Analysis in brief: The discussion about the exploitation of Africa’s mineral resources, particularly rare earth minerals, is being conducted from a Western point of view. In this context, African countries have legitimate reasons for seeking the best deal for themselves for commodities whose deposits are vast but, nonetheless, finite.
The term ‘resource management’ carries the benign suggestion of simply managing natural resources for maximum benefit for the country on whose lands they originate. However, the term is often used interchangeably with the more sinister ‘resource nationalism’, with its implications of nationalising foreign investments and thus making investment riskier. To African nations, resource management is the preventative function against what was robbed of their immense but finite mineral wealth during the colonial era. To foreign investors, the term is synonymous with stifling state protectionism. Two often-competing factors are essential to the economic prosperity of African nations. The first is the need to keep African nations as senior partners in the exploitation of their minerals. The second is need to maintain foreign investment. The optimal way to achieve both goals is through negotiations with multinational firms who have business sense to honour national sovereignties.
Source: Africa Mining IQ
Unstable markets and suppliers make investors wary of Africa
The need grows to build technology to combat global warming and to manufacture high-tech communication and other devices; however, mineral access has become a more controversial issue as the reality that these essential minerals for this growing need are in poor and sometimes unstable African countries. Foreign investors are averse to instability, unpredictability, crisis and radical change – all of which make for uncertain investment environments. This is understandable because money and livelihoods are at stake, as well as the production of goods on which global consumers depend. Coups d’état like those that seized Burkina Faso, Chad and Niger most recently are dramatic manifestations of particularly destabilising events that so unnerve investors. There are also implications for foreign nations’ militaries, particularly when Chadian uranium is used in nuclear weapons production.
Whether elected to replace the policies of previous administrations or installed by force, governmental change brings initial uncertainty for investors on the subjects of resource management, nationalisation of foreign-owned properties and business regulation. For Africa’s citizens, such change may be beneficial if reforms allow for more equitable profits from natural resources for the nations of origin. Nevertheless, in terms of resource management, Africa is in the same political space in 2024 as it was in 1960 during the height of the transition from colonialism to independence. When African nations became self-governing, they voided mining contracts and, in some cases, nationalised mining companies in attempts to end the colonial imbalance that favoured foreign interests.
Source: Benchmark Source
When internal and global forces brought economic ruin to many African countries in the late 20th century and when mining commodity prices plunged in the early 21st century, multinational organisations like the International Monetary Fund and the World Bank salvaged national treasuries with loans, which came with stringent oversight over economic reform measures that African countries were necessitated to implement. Consequently, foreign mining companies again achieved the upper hand in the determination of where natural resources profits would go. In the future, with sound economic management functioning in several countries and loan debts under control, African countries have the ability to drive harder negotiations with foreign mining firms. That mining firms are willing to agree to terms less profitable to them is due to the elimination or at least lessening of risks that businesses dread.
Warning signs of bad resource management
Resource management is an economic and environmental necessity to any country that seeks to exploit its natural resources equitably for the financial benefit of its citizens and for their economic and developmental growth, both of which are facilitated by foreign investors with the capacity to do the expensive work of mining. Investors should welcome rational and fair resource management, where the rules of engagement in mining projects are clearly established. However, they must be cognisant of the two warning signs that a country is not serious about equitable profiting from its minerals and other resources. These are the imposition of new rules to offset temporary economic losses caused by global or other factors, and the imposition of a new mining regimen in response to a global demand for a particular mineral.
The current change in the mining regimen in several key African mining countries began with the Covid-19 pandemic. African countries were hard hit by loss of income in all sectors, and Africa’s economic recovery has been slower than on other continents. Seeking to recoup economic losses, Africa leads the world with the highest number of countries seeking to increase their economic control over natural resources. Efforts to increase this control had been underway before the pandemic, and post-pandemic, they increased notably, according to international mining journals that follow the trends in the mining sector. Ghana appeared ready to nationalise mining companies in 2020, when President Akufo-Addo was re-elected after campaigning on a platform to reduce mining companies “extraordinary profits” in a country that is Africa’s second-largest gold producer. This did not happen post-Covid but does appear to be a possibility, according to international financial prognosticators like Finch, which warned that investment in Ghana’s mining sector could become risky. Instead, a September 2023 draft of new mining regulations proposed other means of revenue-generation for the country from the mining sector. One requirement is that each mining company will be required to invest 20% of its equity on the Ghana Stock Exchange.
The second conflict between African countries’ self-interests and the profits of mining companies is the imposition of rules governing the extraction of particular minerals. While the world prices of copper, gold and other minerals fluctuate from year to year, the price and demand has consistently risen for minerals used to manufacture electric vehicles and other green technologies. This has led to regulations nearly as dramatic as the nationalisation of mines. In December 2022, Zimbabwe banned the export of its valuable raw mineral lithium. Essential for making electric car batteries, Zimbabwe’s government saw this as an opportunity to grow its moribund industrial sector by telling investors they were welcome to extract as much lithium as they liked, but they must use it locally to manufacture electric car batteries and other products.
The Democratic Republic of Congo – long torn by militant factions and civil war combatants all seeking to dominate the country’s wealth of mineral resources – has seen green technologies as an economic way forwards. The Democratic Republic of Congo is going ahead with Zimbabwe-style restrictions on the exportation of cobalt. Two-thirds of an electric car battery consists of cobalt, and demand for the metal has forced foreign investors to agree to the terms of a revised mining code that requires 10% of mining companies to be controlled by Congolese citizens.
Source: World Bank
Zambia is an important counterexample. Because of its dependence on copper, which constitutes two-thirds of the country’s exports, Zambia has little choice but to play fair with foreign investors. Copper mining had diminished in the years prior to the Covid-19 pandemic due to the imposition of new mining taxes and the attempt to break up a major operator, the Konkola Copper Mines that is owned by a British-Indian conglomerate. Once the Covid pandemic had passed, Zambia joined other African nations in a search to recover lost revenues, and the government responded by simplifying its tax code for investors. Instead of insisting on a higher share of the value of its minerals, the new policy committed mining companies to contribute to the social development of communities near their mines.
The future of Africa’s resource management
Each African nation has taken a different approach to resource management. Those countries that balance the power they hold by controlling mineral deposits with investors’ need for profit are likely to draw more investment. However, countries like Tanzania, who economists fear will use the power invested in parliament in its latest mining code to renegotiate mining deals to boost treasury revenues, will be sidelined by investors.
The critical points:
- African countries are asserting greater control over the exploitation of their natural resources by updating mining regulations and renegotiating with investors
- Countries possessed of rare minerals required for green technology have asserted control over these particularly and, in some cases, banned their export
- Countries that seek to squeeze investors in the mining sector to make up for revenue shortfalls elsewhere or government economic mismanagement face a loss of investors