Opinion: Time to buy mineral resources in Africa

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India has deep historic relationship with many mineral resource rich African countries such as South Africa, Namibia, Zambia and Tanzania. This will not be claimed by any other Asian country. Even then, India is at least a decade behind China in going about it in an organised way to secure mineral deposits in the African continent. The diplomacy that China practises there by supporting economic development through liberal grants and aid has made it easy for its government-owned and private enterprises to become dominant owners of industrial minerals and energy resources in many African countries, including the ones riven by unending civil wars. While generous economic assistance has helped, the fact that Chinese and African economies are complementary in many ways has created the condition for China to win swathes of resources of all kinds in that continent. More than China’s resources acquisition, what the US and other Western countries find disturbing is China gaining considerable political influence in Africa.

China, which caused a seismic shift in global energy flows, has overtaken the US as the world’s largest importer of crude oil. At the same time, economic inroads made in oil-rich Africa came to China’s aid in mitigating the risk of depending on supplies from some traditional sources. Who could have believed some years ago that Angola would become China’s second biggest source of petroleum imports or China-funded extraction would constitute five per cent of Sudan’s oil exports! What has come to be known as ‘Angola model’ is China’s contribution to infrastructure development of Angola reimbursed through oil export by that country. Vedanta Resources chairman Anil Agarwal says: “China eyeing resources in Africa and elsewhere is understandable. In metal after metal from steel to aluminium to copper, the country has half or more than half the share of global production. Look at the ratio of China’s reserves of mineral resources to production representing the ‘burn rate’ of proven reserves. It remains in the red zone for future domestic supplies of iron ore, bauxite, etcetera to feed its plants of enormous combined capacity.”
Moreover, as processing of inferior grades of Chinese iron ore and bauxite adds to the cost of metal production, the country is left with no alternative but to depend more and more on imports, says Agarwal. The country, which produced 32 million tonnes (mt) of aluminium out of a world total of 58 mt in 2015, had to raise bauxite imports by a whopping 54 per cent to 55.8 mt. Even while Chinese steel production was down 2.3 per cent last year at 803.8 mt, it imported 2.2 per cent more iron ore at 953 mt. China has around 70 per cent share of the global seaborne trade in iron ore.

Compared to China, India, which ambitiously wants to grow steel capacity to 300 mt by 2025 from 118.2 mt and which, according to Agarwal, has the wherewithal to raise aluminium smelting capacity to 20 mt from 4.129 mt, now has good quality iron ore and bauxite in fairly large quantities. Agarwal is positive that the recently announced national mineral exploration policy, which is to facilitate private investment, including foreign direct investment by high-tech exploration groups will result in progressive expansion of reserve base of not only iron ore and bauxite but also of high-value bearing minerals such as diamond, gold, copper and zinc.

However, as big as natural resources endowments turn out to be, India should not miss out on opportunities to pick up deposits abroad, particularly oil & gas, coking coal, copper, nickel and zinc.

Agarwal, who since 2004 has invested close to $5 billion in African countries from Zambia, Namibia, South Africa to Liberia, says: “There is a huge amount of goodwill for India all over that continent. Large numbers of Indians have made African countries their home and their contribution to the local economy and community development is viewed with respect. Africa wants investments in prospecting and exploration of energy and minerals resources, opening of mines and infrastructure. For India opportunities in Africa remain plentiful.”

Vedanta, which has a growing portfolio of mining and metals making assets in the downstream in Africa has a rewarding experience. “We are in the process of creating another Hindustan Zinc in its post-disinvestment avatar through $1 billion Gansberg project at Black Mountain Mining area in South Africa. Gansberg has one of the world’s largest zinc deposits with reserves conservatively estimated at 130 mt,” says Agarwal. It’s time other Indian groups made Vedanta-like strides in Africa.

Source: Business Standard