Investors in Kenya’s mining sector are up in arms over a decision by government to increase royalties in the nascent sector.
The investors, under the banner of the Kenya Chamber of Mines (KCM), contend the move is not appropriate for the sector, is still establishing itself, and could scare away investors.
Under the new royalties regime, rare-earth minerals, which are classified as precious minerals and used to attract a royalty of 3%, are now subject to a royalty of 10% of gross sales. Coal and gold royalties have doubled to 8% and 5% respectively.
The new rates were expected to come into effect on October 30.
“The rates proposed by government will make Kenya a very expensive destination for extraction of some minerals,” says KCM CEO Monica Gichuhi.
Tim Carstens, MD of Australian company Base Resources, which is among the major investors in Kenya’s mining sector, where it is undertaking a significant titanium project, says the new rates are way beyond the world average and have the potential to scare investors that are currently flocking into the nascent industry.
“Investors will not come to countries where governments are so tight,” he says.
Despite the mounting opposition from investors, government maintains it will not relent on its push to ensure Kenyans benefit from the country’s mineral resources.
Mining Cabinet Secretary Najib Balala says government is not willing to negotiate the rates because foreign multinationals have been benefiting from the sector at the expense of Kenyans.
“To help this country, we have to charge high royalties,” he said during the recent Mining Business and Investment Conference in Kenya’s capital, Nairobi.
He added that Kenya earned a mere $243 355 a year in royalties from the sector but hoped the new royalty rates would increase the figure to $11.5-million.
According to a recent African Develop- ment Bank African Economic Brief report, royalties for precious metals like gold, silver and platinum are set at an average of 4%, while those for base metals like iron-ore, aluminium, nickel, copper, lead and zinc, average 3.5% in many African countries.
The report notes that some African nations have been revising their mining royalties upwards to gain a bigger share of mineral earnings.
“We all understand that government must benefit, the people of Kenya must benefit and the investor must also benefit from his investment. But we need royalty rates that will ensure Kenya does not become uncompetitive,” notes Gichuhi.
Unlike other Africa countries with well-established mining industries, the Kenyan mining sector is still in its infant stages. The East African nation is endowed with several mineral resources and is believed to have the fifth-largest niobium deposit in the world, estimated to be worth $3-billion, as well as 15% of the world’s titanium resources.
The country is accelerating the enactment of new laws and policies to transform mining into a vibrant sector that can con- tribute 10% to gross domestic product.