Many West African countries are desperately poor, despite being rich in natural resources. Experts say African governments need to negotiate harder with foreign investors to ensure their country benefits. Senegal has not had a very large mining industry, but a recently announced multi-billion-dollar deal with steel giant, Arcelor Mittal, represents the West African country's latest attempt to increase its share in the mining sector. Naomi Schwarz reports from Senegal's capital, Dakar.

The deal Senegal negotiated to develop an iron mine in southeastern Senegal is one of the biggest in the country's history.

Indian metal magnat Lakshmi Mittal arrives to give a news conference after a visit to the Liege Arcelor-Mittal group steel factories, 28 Feb 2007

Independent economist Moubarak Lo says this could be a good opportunity for Senegal.

"This is a good occasion to start a new way of doing business with international investors through a win-win partnership," said Lo. "They can make profits with their project. but while also creating real impact in the country. "

Senegal only has phosphate mines operating, but expects gold mines to become operational within a couple years and has been prospecting for copper and uranium. Discussions to develop iron mines in the Faleme region have been under way for more than two decades. Lo was in the government in the 1990s during an earlier phase of negotiations.

He says he is skeptical that the Mittal deal, large as it is, will really do much for Senegal.

"An agreement on paper, this is only one phase. Now, the question is will Mittal implement the agreement as it was signed," said Lo. "I have seen so many agreements signed in this country without any action following."

He says the capital investments described in the project are not enough to create real development in Senegal.

"If you want real impact, you have to go further. Not just developing the mine, the railways, the mineral port, and taking the iron ore brut and export it to India or to another countr," added Lo. "The challenge for the government and the position the government should have would be to transform the iron ore here and that will create value in Senegal."

Arcelor Mittal has said it is considering investing in steel-making facilities in the country.

Abdoul Aziz Ndiaye, an engineer in Senegal's Mining and Industry Ministry, says Senegal's mining code also requires mining companies to invest in social development projects.

"A good example in the area around Sabodala where in a period of two years, the first gold deposit will be exploited," said Ndiaye. "We have a strong social program about water supply, solar energy supply to schools and public places, about health, about women and young people education."

He says the final agreements with Mittal include social projects that emphasize health and vision.

He says, Mittal has talked about spending about $5 million, but the contract does not stipulate the total amount Mittal is required to spend on such programs, and he says he hopes Mittal will eventually commit more funds to social development.

"[It is] not enough if you take the billion-dollar investment, but it is only the social program in the area just near the project in the region where the mine is operating," said Ndiaye. "And I think they can invest more in different areas because the project is from Faleme and Bargny. For example, in the Bargny area, where the port will be. It is an evolutive aspect. The amount they have given is, I think, just for beginning."

An analyst with Oxfam America, Ibrahima Aidara, says governments should negotiate harder for deals that will benefit their countries.

"Foreign investment is good, and it can really boost national economies," said Aidara. "But you have to negotiate very well and integrate your national economic interest and of course your communities. We could get better than what we are getting."

He says Ghana, one the world's largest gold producers, is a good example of the problem.

"For example, 95 percent of mining revenues of Ghana is going out Ghana," he continued. "Only five percent remains in the economy. And it is just the same in all other countries."

The director of mining watchdog group Global Witness, Patrick Alley, says African governments fear scaring away foreign investors and end up selling themselves too cheaply.

He says Arcelor Mittal negotiated such an agreement with Liberia only months after the country ended its brutal civil war.

But recently, the Liberian government was able to re-negotiate the deal with terms that are much more favorable.

"We were able to say to the government of Liberia that they were in a very strong position," said Alley. "Mittal really wanted that iron ore, they really want to be sustainable in their iron ore production. So Liberia was in a much stronger bargaining position than it thought it was. And that made a whole lot of difference."

Alley says governments should not just focus on direct investment. Unfavorable contracts, he says, have included large tax breaks for foreign investors and non-market driven pricing agreements for the exported materials.