transparency needs to be seen with other issues like social and human rights, environmental protection and anti-corruption measures.


Although this transparency initiative is an opportunity to confront the side-effects (armed conflicts, corruption and human right abuses) that natural resource exploitation often provokes, the implementation of new legal measures can trigger new problems i.e. people can lose their jobs, especially in the artisanal mines, as happened with the U.S. Dodd-Frank Act.


In the case of African countries, the new Initiative on the Extractive sector raises new challenges for both EU and African countries.


      Firstly, the measures involved in the transparency initiative are just a means to demand from European companies a code of conduct that respects both socio-economic and environmental legislation. The initiative will be useful if it is implemented properly for all the actors involved in the whole supply-chain. The transparency has to apply to all European extractive enterprises (including companies involved in processing these natural resources). But these measures need the collaboration of African governments, officials and intermediaries of producing countries as well as the local population in exploitation areas.


      Secondly, the implementation can produce a new scenario in the trade relations between African countries and other regions worldwide that are interested in African natural resources. In this sense, African countries have the opportunity to preserve their ecosystems and do business with those who offer more socio-economic and environmental warranties.  


      Thirdly, the implementation of transparency measures requires that all oil, gas and mining companies based in the EU publish their payments to all countries. Although some African countries forbid the disclosure of payments to governments, EU lawmakers must have a strong position and prevent European enterprises from taking any action that hints of corruption. African countries could create democratic institutions to monitor the payments made to the governments as well as monitoring the revenues from the export of their natural resources.


     Fourthly, African countries could establish a more equitable tax system that obliges transnational companies to pay fair taxes to the countries in which they operate. The Bilateral Investment Agreements would need to be changed because in some cases these agreements limit the capacity of African countries to design and carry out their own economic policies. Bilateral Investment Agreements should not condition the measures in the Initiative and African countries should not be persuaded to facilitate foreign investment through tax breaks, warranties that protect their economic interests and modification of legislation for the sake of foreign interests. The extractive sector must be a key factor of development in African countries.


      Fifthly, the new EU initiative on extractive sector must establish legally-binding norms allowing companies to be held accountable for the damage they cause. The current legal framework limits the liability of the parent company for the actions of its subsidiaries abroad. The parent companies have to be held accountable in European courts for the action of their subsidiaries in Africa. Furthermore, in those countries and regions where there are armed conflicts, transnational companies should be obliged to prevent their intermediaries from paying rebel groups.


        AEFJN supports this extractive sector transparency initiative as long as it legally enforces good practices for European companies and requires clear regulation about the whole supply-chain process. Where it is possible to know the revenues, payments, contracts and concession conditions of natural resource exploitation, companies find it harder to act with impunity. It should help to make governments responsible if they divert funds to other goals or change their criteria for concessions in the extractive sector.


Jose Luis Gutierrez Aranda

AEFJN Policy Officer

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