“Mining must make Africa prosperous not poor”, said President of Ghana, Nana Addo Dankwa Akufo Addo, this week at the 2019 edition of the Investing in African Mining Indaba, in Cape Town, South Africa.
He added: “We cannot, and should not continue to be merely exporters of raw materials to other countries. The value chain of mineral extraction has great potential for job-creation, and can form an essential basis for the transformation of economies around the [Africa] continent.”
His remarks were widely applauded as tackling the thorny issues that African countries face. It is true that he spoke to the real, sordid situation of many resource-rich African countries.
But what about mining investors that were present at the event? Were they really impressed?
Africa is endowed with significant mineral resources. It accounts for more than half the annual global production of certain minerals: platinum (83%), cobalt (73%), manganese (58%), chromium (57%) and diamonds (52%). Yes, we get it!
But a country does not transform by just digging these mineral resources. Why are resource-rich African countries still poor? It’s largely an internally systemic issue. And that got to be fixed.
This week on LinkedIn, I made a case about the ‘golden’ paradox. Ghana is Africa’s second and world’s tenth largest gold producer. In 2016, it exported gold, mostly in raw form, worth $9.4 billion. Hong Kong, which doesn’t mine gold, exported gold worth $30 billion that same period.
Why is Hong Kong getting the most from gold and not Ghana?
A mining investor friend I engage a lot on LinkedIn [I will keep his name secret] keeps asking vital questions the relate to mining investment in Africa: What will be the project cost? What will be the return on capital employed? What competitive advantage does the country and region have? Is there sufficient infrastructure? What is the tax regime? Does this jurisdiction enjoy property rights and the rule of law?
The answers to these questions will reveal the obvious. It’s too costly for investors – talk about unnecessary political patronage, lack of decent infrastructure, stringent tax regime and incoherent property rights.
African governments have to take a hard look at the mining sector. They need to create an investor-friendly environment. When investments increase, they can reap more benefits. They must think beyond digging the ground and exporting raw mineral resources. To boost value chain, it needs to create the environment as Hong Kong has done.
Until these issues are fixed, we will continue to hear messages that would change nothing. Of course, we need to get these messages across to re-awaken ‘sleeping’ African states. And Ghana’s president is right to have highlighted the need to shift gear. He is fully aware of the natural resource paradox and how to act. For example, there is a newly established Ghana Integrated Aluminium Development Corporation to take charge of building an aluminium industry out of the country’s bauxite resources.
But isn’t it time we changed the messages on Africa? Let’s fix the internal issues. In hindsight, let’s fix the system. Let’s boost local economies to allow for value addition of raw commodities. You cannot process gold when you can’t power yourself. You can trade gold when your fiscal regime pushes investors away and skill development is low.
I am for fixing the system, first. Innovation and technology is taking shape in the mining industry. But the current systems in most African countries don’t support innovation and technology. We need to think about this. Investors and companies are ready to join any investment-friendly move that reduces operation cost.
This is why Commodity Monitor, which I co-founded in 2017, is working to assist stakeholders get their decision right. What about an e-platform that streamlines all decisions along the mining value chain? We need a different level of conversation among governments and investors to truly drive a value addition hub for Africa. It’s possible! Join us for the Africa Commodity Forum in Accra in October 2019. Stay tuned!
Photo credit: Newmont Ghana Gold Limited.