In an exclusive Critical Resource Q&A, Madagascar’s Minister of Mines and Petroleum argues that with the right reforms, the country can thrive as a destination for natural resource investment without succumbing to the resource curse.
Madagascar’s mining sector is in need of reform
“Despite our rich natural resource deposits, Madagascar’s extractive industries have not yet reached their full potential. This is mainly a result of the problems associated with the current legal and regulatory framework governing them – but also because the country suffers from a lack of institutional capacity and financial resources.
For instance, a significant challenge in the mining sector is revenue collection. Ilakaka in the south of Madagascar, the world’s largest open cast sapphire mine, is a prime example: artisanal miners exploit the resource and the state receives none of the revenues. The contribution made by the extractive sectors to national GDP stands at a mere 3.4%, with less than 10% of the approximately 4000 mining license holders contributing revenues to the state. Another problem is that licenses are currently awarded on a first-come, first-served basis, enabling opportunists with little technical or financial experience to snap them up before selling on to serious investors at a profit
To rectify these types of issues, the government is improving regulatory frameworks governing the mining sector. Our aim is to modernise mining regulations in ways that will increase revenues and build much-needed institutional capacity.”
Mozambique discoveries give hope for similar finds in Madagascar
“In recent years, some oil and gas companies, including ExxonMobil and Total, have taken the decision to leave Madagascar. Total left because of commercial reasons; the company decided that the bitumen they were planning to exploit was simply too costly compared with conventional oil in the current low-price environment. Despite their departure, we have high hopes for the future of the country’s hydrocarbon industry.
Several recent oil and gas developments provide cause for optimism. A reserve of 1.7bn proven barrels of heavy oil was identified and has now entered into production. We have also discovered 23bn cubic metres of dry gas at two wells, and exploration is still ongoing at a further 12. In addition, hydrocarbon discoveries in Mozambique in recent years have raised hopes that oil and gas fields of a similar scale might be found onshore or offshore Madagascar. This is not a utopian dream. There is a real possibility that comparable discoveries could be made, which is why several majors have recently approached the government to signal their interest in potentially investing in Madagascar. In order to make the most of this growing investor interest, the government will work to ensure that the new national petroleum code is ratified by parliament. Once this is complete, we then intend to embark on a series of road shows ahead of a bidding round.”
Madagascar can escape the resource curse
“If we succeed in implementing the reforms outlined above and securing significant investment, the extractive industries could deliver major benefits to Madagascar. Unlike certain other resource-rich countries, we are more likely to enjoy a resource blessing than to suffer from a resource curse.
There are two reasons for this. First, being an island insulates the country from the worst effects of the resource curse. Competition over resources can cause wars within and between countries that share land borders. Hostile foreign powers, for example, have been known to stoke civil wars in neighbouring countries in order to derive maximum benefits from their resources. Second, I believe the Malagasy people have a peaceful mentality and would not allow resource wealth to plunge their country into violence.”
Striking a balance between the environment and development
“Madagascar is blessed with very rich biodiversity – 80% of its flora and fauna is endemic to the country. We have to protect this biodiversity, but on the other hand we need the extractive sectors In order to develop our country. The relationship between the environment and extractive sectors is a sensitive question, and we have to look to harmonise them.
To illustrate how seriously we take these issues, approximately one-third of all possible mining areas in Madagascar are currently designated as protected zones. No mining or petroleum permits can be awarded for them, despite many containing substantial quantities of precious stones. Assuming they have the right licenses, companies are free to explore and exploit non-protected zones, but only if they comply with our environmental laws and respect the environment. By law, companies must obtain an environmental permit before they are allowed to carry out exploitation.”