OUP CORRECTED PROOF – FINAL, 11/01/20, SPi Mining for Change OUP CORRECTED PROOF – FINAL, 11/01/20, SPi UNU World Institute for Development Economics Research (UNU-WIDER) was established by the United Nations University as its first research and training centre and started work in Helsinki, Finland, in 1985. The mandate of the institute is to undertake applied research and policy analysis on structural changes affecting developing and transitional economies, to provide a forum for the advocacy of policies leading to robust, equitable, and environmentally sustainable growth, and to promote capacity strengthening and training in the field of economic and social policymaking. Its work is carried out by staff researchers and visiting scholars in Helsinki and via networks of collaborating scholars and institutions around the world. United Nations University World Institute for Development Economics Research (UNU-WIDER) Katajanokanlaituri 6B, 00160 Helsinki, Finland www.wider.unu.edu OUP CORRECTED PROOF – FINAL, 11/01/20, SPi Mining for Change Natural Resources and Industry in Africa Edited by J O H N PAG E A N D F I N N TA R P A study prepared by the United Nations University World Institute for Development Economics Research (UNU-WIDER) 1 OUP CORRECTED PROOF – FINAL, 11/01/20, SPi 1 Great Clarendon Street, Oxford, OX2 6DP, United Kingdom Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide. Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries © United Nations University World Institute for Development Economics Research (UNU-WIDER) 2020 World Institute for Development Economics Research of the United Nations University (UNU-WIDER), Katajanokanlaituri 6B, 00160 Helsinki, Finland The moral rights of the authors have been asserted First Edition published in 2020 Impression: 1 Some rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, for commercial purposes without the prior permission in writing of Oxford University Press, or as expressly permitted by law, by licence or under terms agreed with the appropriate reprographics rights organization. This is an open access publication. Except where otherwise noted, this work is distributed under the terms of a Creative Commons Attribution-Non Commercial-Share Alike 3.0 IGO licence (CC BY-NC-SA 3.0 IGO), a copy of which is available at https://creativecommons.org/licenses/by-nc-sa/3.0/igo/. Enquiries concerning reproduction outside the scope of this licence should be sent to the Rights Department, Oxford University Press, at the address above Published in the United States of America by Oxford University Press 198 Madison Avenue, New York, NY 10016, United States of America British Library Cataloguing in Publication Data Data available Library of Congress Control Number: 2019947626 ISBN 978–0–19–885117–2 DOI: 10.1093/oso/9780198851172.003.0001 Printed and bound in Great Britain by Clays Ltd, Elcograf S.p.A. Links to third party websites are provided by Oxford in good faith and for information only. Oxford disclaims any responsibility for the materials contained in any third party website referenced in this work. OUP CORRECTED PROOF – FINAL, 11/01/20, SPi Foreword Africa is a region richly endowed with natural resources. More new discoveries in previously non-resource-abundant economies increase the prospect that a grow- ing number of African countries will become resource exporters in the future. The sustainable exploitation of natural resources is a tremendous opportunity, but it is also one that carries considerable risks. To effectively manage the natural resource booms, and the vast revenues generated, will depend in large measure upon the critical choices that governments make as they put in place the institu- tions, policies, and public investments needed for successful structural trans- formation, economic growth, and job creation. To focus on how better management of revenues and opportunities associated with natural resource discoveries could be used to accelerate diversification and structural change in low-income economies, in 2017 UNU-WIDER and the Brookings Institution launched a large collaborative research project—Natural Resources, Structural Change, and Industry in Africa—bringing in some of the field’s most experienced researchers. This book before the reader is the distillation of that in-depth research work. I hereby express my sincere gratitude to the book’s editors, John Page and Finn Tarp, for their project leadership, and sound analytical and editorial skills. And to the book’s many contributors for sharing their research expertise with us, the readers, on what is a hugely important area which holds so much promise for so many people. UNU-WIDER gratefully acknowledges the support and financial contribu- tions to its research programme by the governments of Finland, Sweden, and the United Kingdom. Without this vital funding our research and policy advisory work would be impossible. Kunal Sen Director, UNU-WIDER Helsinki, May 2019 OUP CORRECTED PROOF – FINAL, 11/01/20, SPi OUP CORRECTED PROOF – FINAL, 11/01/20, SPi Acknowledgements The twin concerns of ‘jobless growth’ and slow poverty reduction are central challenges on the policy agenda in Africa. Poverty in Africa continues to be high; and the region has the lowest responsiveness of poverty to per capita income growth of any of the world’s developing regions. In response, and as part of its 2014–18 work programme, UNU-WIDER pursued an ambitious set of research activities together with the Brookings Institution to address these issues. While a key question addressed up-front was ‘Why is there so little industry in Africa?’ the research went far beyond this starting point, aiming to broaden our under- standing of the structural transformation challenge in Africa, link it to issues of employment creation and poverty reduction in a more systematic way, and provide practical guidance for policymakers. A recent blog on the ins and outs of African industrialization contains a useful overview and an entry point to the results of almost a decade of work in this area.1 In the blog, the reader will find both a summary overview of the many varied outputs we have produced in collaboration with a vast number of col- leagues to whom we owe an enormous debt for their intellectual advice and many-faceted professional input to our joint work in the difficult nexus of policy, research, and practice. Links are also available in the blog to a wealth of open access material and information about associated activities including lectures, conferences, etc. This book Mining for Change: Natural Resources and Industry in Africa — focused on the risks and opportunities natural resources offer African countries wishing to industrialize—is the last output in the series. We would like to express our most sincere gratitude to the chapter authors for their willingness to partici- pate in this project and for their many insightful contributions. Warm thanks are also due to UNU-WIDER and Brookings as well as their respective staff for insti- tutional support and never-failing collaboration. We wish in particular to thank Lorraine Telfer-Taivainen, UNU-WIDER editorial and publishing associate, for advice, hard work, and making the col- laboration with Oxford University Press run smoothly. Adam Swallow, econom- ics and finance commissioning editor at Oxford University Press, and his colleagues provided expert guidance with the publication process, and we do 1 See https://www.wider.unu.edu/publication/ins-and-outs-african-industrialization OUP CORRECTED PROOF – FINAL, 11/01/20, SPi OUP CORRECTED PROOF – FINAL, 11/01/20, SPi viii Acknowledgements wish to acknowledge the anonymous referee reports that helped sharpen our focus. Finally, a word of thanks to the donors of UNU-WIDER, Finland, Sweden, and the United Kingdom, for their core support to the work programme of UNU-WIDER without which this volume would not have been possible. John Page and Finn Tarp Washington and Copenhagen May 2019 OUP CORRECTED PROOF – FINAL, 11/01/20, SPi List of Figures xi List of Tables xiii List of Abbreviations xv Notes on Contributors xxi 1. Overview 1 John Page and Finn Tarp PA RT I . F R A M I N G T H E I S SU E S 2. Understanding the Boom 27 Mark Henstridge 3. The Construction Sector in Developing Countries: Some Key Issues 51 Martina Kirchberger 4. Rowing against the Current: Economic Diversification in Africa 74 John Page PA RT I I . C O U N T RY S T U D I E S 5. The Boom, the Bust, and the Dynamics of Oil Resource Management in Ghana 97 Ernest Aryeetey and Ishmael Ackah 6. The Construction Sector in Ghana 119 Nkechi Srodah Owoo and Monica P. Lambon-Quayefio 7. Local Content Law and Practice: The Case of Ghana 139 Charles Godfred Ackah and Asaah S. Mohammed 8. Mozambique—Bust before Boom: Reflections on Investment Surges and New Gas 161 Alan R. Roe 9. The Construction Sector in Mozambique 183 António S. Cruz, Francisco Fernandes, Fausto J. Mafambissa, and Francisco Pereira 10. Local Content and the Prospects for Economic Diversification in Mozambique 209 Evelyn Dietsche and Ana Maria Esteves Contents OUP CORRECTED PROOF – FINAL, 11/01/20, SPi x Contents 11. Gas in Tanzania: Adapting to New Realities 232 Mark Henstridge 12. The Construction Sector in Tanzania 256 Geraldine J. Kikwasi and Cecilia Escalante 13. Local Content: Are There Benefits for Tanzania? 282 Mia Ellis and Margaret McMillan 14. Uganda’s Oil: How Much, When, and How Will It Be Governed? 304 Sebastian Wolf and Vishal Aditya Potluri 15. Construction and Public Procurement in Uganda 326 Emanuele Colonnelli and Nicole Ntungire 16. Enhancing Local Content in Uganda 349 Ritwika Sen 17. The Boom–Bust Cycle of Global Copper Prices, Structural Change, and Industrial Development in Zambia 374 Robert Liebenthal and Caesar Cheelo 18. The Construction Sector in Zambia 397 Caesar Cheelo and Robert Liebenthal 19. Local Content in Zambia—a Faltering Experience? 422 Wilfred C. Lombe PA RT I I I . P O L IC Y I M P L IC AT IO N S 20. Implications for Public Policy 449 John Page and Finn Tarp Index 473 OUP CORRECTED PROOF – FINAL, 11/01/20, SPi List of Figures 2.1. A sequence of asset transformations 29 2.2. The legal institutional context 32 2.3. The broader context: jobs and policy 39 2.4. Commodity prices 44 3.1. Demand shift with different supply elasticities 55 3.2. Price levels of GDP and construction 67 5.1. Petroleum reserves of Ghana’s operating fields 101 5.2. Oil rents as a percentage of GDP in selected African countries 102 5.3. Petroleum management framework, Ghana 106 5.4. Ghana’s inflation performance, 1990–2016 108 5.5. Petroleum revenues in Ghana, 2011–16 109 5.6. Petroleum revenue as a percentage of government revenue in Ghana 109 5.7. Share of petroleum output in GDP, 2011–16 110 6.1. Contribution of construction (and other subsectors) to Ghana’s industry sector (% of GDP) 120 6.2. Growth rates of industry subsectors, 2007–16 121 6.3. Trends in exchange rates and housing prices, 2012–17 123 6.4. Trends in price index for plant and equipment, 2014–17 124 6.5. Trends in annualized price index for local labour, roads, and social infrastructure, 2014 − 17 125 6.6. Trends in price index for chippings, 2014–17 126 6.7. Inflation and prices 2012–17 127 7.1. Progress of local firm registration with Petroleum Commission 148 7.2. Foreign and local firms’ supply of goods and services to Tullow Ghana Limited 149 7.3. Foreign and local firms’ supply of goods and services to ENI Ghana Exploration and Production Limited 149 8.1. Investment shares of GDP, 2005–16 162 8.2. GDP growth rates, 1996–2017 (%) 165 8.3. Selected numbers from the 2016 projections of the Rovuma benefits 167 8.4. Selected fiscal trends, 2012–18 (% of GDP) 169 8.5. IMF debt sustainability assessments 170 9.1. Construction sector production chain 184 OUP CORRECTED PROOF – FINAL, 11/01/20, SPi xii List of Figures 9.2. High-growth period on average for Mozambique, for about two decades up to 187 9.3. Construction volume in the state budget is fluctuating, but was increasing up to 2013 190 9.4. Formal small construction companies correspond to 81.4% of the total (2014–15) 191 9.5. Formal housing construction costs are higher in Maputo than in neighbouring cities 197 11.1. Natural gas offshore Tanzania 235 11.2. Revenue projections in Tanzania 241 11.3. The costs of delay 243 12.1. Gross domestic product by kind of economic activity: percentage growth rates, 257 12.2. Within industry and construction: percentage growth rates, 2007–17 257 12.3. Gross fixed capital formation by kind of economic activity at current prices, 2005–17 258 12.4. Trend of registration of architects, quantity surveyors, and allied disciplines, 2000–17 261 12.5. Trend of engineers’ registration, 2000–17 262 12.6. Trend of registration of contractors, 2008–16 263 14.1. Projected cashflows for lender, international oil companies, national oil company, and GoU revenues 314 14.2. Government oil revenue sensitivity to oil price assumptions 314 16.1. Domestic suppliers in Uganda’s natural resource value chain, FY 2014/15 361 16.2. Direct and indirect backward linkages from the oil and gas sector, FY 2014–15 363 16.3. Distribution of revenue/workers across select supply industries, logarithmic scale 368 17.1. Revenue forecasts in the MTEF 386 17.2. Fiscal and external balances and public debt 388 18.1. Public expenditure on physical assets 401 18.2. Real total investment and capital productivity 402 18.3. Percentage changes in GDP, by type of economic activity (constant prices) 403 18.4. Grading of construction firms in Zambia, by overall proportion (%) 404 18.5. Grading of construction firms, by number and ownership 405 18.6. Selected macroeconomic stability indicators 417 19.1. Classification of local supplier firms of goods and services 423 19.2. Market share of goods and services by supplier origin (US$ millions) 432 19.3. Estimated composition of Zambia’s mining procurement expenditure, 2012 (US$ millions and %) 432 OUP CORRECTED PROOF – FINAL, 11/01/20, SPi List of Tables 1.1. Structural characteristics of Africa’s resource-abundant economies 5 3.1. Share of construction in value added, per cent 53 3.2. Gross fixed capital formation, per cent of GDP 54 3.3. Unit costs per kilometre of asphalt overlays of 40–59 mm 57 3.4. World Bank contract awards by borrower and supplier region 60 3.5. World Bank contract awards by borrower and supplier region, case-study countries 63 3.6. Differences in price levels across regions 66 6.1. Housing subsector classification 128 6.2. Roads subsector classification 129 7.1. Goods and services earmarked for indigenous Ghanaian companies 147 9.1. Construction growth was particularly dynamic up to 2015, % 188 9.2. Number and structure of construction companies in the formal sector, 2014 193 9.3. Number and structure of building materials companies 194 9.4. Household income distribution as a share of total population, 2014–15 196 9.5. Proportion of households benefiting from housing quality facilities 197 12.1. Distribution of contractors by categories and class as of December 2016 264 12.2. Class limit for any single contract (in million TZS) 265 12.3. Contractors’ challenges 267 12.4. Construction skills shortages 273 12.5. Comparison of registered professionals, technicians, and potential employers 274 12.6. Challenges associated with construction materials and equipment 275 14.1. Large (>US$100m) ongoing or planned public infrastructure projects in Uganda 311 16.1. Overview of legal requirements for local sourcing and supplier development 354 16.2. Oil and gas suppliers in Uganda: by sector and selected variables 365 16.3. Median firm by supply category and indicator, in 2015 US$ 369 17.1. Expenditure releases on selected recurrent budget items 392 18.1. Percentage distribution of households, by type of housing and tenancy 407 18.2. Most serious obstacles to firms’ operations (2008) 408 18.3. Market structure, by construction firm category 410 OUP CORRECTED PROOF – FINAL, 11/01/20, SPi xiv List of Tables 18.4. Selected doing-business indicators 414 19.1. Visions and goals of certain economic and social sectors relevant to LC development 434 19.2. Growth and structure of GDP, 1960–85 438 19.3. Real GDP and sectoral growth over the period 1991–2015 439 OUP CORRECTED PROOF – FINAL, 11/01/20, SPi List of Abbreviations 7NDP Seventh National Development Plan (Zambia) ABFA annual budget funding amount (Ghana) ACEP Africa Centre for Energy Policy ACEZ Association of Consulting Engineers of Zambia AfDB African Development Bank AFIC Africa Freedom of Information Centre AGI Association of Ghana Industries ANE National Roads Administration (Mozambique) AQRB Architects and Quantity Surveyors Registration Board (Tanzania) ASIP Annual Survey of Industrial Production (Tanzania) bcm billion cubic metres CA current account CABRI Collaborative Africa Budget Reform Initiative CAHF Centre for Affordable Housing Finance in Africa CDC Central Development Corridor (Tanzania) CDC Commonwealth Development Corporation CEE Citizens Economic Empowerment (Zambia) CIT corporate income tax CIP Census of Industrial Production (Tanzania) CRB Contractor Registration Board (Tanzania) DA Development Agreement DFE domestic finance expenditure DMO Domestic Market Obligations (Tanzania) DPL Delayed Payment Law EAC East African Community E & T education and training EBA-Lite External Balance Assessment EDC Enterprise Development Centre (Ghana) EITI Extraction Industries Transparency Initiative EIZ Engineering Institution of Zambia ERB Engineers Registration Board (Tanzania) ES external sustainability EWURA Energy and Water Utility Regulatory Authority (Tanzania) FEED Front End Engineering Design FDI foreign direct investment FFH Housing Promotion Fund (Mozambique) FID Final Investment Decision FISP Farmer Input Support Programme (Zambia) FLNG floating liquified natural gas OUP CORRECTED PROOF – FINAL, 11/01/20, SPi xvi List of Abbreviations FRA strategic reserves (Zambia) FRELIMO Front for the Liberation of Mozambique GDP gross domestic product GFCF gross fixed capital formation GHC Ghanaian cedi GHF Ghana Heritage Fund GNPC Ghana National Petroleum Corporation GoU government of Uganda GPF Ghana Petroleum Funds GREDA Ghana Real Estate Developers Association GSF Ghana Stabilisation Fund GUSIP Ghana Upstream Internship Program GVC global value chain HGA Host Government Agreement HIPC Heavily Indebted Poor Country HVAC heating, ventilation, air-conditioning ICOR incremental capital–output ratio IEC Industry Enhancement Centre (Uganda) IFC International Finance Corporation IGG Inspectorate of Government (Uganda) IIA Invest in Africa ILO International Labour Organization IMF International Monetary Fund IOCs international oil companies IPEME Institute for the Promotion of Micro, Small and Medium Enterprises (Mozambique) IPS Industrial Policy and Strategy (Mozambique) ISI import-substitution industrialization strategy ISO International Organization for Standardization JV joint venture LC local content LCC Local Content Committee (Tanzania) LCP local content policies (Ghana) LCU local content unit LDC Least Developed Country LGA local government authority LNG liquified natural gas MAGTAP Mining and Gas Technical Assistance Programme (Mozambique) MCTI Ministry of Commerce, Trade, and Industry (Zambia) MEF Ministry of Economy and Finance (Mozambique) MEM Ministry of Energy and Minerals (Tanzania) MEMD Ministry of Energy and Mineral Development (Uganda) MENA Middle East and North African region MFEZ Multi-Facility Economic Zones (Zambia) MHID Ministry of Housing and Infrastructure Development (Zambia) OUP CORRECTED PROOF – FINAL, 11/01/20, SPi List of Abbreviations xvii MIC middle-income country MIC Ministry of Industry and Commerce (Mozambique) MIREME Ministry of Mineral Resources and Energy (Mozambique) MLGH Ministry of Local Government and Housing (Zambia) mmbtu million British thermal units MMD Movement for Multi-Party Democracy (Zambia) MMD As Metropolitan, Municipal, and District Authorities (Ghana) MNC multinational corporation MOF Ministry of Finance (Tanzania) MOPHRH Ministry of Public Works, Housing and Hydric Resources (Mozambique) MoWTC Ministry of Works, Transport, and Communication (Tanzania) MPI material project information mscuf/d million standard cubic feet per day MSMEs micro, small, and medium enterprises MT metical (Mozambique) MTBF Medium-Term Budget Framework (Uganda) MTEF Medium-Term Expenditure Framework MVA manufacturing value added MW megawatts NBS National Bureau of Statistics (Tanzania) NCC National Construction Council (Tanzania) NCC National Council for Construction (Zambia) NEEC National Economic Empowerment Council NEMC National Environment Management Council (Tanzania) NFA non-financial asset NGL natural gas liquid NOC National Oil Company (Ghana) NPV net present value NRGI Natural Resources Governance Institute NRM National Resistance Movement (Uganda) NSD National Suppliers Database NWSC National Water & Sewerage Corporation (Uganda) O&G oil and gas OAG Office of the Auditor General (Zambia) OCTP Offshore Cape Three Points field PAU Petroleum Authority of Uganda PDE procurement and disposal entity PDU procurement and disposal unit (Uganda) PE personal emolument PEDP Petroleum Exploration, Development and Production (Uganda) PF Patriotic Front (Zambia) PFM Public Financial Management Act (Uganda) PHF Petroleum Holding Fund (Ghana) PIAC Public Interest and Accountability Committee (Ghana) PIH permanent income hypothesis OUP CORRECTED PROOF – FINAL, 11/01/20, SPi xviii List of Abbreviations PIP Public Investment Plan (Uganda) PMGSY Pradhan Mantri Gram Sadak Yojana (India) PPDA Public Procurement and Disposal of Public Assets Authority (Uganda) PPP public–private partnership PPRA Public Procurement Regulatory Authority (Tanzania) PRCTMS Petroleum Refining, Conversion, Transmission and Midstream Storage (Uganda) pre-FEED pre-Front End Engineering Design PRIR Petroleum Revenue Investment Reserve (Uganda) PRMA Petroleum Revenue Management Act, Ghana PSA Production Sharing Agreement PURA Petroleum Upstream Regulatory Agency (Tanzania) QSRB Quantity Surveyors Registration Board (Zambia) R&D research and development RDA Road Development Agency (Zambia) REER real exchange rate model RENAMO National Resistance Party of Mozambique RFB Roads Fund Board (Tanzania) SDL Skill Development Levy (Zambia) SEZ Special Economic Zone SSA sub-Saharan African TEITA Tanzania Extractive Industries Transparency and Accountability Act TEN Tweneboa–Enyenra–Ntomme field (Ghana) TFP total factor productivity TIZ Transparency International Zambia TPDC Tanzania Petroleum Development Company TRA Tanzania Revenue Authority UBOS Uganda Bureau of Statistics UFSA Unidade Funcional de Supervisão de Aquisições (Functional Acquisition Supervision Unit, Mozambique) UGX Ugandan shilling UNABCEC Uganda National Association of Building and Civil Engineering Contractors UNBS Uganda National Bureau of Standards UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Programme UNECA United Nations Economic Commission for Africa UNRA Uganda National Roads Authority UNZA University of Zambia URA Uganda Revenue Authority WPM Works Procurement Manual (Ghana) WTO World Trade Organization YIEDIE Youth Inclusive Entrepreneurial Development Initiative for Employment (Ghana) ZCCM Zambia Consolidated Copper Mines Ltd OUP CORRECTED PROOF – FINAL, 11/01/20, SPi List of Abbreviations xix ZCCM-IH Zambia Consolidated Copper Mines-Investment Holdings ZDA Zambia Development Agency ZIA Zambia Institute of Architects ZIPAR Zambia Institute for Policy Analysis and Research ZMLCI Zambia Mining Local Content Initiative