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The 2012 Mining Indaba: key issues highlighted – February 2012

The 2012 Mining Indaba: key issues highlighted – February 2012

February 2012: The 2012 Mining Indaba highlighted a host of issues relating to mining on the African continent and Lex Africa, at the forefront of advising clients on both legislative developments and business practices relating to mining in Africa, was able to offer insights into key developments.

Chinese in Zimbabwe
In light of the interest at Mining Indaba relating to Asia’s importance for mining in Africa, Sternford Moyo, Senior Partner at the Lex Africa Zimbabwean member, Scanlen & Holderness, had the following comments on China’s quest for Africa’s mineral resources in Zimbabwe.

The Chinese quest for resources has given rise to an alternative source of capital for the Zimbabwean government which, due to restrictive measures, has been finding it difficult to attract private capital and donor support from the west. Furthermore, in a world in which the developing world has tended to complain about its inability to influence the pricing of resources on the international markets, the Chinese factor introduces a source of competition for African resources which, if properly managed and complimented by appropriate policies, should strengthen the African voice on the international markets.
China has displayed incredible adaptability by converting relationships developed during liberation struggles into economic ties. Furthermore, the Chinese have shown an ability to pursue flexible funding arrangements such as funding infrastructure in exchange for resources. In Zimbabwe, in exchange for minerals, the Chinese are in the final stages of construction of an impressive defense college and village on the outskirts of Harare. The Chinese focus in Zimbabwe has been strong on coal, chrome and diamond mining. In Nigeria and Angola, the Chinese have been particularly active in the oil industry.
Going forward it will be necessary for African countries to develop strategies for managing Chinese investments in areas such as:
Local beneficiation of resources
Degradation of the environment
Fair labour standards
Pricing policies to take into account the fact that today’s China is not the philanthropist communist China that participated in previous liberation struggles, but a capitalist state in search of resources
Corporate Social Responsibility to ensure an appropriate balance between extraction of resources and benefits to the poorer communities of Africa.

Politics and Economics in South Africa and Zimbabwe
The ever changing political and economic landscape of Africa means that it is vital for businesses with African interests to look at the year ahead in these terms. As such Lex Africa members Werksmans Attorneys (SA) and Scanlen & Holderness (Zimbabwe) offer the below insights into what can be expected in the relevant countries during 2012.

Greg Nott, director at Werksmans Attorneys, says “Despite the lingering mining industry challenges around infrastructure, labour, and energy, and the insecurities concerning nationalisation, the understanding shown by the South African government of the need to actively promote foreign investment augurs well for the country’s mining sector, furthermore it has laid the groundwork for the industry to position itself as a significant driver of mining in Africa in years to come.”

Nott pointed to the current development of the African Mining Vision as a significant milestone on South Africa’s journey to achieving this objective. “Once finalised and agreed by all stakeholders, the African Mining Vision will set out a clear path for the sustainable and equitable future of Africa’s mineral extraction operations, effectively embracing strategic policies that not only promote international investment in mining, but also encourage the formation and development of extensive supplementary and support enterprises.”

In Zimbabwe Sternford Moyo comments that the recent mining regulations will increase mining fees to levels that will make it impossible for small scale miners to regularise their panning activities.

“The fees levels are clearly unaffordable in an environment characterised by liquidity challenges. Investor friendly policies are urgently needed as without external investment, there is no prospect of us being able to raise capital for the mining sector and benefit from our abundant minerals resources in order to drive revival and growth of our economy.”

As a point of reference the Zimbabwean Ministry of Mines’ statistics released by the Permanent Secretary recently indicate that the mining sector needs US$6 billion in investments. This amount cannot be raised from domestic financial markets. Zimbabwe’s entire banking system has US$3 billion in deposits. Mining in Zimbabwe is a strategic sector which contributed 50% of Zimbabwean exports in 2011.

The future of African mining – South Africa and Zimbabwe
During the Mining Indaba Susan Shabangu, Minister of Mineral Resources, recognised the conference as a trigger for further African mining development in Africa and linked the fortunes of South Africa Mining with African Mining.

Greg Nott comments that by most international measures South Africa is one of Africa’s most appealing global business and investment destinations. The country is placed second (behind Mauritius) in the global rankings for ease of doing business in Africa. Couple this with its 36th position on the World Bank / IFC rankings and 5th place on the governance rankings and it is easy to see why South Africa is often regarded as an investment gateway of sorts into the rest of Africa – particularly for mining companies and their investors.

Nott says that mine nationalisation has consistently made the headlines recently and the Minister’s speech took cognisance of the nationalisation debate but allayed investor fears. He believes that the understanding shown by the South African government of the need to actively promote foreign investment augurs well for the country’s mining sector and it has laid the groundwork for the industry to position itself as a significant driver of mining in Africa in years to come.

Kimberly Process – Zimbabwe
The Kimberly Process also came under scrutiny at the Mining Indaba and Sternford Moyo comments that the Kimberly Process urgently requires reform particularly in the following areas:

• Presently, there is nothing in the Kimberly Process that ensures that the cleanliness of diamonds is dependent on a proportion of the proceeds being used to promote development of the communities from which the diamonds are extracted. If those communities’ material circumstances are worsened by the diamond extraction, if child labour is used or if there is massive displacement of people without proper compensation, the narrow scope of the Kimberly Process does not provide any remedy, yet these are issues that would normally bother the conscience the consumer of the precious stones.

• The Kimberly Process should be made less governmental. It should focus on the diamond producing corporates and ensure that they observe the “know your customer” requirement, observed by the financial services sector to prevent laundering and transmission of dirty money. Diamond regulations of corporates have greater prospects of achieving success than the current governmental process. For example, sometimes diplomatic lobbying for positions ends up diverting attention from the issues to wider political considerations.

• It is unrealistic to expect the Kimberly process to operate effectively when it does not even have a proper secretariat.

As far as Zimbabwean diamonds are concerned, they were endorsed by the Kimberly Process and all local political parties appear to support the free marketing of Zimbabwean diamonds. Civic society has some isolated voices taking the same approach as Global Witness. A number of civic society players have, however, adopted the attitude that if the political players are happy, the Zimbabwean issue should be treated as closed and focus should now be on reform of the Kimberly Process to ensure that it guarantees consumers of the precious stones a clear conscience as they purchase their diamonds.

A number of Zimbabweans adopt the practical approach that if they focus on accountability and on ensuring that diamond revenues flow into the fiscus, the stones have a potential to uplift the country from its liquidity difficulties and play a significant role in poverty alleviation hence the shifting of focus from the Kimberly Process.

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