06 October 2012

WB launches new fund to help African countries negotiate best-possible deals for their natural resources

Paris - 05 October 2012 - With new discoveries of oil, gas, and other minerals generating a wave of significant mineral wealth in African countries, the World Bank today launched a new fund to help countries on the continent level the playing field and ensure equitable deals in their natural resource contracts with international companies.

With Africa holding 15% of the world’s oil reserves, 40% of its gold, and about 80% of the platinum group of metals, natural resources represent important development opportunities for the continent. For example, oil production has been growing steadily in Africa, and is expected to continue to rise at an average rate of six percent per year for the foreseeable future. 

At the 40th Anniversary Meeting of the Zone Franc Monetary Union in Paris today, attended by over 20 African Finance Ministers, the French government strongly supported the new fund, and encouraged other governments and donors to back the Bank initiative. 

Welcoming the French government’s strong support, the World Bank’s Vice President for Africa, Makhtar Diop, said the new fund would work closely with the African Development Bank and other partners for maximum impact, and would welcome donor support to expand its reach. 

According to a concept note on the new World Bank fund, translating natural resources wealth into broad-based development can be difficult in Africa. Contracts to develop natural resources are often highly complex, and African governments may be less well-informed about technical details and geological endowments than the oil, gas, or mining companies which come to negotiations with highly-paid lawyers and technical staff. The Bank notes that the potential benefits of new extractives contracts in African countries are likely to be missed in such negotiations when governments have insufficient capacity to manage the negotiations process. 

On top of this inbalance between governments and private companies, is the complexity and long life of these contracts, and a further challenge is that opportunities to create local jobs are often frustrated by poor infrastructure and limited country capacity. 

The Bank notes that managing the environmental and social footprint of the extractive industries sector is also essential to avoid damage to land and waterways. 

The proposed new fund would cover several key priorities 
  1. Legal advice to negotiate better deals from private investors 
  2. Help to reduce environmental risks 
  3. Technical assistance to address social risks 
The Trust Fund would be demand-driven but in the initial pilot phase complete preference would be given to countries which meet the following criteria: 
  1. Countries with significant discoveries of oil, gas, or mineral reserves, and that are in the process of negotiating contracts. 
  2. There is a demand from the country, and willingness to receive advisory services for well- identified sound projects. 
  3. There should be social and environmental challenges of significance. 
Source: World Bank