development in east africa

Infrastructure deficit remains a challenge for the African mining sector

In a tough economic environment, mining companies are looking to invest in and develop projects that bring greater shareholder value. I was recently  interviewed by CNBC Africa regarding the issues facing mining companies wishing to develop new mines or expand existing ones in Africa. Globally, it has been reiterated by mining companies that shareholders are seeking a greater return on investment, and that it is the responsibility of the company to create an environment in which this can be delivered.

In Africa, we have seen significant economic growth largely driven by resources. Even in a mature market like South Africa, where this type of growth is declining, there are still in excess of 500 000 people employed in mining, and the sector contributes around 50 – 60% of the forex exchange of resource exports.

Infrastructure required to underpin growth

One of the key challenges that our continent faces when it comes to harnessing and sustaining resource-driven growth is the massive infrastructure deficit. If we again take a look at South Africa, probably one of the most established markets with regard to infrastructure, we only have three functional corridors; namely, the coal corridor to Richards Bay, the manganese corridor down to Coega, and the iron ore corridor to Saldanha. While all three corridors can be classed as successfully operational, they still lack sufficient capacity to underpin growth.

The costs associated with improving infrastructure for mining across the continent further complicate matters. Mining companies continue to invest in big projects, but these all tend to operate and grow in isolation and therefore do little to improve the overall infrastructure situation. It has become increasingly evident that an integrated approach is key to mining success on the African continent.

With Transnet as the only company that currently has the mandate to deliver infrastructure ahead of demand in Africa, infrastructure is not being built up at a pace sufficient to meet rising demand. At the same time, one acknowledges that budgets are already pushed with other pressing developmental requirements across a number of countries.

The challenge of regional integration

I believe it’s important that we acknowledge that Africa is a continent of over 50 countries, and that each region has its own agenda, opportunities and challenges. This makes unified decision making with regard to infrastructure difficult.  For instance, to compare Australia’s development in the mining sector with Africa’s is difficult, especially in this context.

Australia also has the benefit of single commodity lines, whereas Africa’s are often multi-commodity lines presenting further logistical challenges. Furthermore, Africa is in a very different place from a developmental standpoint.

The EPC Model and local skills development

Mining companies looking to invest in or expand projects in Africa, and in turn bolster shareholder value, should consider the increasingly popular EPC model. This involves outsourcing to a contractor to deliver the project outcomes in their entirety. It does require that one releases some sense of influence, and may be associated with a higher price tag, but we believe that the model goes a long way in boosting overall investor confidence and delivering successful project outcomes.

In using local labour for mining and infrastructure projects, it’s essential that we bolster the skill sets of our African communities in order to create a sustainable future for our continent and its population.

Interested in more insights? Watch the full CNBC interview.

David Okwara

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