External factors limit growth of Africa’s mining sector

Obuasi MineDespite its ‘open for business’ approach and myriad investment opportunities — in terms of greenfield and brownfield  projects across the commodity spectrum — Africa’s mining sector has, over the past several years, experienced limited growth.

This year proved no exception to that general trend, with Standard Bank global head of mining and metals Rajat Kohli describing it as a challenging year for the African  mining sector.

This is a result of a number of factors, ranging from the uncertain global macroeconomic environment, the loss of confidence in the mining sector, lower commodity prices and, most importantly, Africa’s challenging operating environment and lack of cost competitiveness.

Broadly speaking, external factors beyond the control of African industry stakeholders are limiting the trajectory of mining growth on the continent, said Mr. Kohli, elaborating that this year has seen a deepening decline in investment capital for  mining  projects.

Mr. Kohli added that the difficulty in securing project capital has been most noticeable in the junior African mining space, with lenders exercising caution. This has prompted users of capital to seek alternative forms of funding.

Compounding the shrinking pool of project capital is the global loss of investor confidence in the  mining  sector.

“Many investors believe they did not substantially benefit from  mining portfolio investments during the supercycle of the early 2000s. As a result, their confidence and willingness to invest in exploration  and mining projects have largely dried up,” KPMG mining head Wayne Jansen said.

According to the recently released ‘Africa Survey 2014’, published by Good Governance Africa (GGA), more than 45 per cent of companies operating in Africa cited the lack of reliable electricity on the continent as a major problem, while 43per cent cited corruption as an obstacle, with 42 per cent finding it difficult to secure bank loans.

Moreover, the World Bank’s 2015 Ease of Doing Business Index indicates that only three African countries — Mauritius, South Africa  and  Rwanda –— rank among the top 50, with 30 African states ranked among the bottom 50.

Compounding these operational challenges is the ever-present spectre of political risk.

While leadership organisations are certainly playing an important role in promoting development of the sector, Mr Jansen believed that, on a more practical level, industry stakeholders need to apply innovative thinking and adopt a broader approach to mining.

He maintained that developing mines on a project-by-project basis with dedicated, single-stream  infrastructure to support individual  operations is a costly and unviable approach.

“Many African countries are unable to unlock this resource potential on their own, as they often don’t have the skills, the developmental capital or the power generation capacity. However, by pooling resources, opportunities and skills, the different regions of the continent can organise themselves in a way that is genuinely more attractive as an investment opportunity.”

 

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