Mining remains number one – August 2011

August 2011
Of all industries in Africa it provides the greatest opportunities to generate wealth.

Sectors such as tourism and communications are booming as drivers of Africa’s economic growth, but mining remains the continent’s major money earner.

Pieter Steyn, chairman of Lex Africa and a director of Werksmans Attorneys, says: “None has the same depth of potential as mining to generate revenue, create employment, provide sustainable economic and social benefits and attract large scale, long term international investment to the continent. For many African countries income from metals and minerals can make up the majority of total export earnings – in some cases up to 90%.”

Steyn says that unlocking the mineral wealth of Africa is not without its significant challenges, not least of which are a glaring lack of infrastructure development, perceptions of corruption and unfair licensing practices, and the high capital costs of establishing or expanding a mining presence in what are predominantly developing countries.

Lex Africa is a network of corporate legal firms spanning 30 African countries. Steyn says that many of these professional law firms work closely with the various stakeholders in mining in their countries to help address challenges facing the industry.

Morne van der Merwe, of Werksmans Attorneys, says in SA stakeholders in the mining industry are finding their biggest challenge coming from government quarters, albeit in a different form to most other African countries.

The South African Government is clearly taking a more prescriptive stance in relation to regulation and enforcement in the mining sector, as evidenced by the revised mining charter and also by the fact that non compliance with this charter could constitute sufficient reason for the government to revoke prospecting and mining rights.”

Van der Merwe says however, that if it is correctly and collaboratively implemented “the revised charter will have significant positive implications for SA’s mining industry by helping to improve efficiency in the Department of Mineral Resources, root out corruption, and ensure that the country remains an attractive destination for prospective investors”.

According to Lambert Djunga, of Lex Africa member firm Djunga & Risasi in the Democratic Republic of Congo, the ineffective and irregular application of the mining codes governing mineral exploration and extraction is the primary challenge facing mining participants in that country.

Sipho Ziga, of Lex Africa member firm Armstrong’s Attorneys, Notaries and Conveyancers in Botswana, says the mining industry there faces its greatest challenge in the form of red tape.

While the mining industry in Botswana is well established, operates relatively autonomously and experiences little interference from government, the legal and administrative delays as a result of inefficiency and bureaucracy can be crippling – particularly for new ventures, but also for established mines wishing to expand or develop their operations.

Mining legislation in Botswana is effective, working well and, for the most part, investor friendly,” Ziga says, “but, unfortunately mines and investors that wish to take advantage of this positive environment are finding themselves hamstrung by bureaucracy and, in particular, an extremely slow licence application processing system.”

Peter Koep of Koep & Partners – a Lex Africa member firm in Namibia – says: “One of the big challenges faced by mining in Namibia is a general inability by government to deal with licence applications and approval processes in a way that is totally transparent, particularly given the pressure being placed on the ministry to facilitate empowerment within the industry despite a lack of official documentation or guidelines to this effect.”

Ironically, a further challenge facing the Namibian mining industry relates to the success that has been achieved in recent years. “With the future of mining looking so bright, the question becomes what to do with the wealth it is generating. Policies now need to be agreed to ensure that this future wealth does, in fact, benefit the entire Namibian population,” he says.

In Nigeria, administrative delays are a key challenge to the development and growth of the mining industry. Osayaba Giwa-Osagie, of Lex Africa member firm Giwa Osagie & Co, points to difficulties in raising finance for projects as a key challenge.

“While investors are aware of the potential for returns in the oil and gas, telecommunications and banking industries in Nigeria, few fully understand the long term wealth generation opportunities and potential inherent in mining.”

He says that this situation is rapidly changing particularly now that the Nigerian government has identified a number of minerals and metals as being strategically important to the Nigerian economy.

“The mining sector is becoming structured, the political situation in the country is stabilising, and good fiscal and tax incentives are being put in place to promote mining, all of which augurs well for mining development in this country in future,” says Giwa Osagie.