Above-Ground Mining Risks in Africa: Mitigations and Opportunities

16th March 2022

 

 

With the recent global economic volatility as a result of the political instability in Europe, many institutions and businesses are reconsidering exposures and risks associated with their business units. This crisis also raises questions on diversifying portfolios as a means of avoiding over-reliance on a particular country or region. As a matter of fact, no region is free of risks and that has prompted us to share some of those associated with doing the mining business in Africa especially since the region is often considered as a potential alternate market for vital natural resources.

Africa offers a large amount of potential to address the surge in demand for vital metals but with significant risks to mining companies, both below and above ground. The below-ground risks associated with mining are often similar globally and mostly relate to the geological uncertainties and technology available for safe and profitable extraction. These risks are best mitigated by acquiring new data, innovations, experience and technical competency amongst other things, as has been exhaustively researched by various authors in the past. However, the mining industry is faced with even more challenges in this regard especially since geologically easy targets have been long identified and almost completely exploited. The above ground risks associated with mining in Africa includes high levels of corruption, political instability, ambiguous regulations and lack of political will to fast-track authorizations and infrastructural developments. Addressing these risks could considerably facilitate the increase in value generated from Africa while contributing to economic growths for these regions.

Selected countries and mineral potential (Source: www.africaprogresspanel.org)

Knutsen et., 2017 reports a correlation between natural resource measures and increased corruption, less democratic regime forms and worse governance. Reports and studies attribute this to the fact that natural resource revenues are technically easy to control and monopolize for political elites, providing funds for patronage and unofficial transaction in the absence of accountability and transparency (Boix, 2003). Autocratic regimes often create a system of dynamic changes in political situations with no predictable pattern in sight. This coupled with the regular debate for potential nationalization creates an unfavorable environment for future expansion and investment in the region. A report by Deloitte showed that sub-Saharan African economies are the top index of political risk and bottom of indexes of global transparency. This coupled with tribal and religious factionalization which contributes significantly to armed conflict appearing frequently pegs a popular question ‘Is Africa’s natural endowment a curse to itself?’.

In addition, regulations governing mining operations in African nations are often unclear, inconsistent, or unpredictable. It becomes even more discouraging when non-experts are appointed to lead these vital agencies, exhibiting no will to change or create a long-term framework likely to create a sustainable industry. Governments willing to modify and develop sustainable and attractive business environment for the industry can derive enormous value from it. For example, the Mozambican government announcing its intent to overhaul the country’s 10-year mining code. Similarly, the Zambian president recently created a stir with his intention to introduce new mining guidelines to improve transparency in the industry.  These legislature amendments create avenues for stakeholders to air their concerns while influencing the outcome of the new regulations. Even with these instances of regulation advancement, government authorities often have trouble enforcing them. Observers have expressed that these regulatory frameworks are failing largely to the private sector. In recent times, the Ghanaian government has taken drastic measures to changing this narrative through reinforced actions which creates an atmosphere of hope for the large scale gold mining in the region.

AngloGold Ashanti open gold mine (Source: AngloGold Ashanti)

High expectations anchored on the fact that mineral abundance in the region should translate into prosperity for Africans has led to community frustration and social unrest in many areas, and has increased the pressure on government to heighten their demands on mining companies for higher royalties for mineral access, investment in infrastructure, and contributions towards social services, thereby increasing cost of doing business in these regions. The poor state of critical infrastructure in sub-Saharan Africa cuts business productivity by a significant proportion. Physical infrastructure such as transportation, power and communication facilitates greater economic activity, efficiency, and overall growth; while social infrastructure including access to water, sanitation, health and educational services has a direct impact on the quality of life and could be attractive to potential investors.

Mitigating above-ground risks requires inclusive solutions that balances the needs and interests of governments involved, host communities and the mining industry. The governments are interested in deriving economic growth from mineral development. These are often translated into demand for capital injection, multi-use infrastructure such as roads and other value investment such as job creation and human development. The host communities have been seen to be interested in limiting the disruption that the mineral development would have on their daily lives especially in relation to their social and cultural context. In the same vein, they seek ways to access the benefits that community-friendly mining may bring to them. On the other end of the tri-axial relationship, the mining companies desire ways to enhance production levels, increase revenue and manage cost over the life cycle of the investment while guaranteeing exclusive and efficient rights for the development of a particular mineral asset. These varied interests create a common ground for negotiations and tolerance. An approach in this line may require enterprise to factor in the use of its resources and knowledge in infrastructure and social development to develop or support solutions that may improve the community or region in which it does business into the cost of doing business. This also calls for the government to grant incentives to such businesses probably in the form of tax breaks or royalty cuts.

In addition, mining companies could incorporate market-based strategies (MBS) which brings values to the host community, the government and itself as well. An example could be employing local mining experts where they exist, as a means to create an inclusive environment where the host communities are actively participating in the projects and businesses. An example was an entrepreneurial venture in South Africa that employs the community residents to convert tailings and waste rock materials to smaller aggregates. These aggregates are reused where possible for short-term constructions.

Dialogue between mining company with the community residents (Source: miningweekly.com)

In essence, mining companies should pursue these inclusive solutions which addresses the agendas of governments, communities, and the companies themselves, as part of their operations representing a genuine intent towards a new ‘social license to operate’ model instead of treating them as simply a matter of compliance. While mining companies are taking the lead as an active party contributing to the sustainability of the hosts and itself, it is necessary for the host communities and the government and her agencies to manage their expectations according to the economic realities and not see the mining companies as money bags or providers of solutions to all their problems.

 

References

Boix, C. 2003. Democracy and Redistribution, Cambridge: Cambridge University Press.

Knutsen, C. H., Kotsadam, A., Olsen, E. H., and Wig, T. 2017. Mining and Local Corruption in Africa. American Journal of Political Science, Vol. 61, No. 2. 320-334.

Lane, A. and Reggio, R. 2013. Mining in Africa: How inclusive solutions can mitigate risks. Deloitte Strategy Report.