The European Union (EU) has advised Malawi that sound governance, regulations and appropriate taxation measures are key if the country is to avoid turning the newly established mining industry into a curse that does not benefit ordinary citizens.
Speaking during the launch of Malawi’s Mining Governance and Growth Support Project (MGGSP) in Lilongwe on Tuesday, EU Ambassador Alexander Baum said mining has the potential to drive the economy and pull the country out of dependency, but said there is need to learn how other countries are doing it and also put in shape public finance management systems if the proceeds are to drive growth.
He said: “In many cases, mining revenues are seen as a curse more than a driver of growth as wealth becomes concentrated in a few hands and corruption becomes rampant. The lesson is that sound governance, including regulatory frameworks and taxation, [are] key to the benefit of the country.”
Baum also said public finance management is crucial since a significant part of the benefits from the mining sector comes from the contribution of royalties to the national budget.
He said some of the countries Malawi can learn from include Botswana and Norway where, he said, the mining sector has contributed to the development of their nations through best practices in managing the sector.
Baum also warned against unrealistic expectations of a quick economic recovery through the mining industry. He said Malawi should appreciate that it would take time to develop the sector to fully benefit the economy.
He was, however, optimistic that once on course, the mining sector will enable Malawi to re-balance the economy and get out of the trap of low exports, high imports and persistent aid dependency.
Baum said as a country, Malawi should realise that it is in competition with other countries for investment resources and the need to deal with potential investors wisely.
EU is co-financing the project with a grant of 4.1 million euros (about K1.88 billion) whereas the World Bank has provided a loan of $25 million (about K8.8 billion). France is also set to pump in 10 million euros (about K.4.6 billion) for the geological mapping and Japan has also already started working on application of Geographical Information Systems (GIS) and Remote Sensing in Mineral exploration.
The project, which was launched by President Joyce Banda, among several objectives, aims to improve the efficiency, transparency and sustainability of the mining sector management.
Among several areas, the project involves geological mapping, review of the legal and regulatory frameworks to support development of policy and legislation, building capacity and providing support to small-scale miners, developing standards documents and procedures for licensing and agreements, and creating value addition.
World Bank country manager Sandra Bloemenkamp said mining can only help Malawi’s economic diversification when the market conditions are there, and provided the right policies, practices and capacities are in place to stimulate mining exploration and monitor exploitation.
Said Bloemenkamp: “Transparency is indeed recognised as a successful risk mitigation strategy to avoid the so-called ‘resource curse’—the syndrome affecting some resource-rich countries where the exploitation of the national mineral richness is not associated with growing prosperity of the population.”
The President observed that one of the major challenges for the mining sector is energy, but assured the business community that projects have been put in place to resolve the power shortages once and for all.
She also made a commitment that government will ensure that once mining reaches full potential, Malawians—whom she said are owners of the resources—remain the primary beneficiaries.