The government of Kenya is hoping to win back the confidence of foreign investors in the mining sector after contracting an independent consultant to develop a comprehensive masterplan.
It has tasked global consultancy firm McKinsey & Co with designing a 20-year plan that will guide the development of the sector, whose potential has remained unrealised.
The move comes at a time when foreign investors are becoming increasingly disillusioned as their operations have been adversely affected by what some have described as “knee-jerk-reaction policies”.
“Kenya lacks the right framework for exploration and development of the mining sector. As we enact a new law for the sector, we are also designing a long-term plan,” says Mining Cabinet Secretary Najib Balala.
Promoting Investment The comprehensive plan that McKinsey & Co is to develop will promote investment, while ensuring that Kenya derives maximum benefits from its vast mineral deposits. The plan will be funded by the UK Department for International Development.
The plan, coupled with a new mining law and policy that government hopes will be in place by September, is expected to restore foreign investors’ waning confidence in Kenya’s mining sector.
Over the past two years, the sector has been characterised by anxiety, confusion and lawsuits following the cancellation of 65 prospecting and mining licences and the imposition in 2013 of an indefinite moratorium on the issuance of new licences.
One of the companies whose licence was cancelled, Cortec Mining Kenya (CMK), has since sued the Kenya government at the International Centre for Settlement of Investment Disputes, seeking $2-billion in compensation. The company, a subsidiary of Canada’s Pacific Wildcat Resources, was undertaking a niobium and rare-earth metals mining project in Kwale.
Increased Royalties
Investors in the sector are also aggrieved by a decision to increase royalties. Minerals like rare earths, which used to attract a royalty of 3%, have had a royalty of 10% of gross sales imposed on them. Coal and gold royalties have doubled to 8% and 5% respectively.
According to Balala, Kenya will have a new mining law by September, when the upper house of the National Assembly, the Senate, is expected to rectify the Mining Bill, which has already been passed by the lower house.
The mining sector is currently being governed by an archaic law that was enacted in 1940 and government believes the ongoing reforms will spur investments in the sector, pushing its contribution to gross domestic product from 1% to 10%.