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Legal frameworks key to mining growth in West Africa

REMARKABLE RESERVES Africa harbours the world’s largest mineral reserves of platinum, gold, diamonds, chromite, manganese and vanadium

Photo by Bloomberg

OPPORTUNITY PERSISTS Despite differences in legislation, Africa, particularly mineral-rich West Africa, remains an attractive destination for mining investments

Photo by Bloomberg

29th April 2016

By: Simon Sonnekus

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Revised tax rules and regulations in the West Africa mining sector owing to pressure from major donors have meant greater competition for foreign direct investment, according to Pan-African arbitration and commercial law firm Centurion Law Group.

Centurion Law Group director Lovelyn Bassey notes that these reforms have been directed towards attracting greater foreign investment through decreased regulation, liberalised social and labour policies, as well as more private- sector-friendly ownership and taxation schemes.

“Every country in West Africa has different mining and tax rules and regulations for the awarding of mining licences. Most often, there are separate laws governing mining, taxation and environmental obligations.”

While the mining industry in West Africa is mostly governed by a country’s mining code, Bassey notes that some laws were developed during the colonial period and are now archaic, while the laws formulated after this period may lack specific details.

She adds that the firm, which operates within the greater African mining sector, notes that the new laws require mining companies that intend to prospect, explore or mine to apply for a mining licence and provide governments with a mandate in terms of how the company intends to regulate and set standards, and the conditions under which mining will take place.

“The conditions can be codified in mining contracts or agreements and may also be stated in national legislation. “Depending on the country and its practice, mining contracts may contain basic obligations that companies must comply with relating to issues, such as resettlement plans, revenue sharing, labour laws, royalty payments, environmental requirements, mine closure, community development and the employment of locals.”

Bassey points out that most legislation dictates that mineral resources are the property of the State, which also grants mining rights. While foreign investment is encouraged and freedom of management guaranteed in most countries, not all guarantee rights of ownership.

“In certain West African countries, there are no significant limits on foreign investment or any substantial differences in the treatment of foreign and national investors. In others, the same applies, provided that mining concessions are held by a legal entity incorporated in the specific country. “It is worth noting that, in some cases, mandatory royalties are paid to governments, often at a rate which varies depending on the resource being exploited,” Bassey explains.

Certain governments issue new mining regulations to provide guidance for investors regarding procedures, environmental and social obligations, dispute- resolution processes and information on fees payable to them, she states, further describing these measures as a good way to improve the ease of doing business in such challenging markets.

Bassey elaborates by noting that the legal frameworks under which mining companies operate in West Africa also represent several limitations, including the fair and equitable distribution of benefits from mining, the capacity to improve the efficiency of financial benefits from mining activities and illegal mining, as well as the management of artisanal and small-scale mining.
“Nonetheless, recent reforms and strategies have been put in place to address these challenges and we are definitely positive about seeing future improvements.”

Despite the differences in legislation, Africa, particularly mineral- rich West Africa, remains an attractive destination for mining investments, Bassey adds.

“According to the Fraser Institute Survey of Mining Companies published in 2015, the median investment attractiveness score of the African continent, as perceived by business stakeholders, improved, from Chinese and Indian entities. The composite measure includes geological potential and policy attractiveness. “Africa now ranks ahead of Oceania, Asia, Latin America and the Caribbean as a more attractive place for mining investment.” Bassey

notes that Africa harbours the world’s largest mineral reserves of platinum, gold, diamonds, chromite, manganese and vanadium.

Global mineral production growth has stalled worldwide since 2011 and this weakness persists because of the continued commodities price crunch. Restructuring and joint venture work has taken place in the African sector, owing to companies becoming more focused on the bottom line to save money by divesting noncore assets, thereby enabling them to weather the storm caused by volatile commodity pricing.

Therefore, Bassey lauds the West African Mining & Power Exhibition (Wampex), noting that it has exposed the West African mining and power industries to new suppliers, technologies and techniques for “22 years without fail” and has, subsequently, allowed the sector to advance, despite the depressed mining climate.

“West Africa is still one of the biggest and fastest-growing industrial, mining and power generation markets in the world, with massive gold, copper and iron-ore deposits, and hundreds of mining projects under way at any time, all with heavy electricity demands,” she notes.

Wampex

remains relevant, as it brings together the important members of the mining and energy value chain in West Africa, Bassey says.

She stresses that Wampex is a great opportunity and platform for attracting over 100 global industrial companies, investors and governments, nongovernment organisations, trade associations and powerful private-sector organisations to engage on key issues faced by the industry, and provides a platform to showcase products and services directly to industry players.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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