African mining not as competitive but continues to grow
When compared with other continents, Africa is not as competitive as it could be in the global mining industry, as more global investment is flowing into South America and China, says global advisory firm KPMG mining in Africa services head Ian Kramer.
However, the African mining industry continues to grow significantly in West Africa, as gold projects are being developed in Ghana, Mali, Côte d’Ivoire, Burkina Faso, Guinea and Mauritania.
Kramer highlights that Guinea is seen as the West African country with the most growth potential, owing to its plentiful gold resources and iron-ore developments that have attracted several global industry players.
“Despite this, the growth of the gold sector in the west of Africa is being hampered by a recent depressed global gold price and the current political unrest in Mali and Côte d’Ivoire,” he says.
The lack of infrastructure development
Another challenge for mining projects in West Africa is the lack of infrastructure development. Kramer believes that country-specific issues, such as Ghana’s significant tax reforms and the proposed changes to government equity interests in Guinea, will further affect future growth in the region.
Governments on the continent are demanding a bigger share of the spoils and are imposing themselves through various taxes, royalties and other reforms that are introduced in almost every country that has an active mining industry.
However, he points out that this is a global issue, as South American countries, such as Peru, are increasing taxation on the mining sector.
It remains to be seen whether these reforms will enhance or hamper the African mining industry, says Kramer.
Meanwhile, he says in Central Africa significant growth is being experienced in Congo’s iron-ore sector and the gold sector in the eastern Democratic Republic of Congo (DRC).
However, this area is experiencing constraints similar to those of West Africa with regard to gold development, the lack of infrastructure development and the adequate maintenance of existing infrastructure.
A mixture of opportunities and troubles
Southern Africa has a mixture of opportunities and troublesome countries, says Kramer.
“Despite Zambia showing considerable growth in its copper industry, there are a number of factors that could affect this growth. The newly appointed government, for instance, and the subsequent changes that this government has or is in the process of implementing will influence the industry. Legislation that ensures that all transactions happen in the country’s local currency’s are now being enforced and there is a move to reform the tax and royalty regimes of the county. In addition power shortages in the country also continue to present challenges to the mining industry,” he notes.
There are several investments in coal mining projects, in Tete province, in Mozambique, but infrastructure is needed to transport the coal and currently various location sites are under review for the construction of new and proposed ports that will facilitate this.
Kramer predicts that interest will soon increase in Namibia’s uranium resources despite the current pace of project development being slowed down by the global negative perception of nuclear power generation to which Japan’s Fukushima Daichi nuclear disaster in 2010 may have contributed.
He expects mining in Zimbabwe to trickle unless the country undergoes governmental reform, as legislated indigenisation will prevent foreign investment that is needed to help the country develop to its full potential.
Meanwhile, South Africa’s platinum industry the biggest known commodity resource than any other in the world and consolidation in this commodity is far from completed, Kramer suggests.
The continent’s biggest mining downfall remains infrastructure development and the continent will not realise its full potential if the avenues required to transport commodities from mine or pit to port are not developed and implemented effectively.
Kramer says Africa’s history of insufficient resource development, including human resources, coupled with poor maintenance of existing infrastructure, has resulted in the infrastructure and cost challenges.
Increases in power and labour costs are also problematic as they continue to escalate.
Also, the debate about the social licences with which to operate mines and projects is growing.
“Both communities and governments are demanding to be more involved, not only in the profit sharing of these operations, but also in the operations,” states Kramer.
He suggests the current negative economic environment and concerns surrounding the ability of Europe and the US to pull themselves out of their existing economic slump continue to place mounting pressures on the high level of most global commodity prices from a demand side perspective. It’s often such cycles of higher commodity prices that contributes to communities and governments wanting to have more involvement and influence in mining projects, however, this involvement itself may place added pressure on the ability of the mining industry to operate optimally.
The mining industry is a catalyst for economic development, which is needed to tackle successfully the social challenges, such as poverty, a lack of education and unemployment.
There is an abundance of infrastructural development opportunities on the continent and, already, significant investment has been made in improving the existing infrastructure.
He expects Western business models of investment will continue to be challenged by government demands such as localised economic empowerment and says this will play a role in whether or not the continent will receive further investments to fuel the growth of developing countries.
“A resource-hungry world simply cannot ignore a commodity-rich African continent. One simply needs to look at China to realise its current strategic investments in Africa are aimed at securing its own future, as well as benefitting the continent. Therefore, China will continue to make such investments,” Kramer maintains.
About David Okwara
Burkina Faso, Central Africa, coal mining, Côte d’Ivoire, DRC, Ghana, gold resourceful, government equity, Guinea, Ian Kramer, infrastructure developement, iron-ore, KPMG Mining, lack of infrastructure, Mali, Mauritania, Mining, platinum, political unrest, tax reforms, taxation on mining, uranium, West Africa