MARTYN DAVIES Governments should use the Mining Indaba as a platform to communicate clear and coherent policy statements
The global imbalance between the supply of and demand for commodities is further exacerbated in Africa by regulatory and political risk uncertainties, says multinational professional services provider Deloitte Africa emerging markets and Africa MD Dr Martyn Davies.
He stresses that governments on the continent should use an event like the Cape Town International Convention Centre-hosted Investing in African Mining Indaba, which will run from February 6 to 9, as a platform to promote themselves to international investors.
“Rather than the usual long-winded policy statements we are used to hearing, governments should be prepared to present some very clear and coherent statements that differ . . . from those of competing mining domiciles. The Mining Indaba provides an excellent forum for doing this, given that all the major players in the industry will be present. Unfortunately, however, this opportunity has, historically, often been wasted.”
Davies notes that a key focus of the global mining industry has been to try to rebalance supply and demand, highlighting that, at the height of the China-driven commodities supercycle in 2012, one-third of global capital was being directed to the resources sector, resulting in significant overcapacity.
“While the Chinese market remains robust, commodities demand globally has normalised in the past two to three years and the mining industry has, thus, been concerned with reducing overcapacity . . . to redress the imbalance between supply and demand.”
While this has been a common trend worldwide, China and diversified miners that are central to the supply and demand balance continue to invest in critical projects, which Davies notes leaves countries such as South Africa, the Democratic Republic of Congo, Zambia, Zimbabwe and Gabon, which are subject to high levels of regulatory uncertainty and political instability, out in the cold.
“There is no sector more heavily influenced by politics than the resources sector. If the state of politics in these countries is so poor, how can we expect the investment environment to be better?”
He notes that, as a result, a significant amount of much-needed investment in African mining has been deterred, not only from traditional economies such as Australia, Canada, the US and the UK, but also from emerging Asian economies.
“If a country is difficult to invest in, it’s difficult no matter who you are, as the same regulations, or lack thereof, and political uncertainties have to be navigated. “The current state of affairs in many African mining locations is, thus, very worrying.”
African governments need, therefore, to cut bureaucracy, create the necessary human capital skills, encourage entrepreneurship and improve governance, says Davies.
“After all, the emerging market story is ultimately a governance story. To truly develop, Africa’s leaderships need to grasp this simple fact.”
Like the majority of emerging markets, he notes that growth in gross domestic product in Africa has dropped dramatically over the past three years, highlighting that this brings into question what the “new norm” is for Africa.
Davies says “this is extremely difficult to define”, as the way the continent has been perceived and quantified has “always been flawed”.
Further, the diverse geography, nascent markets, lack of connectivity, low level of collaboration between States and, most importantly, the lack of people and knowledge networks across the continent, all prevent the creation of a common cross-continental view, he explains.
Davies notes, for example, that, while the collapse of mineral and oil prices has severely knocked the overly resource-dependent economies in Africa’s southern and western regions respectively, the eastern region’s growth trajectory remains buoyant.
“Economies, such as Ethiopia, Kenya, Tanzania and Rwanda are the frontier growth stories of the continent. It is only Mozambique that, through its own recent illicit financial dealings, has removed itself from this regional grouping of high-growth eastern economies. These economies are increasingly attracting capital and trading with the Middle East and South Asia.”
In light of this, Davies stresses that mineral- and oil-driven economies need a political-economic reset that would result in States embarking on dramatic reform. The ease of doing business needs to improve, and moribund and anticompetitive State-owned firms need to be privatised. However, he notes that the actual trend in the region may, in fact, be the opposite, with increasingly “statist” and protectionist stances and policies becoming evident in many countries – including Kenya, Mozambique, Tanzania, Zambia and Zimbabwe.