Legislative developments challenge Africa’s huge mining industry – May 2013

Africa’s extensive mineral and resource wealth has the potential to form a formidable bed‑rock for the continent’s future economic well-being. However, a number of issues continue to dog the African mining and resources industry, meaning many African countries may not achieve their full mining potential.

KENYA

Many challenges including corruption, licensing delays, restrictive labour laws, labour unrest and escalating costs negatively impact on mining investment and production throughout Africa. As thefirst and largest African legal network with members in 24 African countries, LEX Africa has built a trusted professional track record over 20 years advising clients on both legislative developments and business practices relating to mining in Africa. Some members offer their perspective on the impact of legislation on mining in their local economies.

Ownership and the level of local ownership has been debated in many African countries. In Kenya the recently promulgated Local Equity Participation Regulations which aims to introduce mandatory participation of Kenyan citizens in the mining sector, is proving to be contentious.

Nigel Shaw, partner at Kaplan & Stratton, the Kenyan LEX Africamember, believes that the regulations proposing a 35% ownership of mineral rights is poorly drafted. For instance it is not clear what the terms ‘mineral right’ or ‘mining right’ refer to as these have no specific meaning under Kenyan law. It is also unclear what is meant by the reference to a ‘mining licence’ in the Regulations as the Mining Act only provides for the granting of prospecting rights, exclusive prospecting licences, registered locations and mining leases.

Shaw notes, “Historically new legislation within Kenyan law does not apply retroactively. In this vein it can be assumed that the proposed legislation, as it relates to the establishment of local ownership, will not apply to existing mining operations. However, as the drafting of the Regulations is so poor, it is it difficult to say with any certainty how a Kenyan court would apply them in any particular circumstance. Uncertainty within any business sector is a deterrent for foreign direct investment and as we expect the Bill will be introduced in Parliament after the General Elections in March 2013, these concerns have caused a marked reduction in confidence within the mining industry.”

BOTSWANA

Recent labour unrest within the South African mining industry has led to instability in the sector with calls to review bargaining councils and the requirements of union legalisation as well as the threat of large scale retrenchments. South Africa’s neighbour, Botswana, has, according to Mark McKee fromLEX Africa member firm, Armstrongs, also not escaped strife within the labour sector.

“Recent policy changes in Botswana have created work permit uncertainties in respect of the employment of non-citizens in the mining sector. The introduction and poor implementation of a point based system for the issue of work permits to non-citizens has resulted in several key non-citizen employees and/or investors having permit applications declined or rejected. This unfortunately has caused some unease in the investment community and as such has reduced the attractiveness of Botswana as an investment destination. To the Government’s credit however, it has recognised the problems caused by the introduction of the new point system and is in the process of addressing these.”

A further area of frustration for investors in Botswana continues to be the overly bureaucratic and resulting delays in issuing approval for prospecting licences.  “The relevant Ministry has proven to be slow and inefficient when it comes to issuing good standing confirmations, approvals for transfer of prospecting rights and the processing of renewals in respect of prospecting licences. This has caused investors unnecessary delays.  Once again, however, there is some good news in that  Government has recognised this as a challenge and to address this, recently moved the relevant functions to the Department of Mines.”

SOUTH AFRICA

Following the December 2012 Mangaung conference of the governing party, the African National Congress (ANC), the possibility of the nationalisation of mines was finally rejected after two years of debate.  The South African mining sector remains a focus for the Government’s Black Economic Empowerment policies with mining and prospecting licences requiring a BEE shareholding as a condition. Remaining issues for the industry however remain including regulatory uncertainty as to the State’s intervention in the sector (for example forming a state owned mining company and requiring beneficiation), delays in issuing licences, rising costs and labour unrest. Recent threats by Government to review mining licences where firms consider retrenchments to deal with rising costs have also added to uncertainty.

Proposed retrenchments within the South African mining industry have created a furore both within Government and union camps. According to Bradley Workman‑Davies, a labour expert at South African LEX Africa memberWerksmans, the process for mass retrenchments in the Labour Relations Act requires employers to think carefully before taking action.

“Mass retrenchments will test the effectiveness of new requirements in the Labour Relations Act and both employers and trade unions should be aware of the additional requirements for large-scale retrenchments; they should also understand how choosing a particular course of action could restrict their options”.

Bradley believes employers are likely to feel pressure to appoint an independent facilitator to manage large-scale retrenchments, as opposed to using a non-facilitated process.

“Both facilitated and non-facilitated options are provided for in section 189A of the Labour Relations Act, and both have certain advantages and disadvantages for the parties. In the current tense environment within the mining industry particularly, employers would be well advised to choose transparency over expediency,” he concludes.

CONCLUSION

Pieter Steyn, Chairman of LEX Africa and a director of Werksmans concludes:

“While Africa’s vast mineral resources hold a wealth of opportunity, a key factor for African Governments is where to draw the line of regulation. While it is vital to regulate 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. Many countries have recognised the need for a stable and above all clear and certain environment to attract investors, and have made significant progress towards the implementation of investor friendly policies. LEX Africa members continue to work closely with Government and clients to facilitate this constructive process”