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Mining investment at the core of African economic development

Mining investment at the core of African economic development

Photo by Duane Daws

1st March 2015

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – The potential for broad-based development driven by mineral resources as well as upstream oil and gas remains largely untapped in African countries, but the quest for solutions to make mineral and petroleum resources an engine for growth and development have been a central preoccupation of policymakers and other stakeholders in Africa.

A panel hosted by MineAfrica and the Canada-Southern Africa Chamber of Business heard on Sunday that one critical step forward was the adoption of the African Mining Vision (AMV) in February 2009 by the African Union (AU) Summit of Heads of States, as a blueprint for unleashing the potential of the sector and ensuring that the continent regained ownership of its natural resources.

“We encourage the global investment community to demonstrate tangible support for the realisation of the AMV’s goals, so that we ensure the sustainable development of these natural resources in an environment where investors, workers and host countries benefit,” South African Mineral Resources Minister Advocate Ngoako Ramatlhodi said.

He identified South Africa’s current significant infrastructure projects, comprising roads, rail, communications and electricity, as the country’s contribution to building the continent's Cape-to-Cairo infrastructure, which the prolific historical entrepreneur and mining magnate Cecil John Rhodes had set out to achieve but not completed.

However, Ramatlhodi stressed that unless anchored coherently in continental visions such as the AU’s Agenda 2063 and the AMV, the African extractive sector was unlikely to support structural social and economic transformation.

COORDINATED EFFORT
Pan-African strategy and communications consultancy africapractice CEO Marcus Courage told the panel that the premise of the AMV was that the continent, as a whole, had to coordinate its efforts to move mining from an ‘extractive’ industry to an ‘additive’ industry, where the emphasis was on stimulating wider economic growth.

He stressed that local content addition was critical to realising the goals of the AMV, but was simultaneously a challenge. Courage pointed to Zambia, for example, which had allowed a lot of time to pass without formulating a concrete industrial development plan to beneficiate the millions of tonnes of copper it had been exporting for decades.

He argued that about 90% of the local content was merely middle men vending imported goods.

“The AMV is a critical part of the process to stimulate discussion to get a common vision and sustainable contributions from all stakeholders,” Courage stressed, noting that it would be interesting to see what other partners of the AMV, such as Mozambique and Lesotho, would do as they started implementing their infrastructure development plans.

South African law firm Webber Wentzel partner Manus Booysen noted that it was a positive that African heads of State were taking action to implement plans to develop countries. “A shared national vision is imperative for the AMV’s success,” he added, emphasising that growth would only flow from stimulating mining investment.

“One simply can’t start economic development on its own. Mining is the starting point,” Booysen said.

While governments should get their fair share of resource-rent revenue, he cautioned that governments should not exact revenues from mining at the cost of mining investment.

Booysen noted that despite certain African nations, such as South Africa, having gone to great lengths to make geological information available to prospective miners, the resource potential data within any given country was primarily the domain of the privately held junior mining sector, pointing out that by encouraging and supporting investment in the junior sector, the cumulative collaborative effect would assist States to move resource development forward.

He also warned that governments’ capacity to negotiate individual contracts and government skills capacity building were significant challenges in implementing the AMV.

Another significant obstacle was the infrastructure constraints many African countries experience.

INVESTOR SENTIMENT
Booysen pointed out that since Ramatlhodi was appointed to the portfolio following the 2014 elections, he had given investors positive assurances such as increased legislative certainty, while the country was in the midst of rolling out massive infrastructure projects to improve roads, rail and electricity infrastructure.

For instance, under Ramatlhodi’s watch, South African President Jacob Zuma had referred the Mineral and Petroleum Resources Development Act Amendment Bill back to Parliament, which had been “shepherded through Parliament” shortly before the 2014 national elections, and had been on the President's desk since then.

The President had cited some critical problems with the Bill as the rationale for sending it back to the National Assembly, including concerns over constitutionality, which commentators had warned about during the parliamentary public hearings of late 2013.

There was also a risk that the Bill would violate international trade agreements to which South Africa was party, while the National Council of Provinces had insufficient time to consult provincial legislatures as to the Bill's suitability.

The "big question", as Ramatlhodi put it, was whether the final Bill would meet South Africa's socioeconomic development goals while simultaneously maintaining investor-friendliness.

Ramatlhodi noted that while there were currently certain foreign companies looking at divesting their South African gold assets, it would be a boon to locals if they would be able to pick up these assets, in the ideological struggle to wrest control of the continent’s resources from foreign companies. But, he stressed that this process would have to happen in a natural way and that coercing this outcome in any means would not be productive.

While the Minister had also given investors certainty that increased broad-based black economic-empowerment ownership margins, currently at 26%, were not being considered at this time, he emphasised that local ownership, training and management would open the window of opportunity to locals in future.

He said despite the plan to recapacitate the State-owned miner by adding more assets and resources, it was up to the private mining sector to lead growth. “We are moving back to the basics, which starts by empowering our communities and mineworkers. The dialogue for this to take place has begun.”

Ramatlhodi highlighted that South Africa was ahead in implementing the AMV at this stage. “We will be remembered for our infrastructure projects,” he stated.

Partner and head of Webber Wentzel’s mining sector group, Peter Leon, told the panel that the AMV was critically important owing to its emphasis on growth development. “It’s a step forward. The only question that remains to be answered is how the AMV will work in the context of the low-price environment?”

Courage replied that the established trend was that African States wanted to move forward in developing their respective resource sectors, as well as the additive industries; the foundational idea of the AMV.

Ramatlhodi concluded that when one looked toward Africa’s future, factoring in things such as population growth, urbanisation and a growing middle class, the future looked bright. “First movers would reap the benefits in a big way,” he said.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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