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Louis Michel

European Commissioner for Development and Humanitarian Aid

Natural Resources: challenges and opportunities

Belgo-British Conference 2008 – Palais d'Egmont
Brussels, 13 November 2008

Ladies and Gentlemen,

First of all, let me say how pleased I am to be speaking to the Belgo-British Conference, an initiative which I helped launching when I was Minister of Foreign Affairs.

I would like to congratulate the organisers of this year's conference for having selected the topic of natural resources. More than ever, we are aware of the challenges and the opportunities which they present to our two countries but also to the world at large.

As European Commissioner for development and humanitarian aid, the topic is dear to my heart. Only last week, at the occasion of the Nairobi Summit on the situation in the Great Lakes Region, in the presence of Presidents Kabila and Kagame, I denounced the plundering of raw materials in Eastern Congo because it feeds the conflicts and causes a genuine humanitarian crisis.

A changing international context

I have no doubt that you have discussed in depth the recent changes of supply and demand in the sector of natural resources. It will allow me to be very brief on this.

Demand for natural resources will remain high and will pick up again when the recent financial turmoil and the upcoming economic crisis will be over.

Two fundamental facts will thus remain:

First, developing countries that are richly endowed in many of the world's most strategic natural resources will maintain or strengthen their geopolitical position. Africa for instance holds around 85% of world known reserves of platinum and chromium as well as 60% of reserves of manganese and cobalt. It also accounts for 10% of world oil's reserves. These resources are all crucial for industrial development and technological innovation.

Secondly, in many, if not most, cases, such richness has proven to be a curse rather than a blessing for these countries' development:

The economic management of revenue flows has proven difficult. It has lead to overvalued exchange rates, killing off export industries and generating "boom and bust" cycles.

Perhaps even more importantly, it has undermined the development of sound political governance and fuelled corruption.

Finally, as we know and as we see for the moment, the control of natural resources is often a core root of conflicts. The case of conflict diamonds is the best known (Angola, Sierra Leone, DRC, Liberia). Yet, resources such as gold, coltan, timber and cocoa are also associated with conflicts.

The key question we face today is therefore what can be done to turn this curse into a blessing. Countries like Botswana have clearly shown that this is possible. This is a key question from a development perspective but not only so. It is global peace, prosperity and security that would gain from a proper management of natural resources in producing countries. We all stand to gain from this, the citizens of developing countries, the private sector (domestic and foreign), local governments and the international community. This is also the spirit of the raw materials' initiative launched by the European Commission last week.

In sum, therefore:

All stakeholders involved have a key role to play in addressing these challenges. The aim must be to build a new economic logic based on fair allocation and – I dear to say taxation – of revenues, convergence of interests, win-win partnerships and, in the end, global sustainable development.

Action must be taken at several levels. Let me refer to some of the examples you have discussed over the last two days, and add some of the initiatives the European Commission is taking or thinking about. I will finish by being somewhat controversial and mention actions that we cannot envisage in development aid but on which we, Member States and European policy makers, should reflect.

At the international level, the European Commission and several EU Member States, like the United Kingdom and Belgium, play a key role in the international multi-stakeholder schemes designed to foster good governance, transparency and sustainable management in the exploitation and trade of natural resources.

The Kimberley process stands out as a clear reference. It fostered a coalition of forces between national authorities, NGO's and the diamond industry to build a certification system that works.

The EU is also leading and financing a number of other international efforts like the G8 support to the pilot project on certification of coltan; the Extractive Industries Transparency Initiative (EITI), and the Forest Law Enforcement, Governance and Trade (FLEGT) which fights illegal exploitation and trade of timber.

Increasingly, however, international efforts should also involve those emerging economies like China, India and Brazil which are increasing their roles as major global players and investors in the natural resources sectors. This is, for instance, the approach promoted in the recent European Commission proposal for an EU-Africa-China trilateral dialogue and cooperation on peace, stability and sustainable development. We have identified environment and natural resources as a key area for such enhanced trilateral cooperation, which will start pragmatically with a few pioneer projects.

Moving to the national level, an active policy and political dialogue with producing countries and regions is key to foster good governance and sustainable management in natural resources sectors. The EU is highly proactive on this front:

First, we have put good democratic governance in general and good economic governance in particular at the core of our bilateral cooperation. The good governance initiative and the incentive tranche of the 10th EDF, endowed with about 2.7 billion euros, are the core mechanisms at this regard. The European Commission has integrated the EITI initiative into its monitoring and political dialogue, with countries such as, for example, Cameroun, Gabon, Ghana, Liberia, Mali, Madagascar, Niger, Sierra Leone and Tchad.

In addition, the policy dialogue underpinning our budget support also allows us to foster improvements in countries' management of public financial resources, including those arising from the exploitation of mineral resources. In countries such as Zambia, we have helped them move to a single treasury bank account, used for all their revenues: tax and customs revenues but also revenues from the exploitation of natural resources. This instrument has proved to be rather effective.

Second, we stand ready to support "home grown" initiatives like:

  • the African Mining Partnership launched in 2004 under the auspices of the NEPAD;
  • the future African Strategy and Action Plan on mineral resources development which the African Union is preparing.

Other ideas, such as an Africa Mining Institute that would:

  • train selected students and upgrade government officials' skills;
  • increase the capacity to negotiate contracts with private firms and
  • ensure the effective collection of related revenues.

This is the type of initiatives in which private companies could be actively involved, through financial support or by providing training courses and/or support materials. Moreover, such institutes could also develop tailor-made short-term training sessions for parliamentarians, media and civil society actors in order to reinforce their capacity to exercise their oversight responsibilities and fulfil their watchdog mandate.

Time prevents from giving you my thoughts on the role of the private sector. It plays a central role, not only in terms of financial resources, jobs creation or transfer of technologies and skills; but also because of the environmental and social negative externalities, corruption and tax evasion, especially when companies invest in fragile countries with poor institutions and governance systems.

In the long run, the private sector, the local actors and the international community all have common interests: stable markets, political stability and sustainable development in resource-rich countries.

Finally, we, Europeans, have to acknowledge that the rising presence of emerging countries such as China and India in developing countries that are rich in natural resources is raising again the issue of the tying of aid.

Our development aid is not conditional on access for our companies to their natural resources. As development commissioner, I defend the untying of aid. Tied aid has been very detrimental and I have seen many "white elephants" that served no development purpose. They only served the ego of certain presidents and the interests also sometimes of companies from the North. But I think that our countries need to look at all their external action instruments: diplomacy, development and humanitarian aid, credit insurance and others, and examine if, taken as a whole, these instruments serve their purposes, if and how they could be changed, or if new instruments should not be created.

Thank you for your attention.

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