Energy & Mining

Africa Needs Fiscal Stability to Develop Resources Optimally

137

The history of economic development in Africa has been one of largely unplanned changes primarily driven by external forces. The decolonisation process which started in the 1960s ended exploitation by the European powers, but also ushered in a long and destructive flirtation with Marxism and dictatorial rule in the newly independent countries. The end of the Cold War and Soviet sponsorship led to a degree of democratisation, opening the door to foreign investment and a period of growth supported by global institutions such as the World Bank, UNDP and IMF. The supercycle in commodity prices starting at the turn of the century sharpened investment for Africa’s mineral resources resulting in an acceleration of funds flowing into new projects and an associated increase in revenue flow to the governments of mineral rich countries.

“ Randgold recognises the challenges faced by investors in these more challenging and less developed regions of the world, but they should also note the opportunities of undeveloped resources and the importance of participating in the host country’s development”.

Randgold GM operations for Central and East Africa Willem Jacobs says that by 2015, however, the tide turned. The commodities boom had ended, developed countries had to deal with their own economic problems and the World Bank and IMF indicated that they were looking to reduce their commitment to deficit funding of African countries, who they encouraged to find ways to balance their own books.

“The need to support growing populations against a background of fledgling economies and the absence of external funding prompted a resurgence of resource nationalism across the continent, with many governments seeking increased revenues, disregarding the long term negative consequences of their actions. This trend has been particularly evident in the recent run of mining code revisions and the introduction of more aggressive tax regimes. In extreme instances, there have even been attempts to change existing fiscal and legal stability provisions,” says Jacobs.

“These actions by governments are having a substantial negative impact on the extractive industries (minerals, oil and gas) which are one of the main drivers of economic growth in these countries. The extractive industries not only generate tax revenue and employment, but also provide fixed investment in mining ventures, support infrastructural development, facilitate the transfer of much needed technical skills, promote the establishment and growth of local suppliers and secondary industries, and are in general valuable corporate citizens. It is not just the direct and indirect taxes that the industry contributes – the economic multiplier effect associated with mining ventures has a material positive impact on economic growth, but is often overlooked,” says group GM corporate finance Victor Matfield.

“Extractive businesses have some very distinctive characteristic: it takes a long time to find profitable deposits, and large up-front fixed investment is required to bring these deposits into mine production. Due to the size and long term nature of such investments, potential funders need the assurance of a stable legal, fiscal and administrative structure in the host country. In African countries, the need for stability is even more important given the risks and challenges associated with remote locations, poor infrastructure and socio-political volatility. Unfortunately, in the rush to prematurely harvest revenues, the recognition that consumptive industries such as mining need to constantly re-invest to ensure long term viability, is often missed.”

African countries need sustainable economic development and the development and exploitation of their natural resources should be an important building block in a broader national economic plan. The only way to achieve this is by attracting international funding for the sensible and profitable development of the mining industry as an integral part of such a plan. What is often lost on politicians and even the global institutions that are there to support the development of the emerging and developing economies, is that developing economies are competing for investment with countries elsewhere in the world that offer better infrastructures and skills, friendlier regulatory regimes and greater stability.

African countries and their sponsors, politicians and business leaders are in fact once again at a crossroad. The high road is a mutually beneficial partnership with private enterprise, that will deliver sustainable, long term economic growth. The other road leads to a slow death of industry and ultimately their economies, for the sake of short term gain.

CEO Mark Bristow says Randgold recognises the challenges faced by investors in these more challenging and less developed regions of the world, but they should also note the opportunities of undeveloped resources and the importance of participating in the host country’s development.
“There is no better way to kick-start an economy and drive infrastructure development than through direct fixed investment to develop world-class mines and their associated infrastructure. Randgold’s strategy is to create real value for all stakeholders through the discovery and development of world-class gold mines run by competent local management teams. It does that through investing in host country nationals and developing local businesses and the technical skills capable of supporting an industry which adheres to world best practice as it has done in its mines across West and Central Africa,” says Bristow

Leave a Reply