African mining - opportunities and challenges

African mining – opportunities and challenges

The mining industry worldwide is undergoing unprecedented changes, including high volatility of commodity prices and rising exploration costs. Africa, which produces more than 60 metal and mineral products, has a huge potential with respect to mineral reserves exploration and production. 

 Despite the significant amounts of mineral resources held by the continent, Africa’s production represents only about 8% of the global mineral production. Most of this production is exported in raw form. Thus, in order to unlock its mining potential, Africa should overcome the obstacles that hamper the development of the industry. Revenues generated from mining can help African economies strengthen their comparative advantage and achieve greater economic diversification.The continent hosts about 30% of the world’s total mineral reserves and even a higher share of deposits of diamonds, vanadium, manganese, platinum, cobalt and gold. Investors are seeking expansion to new markets especially in the developing world, which presents a new investment frontier for leading mining firms. In this context, the African mining industry is offering unparalleled opportunities for both local and international investors.
Obstacles facing the mining industry in Africa
The African mining industry is facing many challenges. Chief among them is the still low base of the mining activity. A number of African countries depend on extractive resources for revenues and export earnings but mining faces huge challenges related to environmental degradation and social issues.
Low industrialisation of the industry: Although Africa is the most endowed region in terms of mineral resources, the continent remains under-explored. Expenditure on exploration activity in Africa has remained below USD5 per square kilometre relative to an average of USD65 per square metre in Canada, Australia and Latin America. Furthermore, most of the minerals produced in Africa are still exported without downstream processing, thereby reducing their potential value added.
High degree of dependency: Many African countries depend on the production of metal and mineral products. Out of the 54 countries in Africa, 24 rely on relatively few mineral products to generate more than 75% of their export earnings. This high dependence on mineral rent has been partly responsible for the disruption caused by external shocks and low level of economic development. Consequently, the abundance of natural resources has not necessarily translated into desirable sustainable economic growth in Africa.
Environmental and social impacts: In some African countries, environmental problems and social issues caused by mining have been sources of protests and conflicts between mining companies and communities in mining areas. Mining has often been associated with deforestation, land degradation, air pollution, and disruption of the ecosystem. For example, the recent strikes and deaths in major platinum and gold fields in South Africa have highlighted the social impacts and uncertainties surrounding the country’s strategic mining sector. To curb social and environmental impacts of mining, industry players and governments should strive for a more inclusive and transparent partnership by encouraging public participation in mining communities.
Outlook for the mining industry in Africa
Addressing the challenges facing Africa’s mining industry would significantly improve the outlook of the sector, making it viable and structurally transformative. Investors are searching for better opportunities and Africa with its vast mineral potential offers an attractive environment for mining investment. However, to attract investment into the sector, the authorities must address the risks and other impediments that confront the investors, including reducing bottlenecks to exploration and unstable mineral fiscal regimes. In turn, this would encourage mining industrialisation, thereby boosting the industry’s contribution to economic diversification.
Low costs of extraction and presence of global firms: The high cost of mining in developed countries has forced major global companies to seek investment opportunities in Africa, which offers relatively low costs of production. For instance, BHP Billiton, the world’s largest mining group, has cancelled about USD40 billion projects in Australia mainly due to high costs, including labour-related expenses. Such costs have led to an increased presence of multinational mining companies in Africa. This includes the world’s biggest companies such as BHP Billiton, Rio Tinto, Anglo American and Xstrata. More than 200 Australian companies are currently operating more than 650 projects across 37 African countries.
The emergence of major Asian investors in mining also provides additional opportunities for investor diversification in African countries. In particular, China and India have recently boosted their investments in the continent’s metals and minerals sector. These investments are critical for boosting mineral production and value-added processing. They also provide an impetus for scaling up infrastructure development, especially in energy and transport to meet the growing demand from investors.
An urgent need to industrialise the mining sector: Most African mining products are exported as raw materials. This reflects the low level of industrialisation of the continent’s mining sector. Accelerated structural transformation could benefit from mineral processing and value-added manufacturing linked to the mining sector. However, this would require attracting technology and skills from mature markets in order to improve the quality of mineral products. By improving the quality of mineral product exports, African countries could generate additional revenues that would be deployed into other economic sectors. This is essential for employment creation and improvement of living conditions of the people.
However, this will require deeper reforms and implementation of effective strategies specifically aimed at making the mining sector a key player in economic transformation. Proactive and deliberate government actions are pivotal to the success of Africa’s industrialisation strategy.
Establishing an industrial base through backward and forward linkages and promoting regional integration are other means by which African countries can foster the industrialisation of the mining sector. More importantly, Africa needs to exploit innovative strategies by harnessing the potential of public-private partnerships as well as ensuring compliance by industrial players to regulations that would limit the environmental and social costs of mining.
Role of international development partners: The Africa Mining Vision (AMV), which was adopted by the African Union in 2008, has an ultimate goal of using Africa’s mining potential to meet the Millennium Development Goals by achieving rapid and inclusive socio-economic development. The AMV’s action plan comprises nine programme clusters of activities. These include prudent management of mineral rents, building human and institutional capacities, mining sector governance, promoting research and development, dealing with environmental and social issues as well as linkages and diversification. The African Development Bank (AfDB) is currently actively involved in supporting the development of the mining sector in Africa. Through its public and private sector operations, the AfDB has intensified efforts in recent years to foster the role of mining industry as a catalyst for economic growth and poverty alleviation on the continent.
Mthuli Ncube is the chief economist and vice president of the African Development Bank

Africa's best, and worst, countries for mining

Annual rankings: Africa’s best, and worst, countries for mining

Africa as a whole doesn’t seem to be making much progress in creating a more attractive mining investment environment.
This, according to the Fraser Institute’s Survey of Mining Companies: 2010/2011. This annual survey of metal mining and exploration companies to assess how mineral endowments and public policy factors such as taxation and regulation affect exploration investment. Survey results represent the opinions of executives and exploration managers in mining and mining consulting companies operating in 79 jurisdictions around the world.
“While geologic and economic evaluations are always requirements for exploration, in today’s globally competitive economy where mining companies may be examining properties located on different continents, a region’s policy climate has taken on increased importance in attracting and winning investment,” says the report.
The survey’s Policy Potential Index (PPI) is a composite index that measures the effects on exploration of government policies including uncertainty concerning the administration, interpretation, and enforcement of existing regulations; environmental regulations; regulatory duplication and inconsistencies; taxation; uncertainty concerning native land claims and protected areas; infrastructure; socio-economic agreements; political stability; labour issues; geological database; and security. The PPI is based on ranks and calculated so that the maximum scores would be 100.
In this year’s survey, Alberta surpassed Quebec as the world’s most attractive jurisdiction for mineral exploration and development.
This is how African countries performed out of a total of 79 jurisdictions surveyed:

1. Botswana

Overall position: 14
Score: 74.0

2. Burkina Faso

Overall position: 24
Score: 66.3

3. Mali

Overall position: 29
Score: 58.2

4. Namibia

Overall position: 30
Score: 57.9

5. Niger

Overall position: 43
Score: 47.9

6. Ghana

Overall position: 47
Score: 45.1

7. Guinea (Conakry)

Overall position: 51
Score: 40.2

8. Zambia

Overall position: 57
Score: 34.9

9. Tanzania

Overall position: 61
Score: 32.4

10. South Africa

Overall position: 67
Score: 23.4

11. Zimbabwe

Overall position: 71
Score: 22.4

12. Madagascar

Overall position: 73
Score: 15.6

13. DRC

Overall position: 77
Score: 7.8
“Africa’s average score has not improved in the last four years. The African average went down to 40.5 from 41.8. However, Botswana continues to perform strongly. Its score went up to 74 this year from 66.5 last year. Namibia has also made good progress in this year’s survey, moving up to 57.9 from 49.2 last year. DRC (Congo) continues its decline down to 7.8 from 18.9 last year. This drop likely reflects the uncertainty created by the nationalisation and revision of contracts by the Kabila government,” states the report.
The report also features quotes from mining executives; they had the following to say about Africa:
“Zimbabwe has a horrible political situation and limited resources available. Madagascar isn’t too far behind – another day, another coup – but they have some really interesting potential deposits.” – Consulting company, Company president
“Burkina Faso is now one of the most attractive countries for gold mining and exploration in the world.” – Producer company with more than US$50 million revenue, Manager
“In the Democratic Republic of Congo, overnight you can lose your rights in a completely arbitrary or generally corrupt environment.” – Exploration company, Company president
“In Tanzania, you’re first in the queue to submit your licence renewal. On time, on date. Next thing you know, you’re informed that someone submitted an application for the same ground before you. You wonder who this mystery, invisible person was because you really were first in the queue!” – Exploration company, Director & CO
“Botswana is pro-mining and has efficient bureaucrats, no corruption, reasonable and consistent regulations, and reasonable taxation. It has remained constant as other traditional mining friendly areas have moved away from supporting mining or simply become stupid.” – Producer company with more than US$50 million revenue, Manager