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The mining industry and the regulatory framework in Madagascar: Some developmental and environmental issues

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This article offers a critical analysis of some of the issues associated with the emerging mining sector in Madagascar, within the context of the redefinition of the role of the State. First focusing on the development model elaborated by the World
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  The mining industry and the regulatory frameworkin Madagascar: Some developmentaland environmental issues * Bruno Sarrasin * Department of Urban and Tourism Studies, Groupe de recherche sur les activite´ s minie `res en Afrique,Universite´  du Que´ bec a ` Montre´ al (UQAM), Canada Received 25 November 2003; accepted 10 March 2004Available online 10 May 2005 Abstract This article offers a critical analysis of some of the issues associated with the emerging mining sector in Madagascar, within thecontext of the redefinition of the role of the State. First focusing on the development model elaborated by the World Bank and itsinfluence on the adoption of a new mining code in Madagascar, the analysis demonstrates that it is difficult for the sector’s newlegislation to allow the Malagasy State to manage the social and environmental aspect of the mining industry.   2005 Elsevier Ltd. All rights reserved. Keywords:  Mining; Madagascar; Policy; Environment; Development 1. Introduction While the mining industry in Madagascar does notoccupy a place as important as it does in other sub-Saharan African countries such as Guinea or theDemocratic Republic of Congo, the country nonethelesspossesses substantial natural resources. Located in theIndian Ocean some 500 km off the south-eastern coastof Africa, Madagascar, with an area of 587000 km 2 , it isthe world’s fourth largest island. Known among otherreasons for its rich biodiversity, it ranks with Brazil,Australia, Colombia and Indonesia among the fivecountries with the largest number of animal species [1].It has, for example, the third greatest diversity of primates, with 32 species, all indigenous; 30 chameleonspecies; over 135 amphibian species and 260 bird species[2]. The richness and variety of plant life is comparableto that found in tropical countries as a whole. Thecountry’s ‘‘natural’’ originality is the result of itsisolation: most of the animals living in Madagascarare unique (indigenous) and are evidence of anevolutionary period found elsewhere in the world onlyin the fossil record. Several of these primitive speciesrepresent, for many natural science disciplines, the‘‘missing links’’ required to cast light on the relationsbetween certain contemporary animal groups [3]. De-spite its rich natural resources, however, Madagascaris economically poor. Since the mid-1980s, its bio-diversity  e  usually referred to as its ‘‘environment’’  e has become the focal point of international funding,resulting in the preparation of a ‘‘development model.’’In order to fully appreciate the issues associated withthe emergence of the mining industry in Madagascarand the role assigned to the industry in this ‘‘model’’ bythe multilateral financial institutions, notably by the * A French version of this paper was published in the review  AfriqueContemporaine  (Agence franc¸aise de de´veloppement), no. 208, 2003.* Tel.:  C 1 514 987 3000x7075; fax:  C 1 514 987 7827. E-mail address:  sarrasin.bruno@uqam.ca0959-6526/$ - see front matter    2005 Elsevier Ltd. All rights reserved.doi:10.1016/j.jclepro.2004.03.004Journal of Cleaner Production 14 (2006) 388 e 396 www.elsevier.com/locate/jclepro  World Bank, this study, based on a political economyapproach, begins by briefly presenting the economicsituation of the country that led the government tosupport a liberalization program, the pace of which haspicked up in recent years. Despite the insistence of World Bank analysts that a social development aspectbe added to the mining industry reform, our keyassumption is that one of the primary goals of theMalagasy mining code relates to the redefinition of therole of the State. Our demonstration will be structuredthrough the different sections of this article: the analysisof the relationship between mining sector developmentand the conservation of natural resources, and theanalysis of the mining policies currently in place inMadagascar. This process will then make it possible toconsider to what extent the mining code adopted in 1999has contributed to the withdrawal of the Malagasy Stateand, if deregulation has indeed occurred, to identifycertain social and environmental impacts of the miningindustry in this context. 2. Some economic indicators Madagascar, an exporter of primary products (coffee,vanilla, cotton, sugar), as most sub-Saharan Africancountries, was severely affected by the two globaleconomic crises in the 1980s and 1990s. This isillustrated by the evolution of certain indicators setout in Table 1. For example, income per capita (GDP)has declined by 40% since the 1970s, and stood atUS$260 in 2000. This shows an annual average fall of   0.9% over the 1980s (1981 e 1991) and   0.1% duringthe 1990s (1991 e 2001). Such a trend means that, onaverage, population growth has exceeded the increase inproduction over the last 20 years. Although Madagascarhas one of the lowest population densities in sub-Saharan Africa, its GDP per capita makes it one of theregion’s poorest countries.According to the estimates produced in 2001 byWorld Bank economists, approximately 70% of theMalagasy population lives below the poverty line [4], ascompared with 43% during the 1960s, and 70% of thepopulation lives in the rural environment, even thoughagriculture represents less than 35% of nationalproduction (Table 1). In other words, 68% of thepopulation is poor and lives in the rural environment [5].Although an evaluation of poverty is part of a discussionwhichwouldtakeusbeyondthecompassofthispaper[6],ourstartingpointisthateconomicconditions,onaverage,deteriorated in Madagascar between 1981 and 2001.Obliged to introduce structural adjustment measuresas of 1983, the Malagasy government has been com-mended by World Bank economists for introducing‘‘good’’ policies, after Didier Ratsiraka’s socialist gov-ernment radically changed the direction of its productionmodel from agrarian collectivism to export-orientedcapitalism. One specific result was a fourfold increase e between the 1970s and the 1990s  e  in total loansobtained by the government. As shown in Table 2,funding granted to Madagascar by the World Bank roseby an annual average of 30.2% over the period from1971 e 1980 to 1981 e 1990 (the 1980s), and by 15.3%from 1981 e 1990 to 1991 e 2000 (the 1990s), for finance,policy and private sector development (i.e. structuraladjustment). Although the World Bank is not the onlyinstitutional player involved in funding Madagascar, itshould be stressed that in addition to the undeniable roleplayed by its representatives in designingthe ‘‘model’’ forthe country’s development, funding from the Bankrepresented 33.47% of the national external debt in2000, making it the largest single lender [7].With regard to the mining industry, the World Bankfunded three projects over the 1981 e 2000 period, thecombined costs of which were US$57.35 million. Morethan 85% of this funding relates to support fordevelopment of a more liberal regulatory frameworkfor this industry, a topic to which we shall return. 3. Madagascar’s ‘‘development model’’ With World Bank support, during the 1980s, thegovernment of Madagascar prepared a General De-velopment Policy for the country, based on three maingoals: anti-poverty initiatives, restoration of internaland external fiscal balances, and the quest for a betterregional balance [8]. From the viewpoint of the Bank’sanalysts, the three goals of this policy were attainable Table 1Evolution of some economic indicators Madagascar, 1980 e 2001Gross national product, 2000 (GNP, Atlas method, US$ billion) 4.1Gross national product per capita, 2000 (Atlas method, US$) 260Average annualgrowth (%)1981 e 1991 1991 e 2001 2000 2001Gross domesticproduct (GDP)1.8 2.9 4.8 5.9Gross domesticproduct per capita(GDP/per capita)  0.9   0.1 1.6 2.8Structure of theeconomy(% of GDP)1981 1991 2000 2001Agriculture 33.1 33.0 34.9 134.9Industry 14.1 14.2 13.1 13.1Services 52.8 52.8 52.0 52.0 Source : World Bank,  Le Partenariat Madagascar  e  Banque mondiale [Madagascar  e  World Bank Partnership], Direction des Ope ´rationspour Madagascar, Comores, Maurice et Seychelles, Antananarivo,2002, introductory pages.389 B. Sarrasin / Journal of Cleaner Production 14 (2006) 388 e 396  through three major joint initiatives implemented duringthe late-1980s: structural adjustment programs (SAPs),the Environmental Action Plan (EAP), and the socialimprovement program (PASAGE) [9]. However, theconvergence of these three types of programs hascertainly not been demonstrated, as indicated by anevaluation report on the EAP, released a few years later:Due to economic and social factors directly related togeneral state of poverty, forest resources are constantlydeclining and this trend has now a tendency toaccelerate. On the other hand, the budget austeritymeasures adopted under the auspices of the adjustmentprograms are hampering government initiatives toprotect the environment. This is true of the managementof forests which is increasingly incapable of dealing withforest degradation, despite the provisions implementedto avoid or limit deforestation [10].Despite many contradictions, adjustment, the EAPand PASAGE were identified by the Bank as the‘‘tripod’’ for implementation of Madagascar’s generaldevelopment policy. Acceptance of this assertion in-volves support of the liberalization program and thedefinition of ‘‘development’’ proposed by the WorldBank, which is based mainly on ‘‘economic’’ growth[11]. In this connection, during the late-1980s, theinstitution’s analysts added that a ‘‘dynamic program’’in the area of population was necessary, ‘‘[] to restorea population growth rate compatible with sustainableresource development [12].’’ In plain terms, this meantreducing the birth rate, the major cause of poverty insub-Saharan Africa, according to the analyses releasedby the World Bank [13]. Since the birth rate hasremained high in this region of the world in the last30 years, the Bank is suggesting another scenario tohalt environmental degradation, especially in a countrylike Madagascar: destruction of natural resources can bereduced through political and institutional changes thatwould give users the right to manage their own resourcesand the responsibility to do so without compromisingtheir survival. The underlying hypothesis is that onlythis approach makes it possible to preserve biodiversityand natural resources in the context of rural poverty,political instability and uncertain economic growth, asin the case of Madagascar. This ‘‘development hypoth-esis’’ is based on initial presuppositions, of which thetwo most important are:1) The various types of use of natural resources arestrongly influenced by the type of user; and2) the introduction of the necessary conditions will leadto better management of natural resources and lessdegradation of those resources.This is the context in which mining industry de-velopment is taking place in Madagascar  e  i.e. ina relationship linking the economy, the environment andanti-poverty measures, with the rural population as thevector. The ‘‘development model’’ is therefore based onthe equation whereby higher exports help to reducepoverty while also preserving biodiversity. Althoughmuch of Madagascar’s economy remains agricultural,and the studies of environmental benefits relate mainlyto that sector, the industrial sector  e  to which miningdevelopment belongs  e  accounted for 13.3% of economic production in 1996 [14]. Extractive industries contribute 3% to GDP and 1% to Madagascar’s exports[15]. The mining industry is therefore relatively marginalin the economy of Madagascar, when compared to othersub-Saharan African countries such as Ghana and Mali;however, its growth and environmental impact are suchthat it deserves attention. Table 2Evolution of World Bank and International Development Agency Funding of Madagascar, by economic sector, 1971 e 2000Sectors Total loans granted, US$ Million a Average annual rate of increase b (%)1971 e 1980 1981 e 1990 1991 e 2000 1971 e 1980 1981 e 1990 1981 e 1990 1991 e 2000Agriculture 64.3 163.2 158.95 9.8   0.3Water supply, sanitary infrastructures and urbandevelopment20.5 68.3 52.3 12.8   2.6Education, health, nutrition, population and socialsecurity14 60.8 429.1 15.8 21.6Electricity, industry, mining, petroleum, gas and othertypes of energy55.5 101 102.9 6.2 0.2Environment  e  26 30  e  1.4Finance, economic policy and private sectordevelopment5 70 291.4 30.2 15.3Public sector management  e  129.3 21.1  e   16.6Transportation 102.4 113 65 1   5.4Total 261.7 731.6 1150.75 10.8 4.6 Source : Calculations based on World Bank data, 2002, [web] http://www.worldbank.org. a Total loans granted by Board, but not necessarily paid. b Geometric mean.390  B. Sarrasin / Journal of Cleaner Production 14 (2006) 388 e 396  4. The mining industry and natural resourceconservation in Madagascar Madagascar has major mineral resources scatteredover the entire country. Many deposits have beenidentified, and mining potential is as follows:   Industrial ores: graphite, chromite, quartz, mica,coal, iron, ilmenite, nickel, etc.   Decorative stones: labradorite, rock crystal, rhodo-nite, marble, cordierite, celestite, vitreous beryl,quartz, opaque tourmaline, corundum, ammonite,aragonite, silicified wood, etc.   Precious stones: ruby, sapphire, emerald, aquama-rine and other beryls, etc.   Gold.With the exception of the large industrial minesintegrated into the national economy, mining operationsare mainly carried out by a large number of smalloperators in the informal economy. Revenues generatedby mining are earned 95% by industrial mines operatedby large companies, and only 5% by precious stones,since most products are disposed of through traffickers.Some 1500 jobs are directly dependent on industrialmining operations, compared with 50000 to 100000small, informal operations [16].One issue for the industry e and for a new regulatoryframework  e  therefore relates to the willingness tointegrate small-scale production into industrial-scaleoperations. This factor fits directly into the logic of the ‘‘development model’’ we identified earlier, the eco-nomic gains from which are potentially significant. Forexample, the two large mining projects funded byforeign capital (RTZ/QIT: titaniferous sands, andPhelps-Dodge: nickel and cobalt) will generate exportrevenues estimated at US$400 million annually after thenecessary investments (approximately US$900 million)have been made over the next 15 years. These twoprojects should commence production around 2005 andraise ore export revenues from US$25 million in 1997to US$500 or US$600 million by 2010 (Table 3).Realization of the weak scenarios assumes that nomajor new deposits will be discovered and that one of the two major investment projects (RTZ/QIT or Phelps-Dodge) will be abandoned. However, these projectionsare based on integration of small-scale mining oper-ations, establishment of a medium-scale gold miningproject, and the opening of at least two small mines forprecious stone extraction by 2005. In addition to the twomajor mining projects already mentioned, realization of the strong scenarios is based on the opening of two goldmines and two medium-sized precious stone extractionsites by 2010. Obviously, this potential is based on theestablishment of the ‘‘[ . ] right policy environment toencourage investment and vigorous external markets forMadagascar’s mineral products [ . ]’’ [17], in other words, a more liberal mining code compatible with theWorld Bank ‘‘development model.’’We have mentioned briefly the major elements of theliberalization program on which the government of Madagascar has been basing itself since the late-1980s(i.e. structural adjustment, the Environmental ActionPlan and the social improvement program). In thissubsection, it is not possible to provide a detailedanalysis of each of these policies. However, it isimportant to point out that the EAP  e  implementedfrom 1993 onward following the adoption in 1990 of the Environmental Charter  e  although presented asa catalyst for natural resource conservation, is part of the process to liberalize the economy and redefine therole of the State, as indicated by the following extracts:This policy [environmental protection] requires practicalimplementation: the Charter defines this implementationby setting out the Environmental Action Plan (EAP). Itpositions the EAP in relation to the major problems of the State: decentralization, disengagement of the State,liberalization [19].[ . ] Since the environment is everybody’s business, theState must give way to private operators, as its role is todefine policy, develop the necessary incentives, andmonitor and assess activities in the field. [ . ] Eventually,this process must result in the accountability of the Table 3Mineral production and export forecasts, Madagascar, 2000 e 2010(US$ Million)Scenarios GrossproductionGrossexportsAverage annualinvestment1997 35 20 102000 Weak 40 25  e Strong 450 400 2000 e 2010: 852010 Weak 50 30  e Strong 700 600 2000 e 2010: 200 Source : Adapted from World Bank,  Project Appraisal Document fora Mining Sector Reform Project , Report No 17788-MAG, Washing-ton, DC, June 2, 1998, Annex 4, p. 29.Hypothesis for realization of strong scenarios [18].1.-  QIT  : Total investment of US$500 million (2002 e 2005), includingthe cost of opening the mine and for related infrastructure; annualexports: US$80 million (2005 e 2015) and US$150 million there-after.2.-  Phelps-Dodge : Total investment of US$500 million (2001 e 2004);annual exports: US$350 million.3.-  Gold  : Reported production is currently zero. In order to realize thestrong scenarios, average annual investments estimated at US$40million would be necessary from 2000 to 2010, for annual exportsestimated at US$10 million in 2005 and US$25 million in 2010.4.-  Precious stones : Average annual investments of US$40 millionfrom 2000 to 2010, for annual exports estimated at US$25 millionin 2005 and US$50 million in 2010.391 B. Sarrasin / Journal of Cleaner Production 14 (2006) 388 e 396  largest possible number of players in the area of environmental protection [20].Indeed, the task force behind the definition of theEAP, the Cellule d’appuis au plan d’action environ-nemental (CAPAE), consisted mainly of private sectorplayers [21]. Under the guidance of plan management and through working committees, development of theEAP resulted in an amendment of the property law thatgave greater security to farmers but also to privatecompanies. Implementation of new legislation designedto improve environmental assessment is another out-come of the EAP. This is not presented as an end in itself but rather as a process for consideration and action toestablish objectives and implementation strategies. Theoutcome of this initiative was development of a newinstitutional framework as part of the World Bank‘‘development model,’’ which can be summarized asfollows [22]: 1) confirmation of the responsibilitiesand reinforcement of the institutional capacity of thesectoral agencies; 2) full and comprehensive contribu-tion by the private sector and national NGOs toenvironmental programs; 3) decentralization of man-agement, in a more intersectoral framework; and 4) themost limited possible institutional component.In fact, the EAP established three new agencies in theearly-1990s: the national environmental office (ONE,public), the national association for management of protected areas (ANGAP, private), and the nationalassociation for environmental initiatives (ANAE, pri-vate). The first is Madagascar’s equivalent of a ministryof the environment, although the latter was, in fact,established in 1994, resulting in jurisdictional issues withthe ONE. The second agency created under the EAPcoordinates the management of Madagascar’s naturalparks and reserves, in partnership with players andassociations of communities adjacent to these protectedareas. The third agency is responsible for the funding,development and establishment of micro-projects(such as agro-forestry or reforestation) in local commu-nities. These institutions, especially ONE, supportedpreparation of the government’s order decreeing thatinvestments must be compatible with the environment(MECIE, order No. 95-377 of May 23, 1995), in-troducing standards required for all investments andspecifically the obligation to carry out an environmentalimpact assessment. This was the context, marked by a‘‘development model’’ linking economic growth, envi-ronmental conservation and anti-poverty measures, inwhich the government of Madagascar adopted its newmining policy on July 30, 1999 (law No. 99-022). 5. Mineral policy in Madagascar The primary goal of the new Madagascar miningcode is to improve the industry’s results  e  significantincreases in investments and growth [23]  e  by pro-moting the operations of the large mines, withoutignoring small mines, including gold washing, identifiedas a source of additional income for many Malagasypeasants. In particular, the purpose of the 1999 miningcode ‘‘[ . ] is to help the Government of Madagascaraddress key needs (policy, institutional, environmental)in the mining sector, through a set of prerequisite stepsthat will lay the ground for future private investmentand whose implementation will provide a trainingground for Madagascar in exploiting, over the longterm and in a developmentally sound manner, thesignificant potential of its natural resources [24].’’ Thesub-objectives are defined as follows [25]:1) Increase the mining sector’s contribution to thenational economy through incentives to encourageinvestment in the industry;2) contribute to exports and national foreign currencyrevenues;3) promote development of regional infrastructure inorder to facilitate access to mining areas andmovement of products;4) open up the sector to national and internationalprivate investment. The government of Madagascaris clear in this regard: the State will not participatedirectly in the capital of mining companies;5) accelerate the process of State disengagement fromcommercial exploration, production and marketingoperations: the State will confine itself to explorationoperations for public purposes and will avoid anysituation that may bring its neutrality into question;6) promote private investment in mineral explorationand mining through appropriate techniques, creat-ing conditions conducive to capital inflows; and7) liberalize the marketing of mineral products: market-ing of the substances in question must not besubject to any restriction or monopoly benefitingthe State.The primary goal of the 1999 mining policy is toincrease the industry’s contribution to economic growth,while also liberalizing and withdrawing State involve-ment in operations. The structural adjustment programshad already helped to eliminate direct State interventionby restricting the activities of the office of national minesand strategic industries (OMNIS), and had introducedcompetition through enforcement of the former miningcodes. Madagascar’s mining industry was regulated, inturn, by the Law of July 31, 1896, Government OrdersNo. 60-090 of September 5, 1960 and No. 62-103 of October 1, 1962, and Law No. 90-017 of July 20, 1990,followed by No. 95-016 of August 9, 1995. The‘‘fundamental problems’’ associated with the conditionsprevailing before adoption of the 1999 code, were, inparticular [26]: 392  B. Sarrasin / Journal of Cleaner Production 14 (2006) 388 e 396
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