JOHANNESBURG (miningweekly.com) – Changes to the mining regulations in various markets across sub-Saharan Africa will continue to fuel uncertainty among investors and pose downside risks to forecasts in the region, says market researcher BMI Research.
Internal political and economic considerations, as well as a more favourable commodity price environment, will be the key drivers behind more restrictive mining policies in the Democratic Republic of Congo (DRC), Zambia and Tanzania and may lead to more countries following suit in the coming months, it adds.
BMI explains that global miners are witnessing increasing regulatory pressure from governments demanding a larger share of mineral resource wealth as commodity prices continue to increase.
“Nowhere is this trend more evident than in sub-Saharan Africa, where so far, this year, up to four mining markets in the region – the DRC, Tanzania, Zambia and Mali – have either changed or are in the process of changing their mining codes,” the market researcher noted.
Macroeconomic imbalances across the African continent will continue to push governments to raise additional revenue by targeting at the lucrative mining sector.
BMI continues to see regulatory uncertainty as one of the key downside risks to an otherwise positive growth outlook for the region’s mining sector.
Meanwhile, of all the changes to mining regulations recently enacted across the region, the new mining code introduced in the DRC last month, will reverberate the most globally, says BMI, owing to the country’s significant copper, gold and cobalt reserves.
The new code was introduced at a politically sensitive time for President Joseph Kabila, as he tries to raise funds and shore up popular support in the midst of rising social and political tensions in the country.
In particular, the new regulations will aim to help the DRC benefit from its dominant position in highly in-demand metals, such as cobalt, which are crucial in the manufacturing process of lithium-ion batteries used in electric vehicles.
While the motivations behind the DRC’s recent regulatory changes combine political and economic considerations, in addition to considerations relating to rising internal unrest, the source of changes introduced in Tanzania is more straightforward, BMI notes.
In Tanzania, President John Magufuli’s aggressive policy-making in relation to the mining industry since becoming President in 2016, is largely driven by protectionist and populist political convictions that view the mining industry as not sufficiently involved in local beneficiation.
As an example, BMI highlights that, in February, the government announced that it will restrict foreign banks, insurance companies and law firms working or financing the mining sector, in an attempt to boost the local industry.
The new restrictions follow on from laws passed last year that ban the exports of gold/copper concentrate and allow the renegotiation of contracts with mining companies and will likely lead to asset sales or a reconsideration of planned investments into the country’s mining sector in the coming quarters.
As a result, BMI has recently downgraded the country’s gold production forecast, which it now expects to average 0% growth between 2018 and 2027.
Despite recent developments, BMI’s Africa Country Risk team believes the recent upsurge in populist rhetoric across sub-Saharan Africa has now peaked.
While a number of aforementioned countries have introduced higher taxes or generally more restrictive regulations, other major markets will witness improvements, the market researcher enthused.
In South Africa, the election of President Cyril Ramaphosa in February marked a stark change in policy direction.
So far, the new government has agreed to enter into negotiations with stakeholders on amendments to a controversial mining charter that was introduced in June 2017.
“We expect negotiations will lead to a more accommodating mining charter, through a reconsideration of controversial and legally questioned elements such as the requirement that a 30% black ownership participation rate must be maintained throughout the life of operating mines,” BMI notes.
Further, the Namibian government earlier this month decided to scrap an empowerment clause that requires companies to sell a 25% shareholding to “racially disadvantaged people” under the country’s New Equitable Economic Empowerment Framework Bill.