The largest investor in Sub-Saharan Africa

The article was originally published in the Rising Africa magazine, in Fall 2012. 

Coins, cell phones, cars and air- crafts and thousands other everyday items contain nickel and cobalt. Where do those materials come from and what does it take to get those materials out of ground? CCAfrica talked to Toronto-based Canadian company Sherritt International Corp. to find out.

Sherritt International Corp. has initiated and operates a massive nickel and cobalt mining enterprise in Ambatovy, Madagascar in collaboration with SNC-Lavalin, and Japanese and Korean investors. At a construction cost of approximately half of the GDP of Madagascar (measured in current US dollars), the 5.5 billion dollar project employing over 6,000 people at various stages of project is naturally the largest-ever foreign investment in the country. It is one of the biggest investments in sub-Saharan Africa and the Indian Ocean region, too.

Not only is the project very expensive but as the map on the next page shows, it is also located in multiple places in eastern Madagascar. Considering the massive volume of the project, both its value in dollars and the area it occupies, it is natural that project will have an impact on the surrounding land and its people. Designed to operate for at least 29 years, Ambatovy’s goal is to create lasting prosperity for all stakeholders and contribute significantly to sustainable development in Madagascar.

To contribute to local communities long term, for example, choice to refine nickel and cobalt in Madagascar was made, a rare decision in Sub-Saharan Africa. This way, the value added to economy is ensured, as the project will generate additional 1,000 high quality, well-remunerated jobs. Nickel will become Madagascar’s first export item, which in return will generate foreign ex- change for the country. Over its lifecycle, Ambatovy will contribute hundreds of millions of dollars to the Government of Madagascar in taxes, royalties, duties, and other payments.

To construct the Tailings Management Facility and the Plant site, Ambatovy worked for many years in collaboration with local stakeholders: government, civil society, media, local communities, and workforce and contractors to gain their trust, inputs and acceptance. While resettling people affected by project to appropriate, yet nearby, parcels of land, Ambatovy ensured that relocation was fair, transparent, and participatory, respecting local cultures and traditions according to Malagasy laws and international social performance standards, namely, IFC PS5.

To ensure its goal – lasting prosperity and sustainable development - Sherritt has employed a large corporate social responsibility unit employing 120 people to work together with the local people and helping to preserve the natural environment surrounding the construction and mining sites.

“In consultation with our archeology team, for example, it was discovered that a cellular tower at the Mine site was planned on a sacred hill. We removed the tower and facilitated a traditional ceremony to bless the site.”

Consisting of four divisions, Ambatovy’s CSR department deals with community relations, programs, projects, and support services. Sherritt makes every reasonable effort to ensure that the total impact on local communities is positive. Ambatovy’s communication manager Lalaina Randrianarivelo told Rising Africa: “Respecting human rights is a daily task that is undertaken by all our employees. In consultation with our archeology team, we made several important operation decisions in order to respect the traditional beliefs and culture of com- munities around our sites. For example, it was discovered that a cellular tower at the Mine site was planned on a sacred hill. As a result, we removed the tower and facilitated a traditional ceremony to bless the site.”

In the words of local people, Sherritt takes the corporate social responsibility seriously.

“Ambatovy has indeed shown some strong commitments towards transparency by complying with Extractive Industry Transparency Initiative principles, which encourages mining and gas companies that are investing in Madagascar, the

Malagasy government and other government-linked entities to disclose various in- formation; namely payments made by the extractive industries to the government,” says Mbola Andrianady, a Madagascar- native master student in international development who specializes in CSR in the mining industry.

Ambatovy is obliged to adhere to national and international standards. Ambatovy’s performance is monitored by Madagascar’s National Environment Office under the Investment and Environment Compatibility Act to ensure its compliance with environmental regulations set for in- vestments. With the support and assistance of the World Bank, Madagascar accepted a Large Mining Investment Law, under which Ambatovy project was certified in 2007.

Further, some of Ambatovy’s financing institutions are members of Equator Principles Financial Institutions, which pledge to take into account social and environmental criteria in the large-scale projects they finance. Equator Principles advise the institutions not to finance loans where the borrowers are not willing or able to comply with these criteria. As a result, Ambatovy’s financing agreements require that the Ambatovy nickel and cobalt mine uphold these principles.

With a view to achieving superior safety, environmental and social results, Ambatovy is also committed to the following voluntary measures that go beyond its legal obligations: Business and Biodiversity Offsets Program, International Council on Mining and Metals Principles, International Standard ISO 9001, and the EITI, as mentioned above.

Ambatovy aligns its reporting procedures with those of the Global Re- porting Initiative framework, one of the world’s most prevalent standards for sustainability reporting. Ambatovy also publishes sustainability reports, which provide an overview of how Sherritt manages different sustainability issues in this mining site. These publicly available reports discuss why health and safety, training, biodiversity and reclamation, stakeholder engagement, and community investment are important to the business.

Further, Ambatovy provided training to its security personnel on human rights related to security practice. Respecting the human rights of the employees through sound policies on collective bar- gaining and non-discrimination, in 2011 progress was made on the collective bar- gaining agreement. While not all aspects were finalized, parties were able to complete and sign 6 of the 15 sections. Additionally, Ambatovy also makes sure its employees and local communities are aware of Ambatovy’s zero tolerance policy on child sexual exploitation. Ambatovy continued to educate both local communities and our own employees in this matter.

Ambatovy project clearly states its values publicly. When CCAfrica asks whether this is a unique approach in mining industry, Ms. Randrianarivelo responds: “This approach is often shared by companies with a responsible approach. The only difference in Ambatovy is that we take the culture of the host country also into consideration. In Madagascar, for example, the spirit called “Fihavanana” which translates a set of solidarity, tolerance and brotherhood is very active in the community. Ambatovy considers himself a full-fledged member of the community that hosts them.”

As part of its social investments and partnerships Ambatovy’s Local Business Initiative makes sure that people have a capacity to provide goods or services to the project. Training and audits have been implemented so that the quality can meet the requirements of the mining project. In 2010, 500 companies and corporations have benefited from contracts and markets with Ambatovy.

Central agency for agricultural produce (the Central d’Achat de Madagascar) is a Malagasy-run agency that serves the Toamasina area to provide a central point for farmers to sell their agricultural produce outside their villages and to help supply the Ambatovy project food requirements. The agency has been successful, prompting the establishment of a second center in Moramanga, near the mine site.

The Ambatovy has also set up agricultural training center in the Toamasina area not far from the Ambatovy refinery site. This training center is focused on pro- viding skills to workers who are completing their contracts but it is also available to others from communities that have been affected by the project. Note that nearly 18,500 employees worked for the construction of Ambatovy and at the end, Ambatovy assisted its employees and its subcontractors to move to new generating potential opportunities. This program is not only completely new in Madagascar, but also unique in a sense that no other private company has implemented such a program before.

As the species-rich location sets additional constraints on operation, Ambatovy adheres to stringent environmental standards. Considering that local people are dependent on natural resources for their livelihood, Sherritt has initiated many conservation programs, which aim to en- sure no net loss, and preferably a net gain, of biodiversity while ensuring socioeconomic benefits for local populations.

Ambatovy’s social investments include sponsorships, charitable donations, educational and health programs, vocational training and professional development, and a wide variety of other sustain- able development projects. Ambatovy built 296 new houses, a health center, schools and water facilities and sanitation projects for the people impacted by the project. Villagers were able to select their preferred housing model and each household received a parcel of land for agriculture and grazing. Social development program aims the autonomy of those villages. The objective is to ensure a better quality of life than before.

On the surprising side, the construction work opened the door to archaeological discoveries. Investigations led to the collection of 4,851 objects such as pottery, ceramics, tumblers, stones, metals, bones, plastics and botanies, writes Africa Review. It adds that archaeological discoveries are expected to promote Malagasy culture and scientific knowledge.

About the limitations of CSR

My interview with Mr. Ingram from NSI, published in 2012 The Rising Africa magazine

As the North-South Institute prepares for the NSI Ottawa Forum on Governance of Natural Resources for African Development, in May 2013, The Rising Africa talked to the former special representative of the World Bank to the United Nations and the World Trade Organization, and the current President of The North South Institute, the leading development think tank in Canada, Mr. Joseph K. Ingram.

 

Our editor Marje Aksli visited Mr. Ingram in his office in Ottawa, and asked what the biggest challenge in Africa’s development is.

We all know that Sub-Saharan African economies are growing at an exceptional rate, and that the narrative of Africa is changing for the better. That is important, and I am not going to repeat their successes here. Yet in spite of these positive changes the biggest challenge in Africa remains its prevailing poverty and growing inequality. Most public policy experts would say that the most important factor in reducing inequality is providing meaningful employment opportunities to a growing youth population. Africa has serious problems with unemployment, even in the fast growing economies. Much of the unemployment is attributable to a huge youth surge – 60 percent of the total population in Sub-Saharan Africa is under the age of 30. This creates very high dependency ratios. South Africa, for example, has extremely high youth unemployment even though they have a relatively skilled labour force compared to other African countries.

How do you comment on some studies which claim that the younger the population, the lower probability that the country is democratic?

That theory is inconsistent with the fact that the number of democracies in Africa has risen from 8 to 23 in the last decade. Look at what has happened with the Arab Spring! It is largely young people who have brought about democratic change.  For the moment, it may not always be change that we like, but it is the first step towards an enduring democratic system.  A young population is a source of economic growth – you can’t have growth without adding to the labour force and increasing skill level of that labour. Also, history and empirical evidence show that with increased education there is increased demand for greater transparency and accountability, basic building blocks of democratic development.

So what do we know about the youth surge in Africa?

We know that if you do not meet youth’s expectations, there are going to be political problems, and a breakdown of social cohesion producing all kinds of negative outcomes including social discontent, surge in migration patterns, contestation over scare resources, extremism and religious fundamentalism. Groups take advantage of these problems to create challenges to the state. We are starting to see manifestations of that that fundamentalism in both the Maghreb, Somalia and the Sahel: in northern Mali, and even in Nigeria where religious violence has grown.

Is Africa’s challenge of jobless growth unique in the global scene?

The issue of jobless and job-poor growth is not unique to Africa: it is a problem we share globally, though not with the same outcomes. The U.S. and Canada are also experiencing the growing inequality and high levels of under and unemployment But clearly its outcomes are more acute in Africa where socio-economic conditions are much worse to begin with. Additionally, Africa has relatively weak political institutions. That said, there are significant improvements in the overall quality of governance.  We are talking about a continent with 54 countries.  Yet as we all know, democracy is fragile, as recent events in Mali have shown. Africa still has a legacy of corruption to deal with, as revealed by the indexes produced annually by Transparency International.

What research has NSI done in the area of governance of natural resources?

For almost a decade NSI has been doing field research on the subject of natural resource governance primarily in areas inhabited by first nations people in Canada and aboriginal communities in Latin America. Based on our findings we are increasingly shifting the focus of our research to sub-Saharan Africa. Our goal is to study the relationship between governance and the economic benefits of extractive activities.  Natural resources exploitation is important for all countries, and the wealth generated is critical to host governments, local communities and their populations.  Such resources should be exploited in a way which produces a win-win-win outcome:  a win for the host governments, for the local communities and for the mining companies.

What research projects does NSI work on?

We work very closely with two global initiatives. One is driven largely by the African Union and UN Economic Commission for Africa. Their African Mining Vision is an attempt to create a framework – standard setting for how African governments and investing companies should behave, and what the implications might be for home governments like Canada. A second initiative we have been involved with is led by one of the world’s leading development economists,  Prof. Paul Collier of Oxford University This initiative, the Natural Resource Charter, is also an attempt to create a set of regulatory principles by which host governments and mining companies would operate so that the exploitation of extractives as well as other natural resources, is done in an economically, socially, and environmentally responsible way producing the desired win-win-win outcome.

What should the companies do in a field of CSR when the governance is weak and civil society is not strong yet?

Let me start by explaining how we at NSI are planning to proceed in support of these global initiatives. The research we are going to undertake has several components, including the role of the private sector, the emerging powers, and going beyond CSR. We are also concerned with the impact that Canadian investments will have on long-term Canadian competitiveness and economic growth and poverty reduction in Africa. We have an interest in Canada being competitive as an investor in natural resources but at the same time we are also interested in how best that investment can enhance higher and more equitable growth outcomes.

In this context, we are also looking at the role of corporate social responsibility, including its limitations. African governments too are increasingly conscious of the limitations of self-regulation and in the context of the Africa Mining Vision are seeking to address them. Based on NSI’s past research in Canada and Latin America our conclusion is that CSR is a necessary but  not sufficient set of principles when it comes to ensuring the win-win-win outcome I referred to  earlier. Indeed a growing body of research, both empirical and academic, recognizes that there are serious limitations with relying solely on principles of corporate social responsibility. Although in general, Canadian companies have behaved well globally - often better than their competitors – a handful have not. And this has hurt both the Canadian brand and the sort of development outcomes we are all looking for from natural resource exploitation.

How has the limited scope of CSR hurt Canadian companies?

Companies have tended to rely on Corporate Social Responsibility principles alone.  But because CSR is a form of self-regulation, companies are often not accountable for whether they behave in a socially or environmentally responsible manner, especially in countries where local legislation and enforcement capacity are weak. 

Is reliance on self-regulated CSR going to produce the win-win-win outcome? What are the consequences if CSR fails to do so, especially in a context of high income inequality and poor socio-economic conditions? We have seen one possible outcome recently in the events at Marakana in South Africa where the violence in one mine has escalated and spread more widely creating a serious constraint on the country’s potential for economic growth. Incidences of violence have increased in frequency not only in Sub-Saharan Africa but also in parts of Asia and Latin America. While we recognise that CSR is necessary, we also need to ask ourselves if principles based on self-regulation are sufficient. Or do we need to look beyond CSR at more regulated forms of behaviour?

What direction is Africa moving in?

At this point it would appear that the work of the African Union and African governments is moving in the direction of stronger global standards and regulation. This may be in part due to the demands of a growing civil society in Africa demanding greater transparency and accountability.  The members of the African Union are cognisant of this important development which comes with democratic governance.

Is this what the forum you organize in May is about?

The Forum we plan to host in May of 2013 is titled  “The NSI Ottawa Forum on Governance of Natural Resources for African Development”  and we plan to have academics, CSO representatives and senior policy makers from Africa, Canada, Europe and the U.S. participating.

The Forum will examine not only how governments can best mobilize financial resources from natural resource exploitation but also how those governments can best spend the resources so that they contribute to the development of the national economy and their local communities. 

This is vital for the long term development and stability of the country. It is also vital for the mining companies themselves and their long run competitiveness. Their capacity to get contracts in the future will increasingly depend on how they are perceived both by host governments but also by the local communities.

So, you say that ...

... the more responsibly the companies behave, the more they consult with the local communities, the more positive the outcome will be in terms of strengthening their brand vis-a-vis their competitors.

But what if some investors buy up mining sites putting cash on the table, exceeding three-four times the market value?

Certainly this sort of thing happens but if that money is used for investment, to build infrastructure locally or to invest in adding value through local processing - rather than just shipping the raw minerals out – while creating more employment locally, this is going to help. This is what Canadian companies need to be doing with greater frequency, as well as talking to the local populations and taking their views into account before making investment decisions.

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