African states struggle with mining balance

When it comes to regulating Africa’s mining industry, resource-rich governments across the continent show little consensus on how much foreign control is acceptable.

The vast supply of mineral resources and foreign investors keen to secure mining rights appear to give governments both comfort and boldness to push the bar higher and impose more controls on the industry.

The impact of tightening the noose around the mining industry from the government’s point of view appears justified on the basis that domestic budgetary shortfalls can be plugged by an increase in taxes and royalties from mining operations.

But more importantly, in the eyes of citizens, governments are keen to be seen taking remedial action against legacy injustices, in particular the unequal distribution of wealth from mineral resources.

Andrew Lane, Africa leader for the energy and resources unit at Deloitte, said governments wrestled with the equitable distribution of proceeds to the investor, the host government and the local community.

“I don’t think anyone has got it right yet. A lot of the value forgone by investors does not accrue to the intended beneficiaries. There are many reasons for this, such as insufficient understanding of needs, inefficient administration and delivery, and a bit of self-interest.”

Industry experts are also of the view that mining, already under stress from a commodity price slump and slower growth in sub-Saharan Africa, can ill-afford regulatory burdens if it is to turn the corner.

The International Monetary Fund estimates growth for the region this year at 2.8%, down from average growth of 4.5% over the nine years between 2008 and 2016.

“East Africa appears the most favourable area of sub-Saharan Africa, with economic conditions and deal activity expected to improve going forward. Southern Africa remains the weakest on this front,” said Sudhir Madaree, market and economic research analyst at Investment Solutions.

Across several countries in the region, thresholds of control held by the state in mining operations, either directly or indirectly through ownership by locals, range from 5% to 51%.

Mozambique and the Democratic Republic of Congo are at 5%, Ghana and Burkina Faso 10%, Zambia 20%, Kenya 35%, Tanzania 50% and Zimbabwe 51%.

South Africa, with its newly-gazetted Mining Charter proposes 30% ownership, up from 26% – a decision which puts it at the high end of African countries turning up the heat on the mining industry.

Peter Major, mining director at Cadiz Corporate Solutions, said the effect of the charter would be to make other African countries look more attractive to investors than South Africa.

“Tougher legislation leads to a loss of money. Neighbouring countries like Zambia now look good to foreign investors who will rush there rather than come to South Africa,” he said.

A Deloitte report in 2015 on the state of mining on the continent noted that 30 projects were expected to come online between 2015 and 2018.

South Africa was expected to take up 29% of a total forward spend of $10.5-billion (about R136-billion), but Lane said the charter would make “investors cautious and think long and hard” before making any big-ticket and long-term investments in the country.

Source: Business Live

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