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Africa’s mining industry shaped by legislation – February 2011

Africa’s mining industry shaped by legislation – February 2011

February 2011: While it is widely agreed that Africa’s extensive mineral and resources wealth has the potential to act as a launch pad for the continent’s economic wellbeing, a number of issues continue to dog the mining industry and, in many respects, limit the ability by many African countries to achieve their full mining potential.

Many factors such as a shortage of viable infrastructure, corruption (whether real or perceived), licensing delays, prohibitive labour practises and escalating costs, and a less than stable supply of energy have the potential of impacting negatively on mining investment and production in Africa. However, one of the most challenging influences on Africa’s mining operations has risen, ironically, as a result of the efforts of governments to maximise the benefits of mining, not necessarily only through indigenisation/local empowerment initiatives or state ownership/nationalisation, for all individuals and communities in their respective countries.

Legislation remains African mining’s proverbial double-edged sword. And while it is vital to regulate and control an industry with the wealth potential that mining has, the delays, uncertainty, and confusion that so often surround the design and implementation of mining legislation can have a serious negative effect on the industry and the economies to which it contributes.

With an extensive network of leading legal firms in 28 African countries, Lex Africa is at the forefront of advising clients on both legislative developments and business practices relating to mining in Africa. As part of its commitment to encourage and promote the continent’s mining industry, representatives of a number of Lex Africa members offer their perspective on the impact of legislation on mining in their countries.

Since the repeal of the Mining Act of 1998 in October 2010, Tanzanian mining legislation has undergone a number of revisions, many of which are having an impact on investment in the mining sector.
According to Tabitha Maro, Partner at Lex Africa member, Rex Attorneys in Dar Es Salaam, one of the more significant provisions is the restriction now placed on ownership of prospecting licenses. This limits the number of such licenses held by all individuals and business with interests in the same mining organisation to 20, unless the cumulative prospecting area of these licenses is less than 2 000 square kilometres.

Maro explains that “apart from the obvious difficulty that the licensing authority will have policing this legislation, it has the potential to severely limit investment interest in mining in the region as it effectively extends the restriction placed on one stakeholder to all others.”

Maro points out that the regulation is already having a negative impact – not only on the industry as a whole, but on individual mining companies that are now being limited in terms of their growth potential. “There are investors who have funds ready to invest and want to forge partnerships with local Tanzanian businesses and individuals,” she says,” but they are forced to take their capital elsewhere because those prospective partners have already reached their 20 license limit.”

She notes that the issue should be less about the quantity of licences held by stakeholders in any one business and more about that organisation’s ability to meet the terms and conditions of the licenses it has been granted. “By correctly policing this aspect of the licensing process, the need for quantity limits is removed as appropriate compliance conditions will naturally have the effect of separating license hoarders from genuine investors.”

Sternford Moyo, chairman and senior partner at Lex Africa member, Scanlen & Holderness, one of Zimbabwe’s oldest law firms, echoes Maro’s sentiments about the need for African governments to ensure the effectiveness and relevance of legislation in achieving its primary objectives without negatively impacting other areas of the industry.

According to Moyo, the country’s mining laws, which were enacted in 1961, have not received much attention since then and are in desperate need of updating to include modern aspects of mining regulation, particularly those aimed at balancing the interests of investors with those of communities and the environment.

He points to the country’s Indigenisation and Empower¬ment Act of 2008 as a case in point. The legislation requires 51% of mining companies’ equity to be held by indigenous Zimbabweans. “While the idea of local people participating in, and benefiting from, mining activities in their countries is certainly a noble objective, Zimbabwe’s indigenization legislation has undoubtedly had a negative impact on the country’s global appeal as an investment opportunity,” Moyo says, “primarily as a result of the uncertainty it has caused in the market and the fears it invokes of the potential for a repeat of the highly controversial and destructive land reform programme of past years.”

According to Moyo, these fears are exacerbated by the lack of clarity in the legislation, which appears to ignore any empowerment credits that mining houses may have already earned, and are therefore effectively being told to give up a controlling interest in their businesses. A recent government directive for mining company shares to be sold to state-owned entities as part of the programme has also raised fears of nationalisation.

“While legislation in Zimbabwe presents investors with a new set of hurdles to overcome,” Moyo concludes, “Zimbabwe still presents a unique and highly viable opportunity for investment in mining for those who are willing to look past the uncertainty and see the long-term potential to be unlocked from the country’s mineral wealth.”

And it’s not just in Zimbabwe where the uncertainty caused by new legislation is adversely affecting investment inflows. According to Lex Africa member for Zambia, Corpus Legal Practitioners, the recent elections and the recently imposed moratorium on the issue, renewal and transfer of mining licenses, has caused a slowdown in mining investment activity.

While the objective of the moratorium (to eradicate corruption and maladministration) is a good one, the uncertainty it has created has compromised business transactions in the country’s mining sector.

South Africa
Despite its position as one of the leading economic drivers on the continent, the South African mining industry is also not without its legislative challenges, the most important of which from a global investment standpoint, is the ongoing debate about the prospect of nationalization.

According to Shaun Teichner, director at Lex Africa’s South African member, Werksmans Attorneys, while the uncertainty around nationalisation is inhibiting investment in the mining sector, there is also other legislation that is doing little to encourage investment activity.

“The general consensus is that South Africa’s Mineral and Petroleum Re¬sources Development Act is deficient in many respects,” he points out, “not least of which is its vague and ambiguous language and failure to clearly address important issues like the splitting of mining rights.”

According to Teichner, the South African Mining Charter suffers from the same challenges of vague language and unclear requirements, which makes it difficult for mining organisations to implement the charter and increases the possibility that potential investors place their capital elsewhere

Despite these legislative challenges, Teichner is confident about the prospects for South African mining, particularly given the steadily growing interest in the sector from Asian markets. However, he notes that the sector will only derive maximum benefit from this international interest if the lingering uncertainties are clarified as soon as possible.

Of course, not all mining legislation has a negative impact on the industry it is designed to regulate. Nigeria’s Minerals and Mining Act of 2007 contains specific provisions aimed at enhancing private sector leadership in the development of the country’s mining industry.

According to Osayaba Giwa-Osagie, Senior Partner of Lex Africa’s Nigerian member, Giwa-Osagie & Co., this legislative framework demonstrates the Government’s recognition of the need for significant reforms in the mining industry in order to unlock wealth for all of the country’s people thus fostering a competitive environment for solid minerals development. Instead of merely focusing on sharing the existing benefits of mining in Nigeria, the legislation also focuses on creating new wealth from mining and demonstrates the Government’s resolve to create an investor-friendly mining sector in order to do so.

Pieter Steyn, chairman of Lex Africa and director at Werksmans says “While Africa’s vast mineral resources hold a wealth of opportunity for investors and the people of the continent, the main challenge for all stakeholders in the industry is to ensure that these resources provide benefits in a balanced way which both protects the interests of investors and promotes the development and economic growth of African countries.”

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