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While I understand the frustration behind the peddlers of this belief, what they fail to discern is an emerging momentum in African countries to realise fully their mineral wealth potential for the benefit of their citizens. I believe that this steady momentum has been born out of an honest reflection of what is holding us back, and how to overcome this. At a basic level, the main drawback can be narrowed to a poor or still nascent organisational capacity. Many conventional economic solutions have been tried and failed (e.g. ESAP I, II) in many parts of Africa probably because they focused a lot on the economy at an aggregate level. As in physics, real and game-changing progress was achieved through the study and understanding of interaction of the smallest particles of the universe. In analysing economic development, it is also important to understand how and why some basic economic activities operate the way they do. I will, therefore, attempt to look at small-scale gold mining (including chikorokoza or artisanal mining) activities that are carried out in communal and some commercial farming communities in Zimbabwe, having personally spent some time at such miners' operations. I will broadly group these miners into two: (1)chikorokoza (artisanal) and (2) the equipped small-scale mining. In short, chikorokoza mining operations are loosely organised and make use of basic tools (picks, shovels, buckets, sieves etc) and simple techniques that depend on the type of mineral deposits being extracted. For alluvial deposits (which are closer to surface, and are mineral deposits left by flowing floodwater in valleys, riverbeds etc), these miners dig and sift through mud and sand using shovels, sieves andspecial pans (zembe). If the deposits are deeper in the ground, then some precarious underground mining is carried out. The other group, the equipped small-scale miner, is better organised and uses such equipment and machinery as compressors, jackhammers, water pumps, even has crushers and small mills, and therefore achieves relatively better output and return. However, the major characteristics of many such artisanal/small-scale mining activities are lack of planning, inadequate mining knowledge, lack of capital, low productivity, lack of safety measures and high environmental impact. Another common factor with many of these groups is that no proper (if any) geological survey or scoping study is carried out prior to commencing mining activities. In most cases, it's like flying-blind type of mining. A geological survey provides any prospective miner or investor with an understanding of the geology or mineralisation of the area and the quantum of the mineral deposits (inferred and indicated reserves) that exist. Everything else hangs on the geological survey results i.e. whether to proceed to feasibility study stage, develop a mine, the type of equipment/infrastructure required and finally the actual mining. With little or none of the above being considered, the result is that a majority of our artisanal/small-scale miners exploit marginal deposits with minimal returns, therefore remain poor and are usually exposed to harsh and dangerous conditions. This explains why despite having been in the business for long periods, even a decade or more, many small-scale miners hardly have any accumulated wealth to show for it yet some of the deposits they work on can potentially generate millions of dollars. This is not a resource curse, but poor organisational capacity. To their credit, however, these miners have weathered the economic storms and have sustained their families through these suboptimal mining activities. Although the lack of financial resources frustrates many potential miners, a commercially-viable mineral deposit that has been independently surveyed by a professional geologist should not fail to attract investment funds for feasibility studies, development of a mine and production (i.e. actual mining) if appropriately packaged. My fellow patriots have always reminded me that in any attempt to unlock the mineral wealth of African countries, consideration should always be made to redress the history of skewed and inordinate resource allocation bias towards minorities during the colonial and apartheid eras. While this is true, I also believe that this view should serve as an impetus for us to tenaciously seek and promote investment in the mining sector, create employment, improve productivity and eradicate poverty in our midst. It would also help if we have the will and ethics to eliminate greed and zero sum games (i.e. my gain or win comes at someone else's loss). However, as we seek to attract foreign direct investment (FDI) we should also be wary of not giving in too much to foreign investors' demands at the expense of our countries' developmental needs. All major mining projects should have some net benefit to the host country, but our mining policies should be structured in a way that ensures they do not become disincentives to investment. While we need FDI, we have to know that all natural resources are finite and some are strategic, therefore Caesar and the masses have to get a fair deal. If first world Canada can reject a takeover of a Canadian potash mining firm (PotashCorp) by an Australian mining behemoth, BHP, on grounds of strategic importance or net benefit reasons, then surely why should eyebrows be raised or some ludicrous political comments be made when an African country demands a fair share of its resources cake from foreign mining companies? The economic outlook for 2011 in many Western economies appears gloomy due to sovereign debt problems, weakening currencies and unabated unemployment levels. In my view, the resource sector will be the high-octane fuel for economic growth this decade, buoyed by robust demand in emerging economies. Africa will undoubtedly be a major play in the resources game since the best resources in most of the first world have been developed or depleted. However, as African countries emerge and grow their economies, it is important to realise that although we have spectacular reserves of natural resources, the benefits do not automatically flow from them. Those countries that are quick to promote an investor friendly political climate, a predictable jurisdiction and are investing in infrastructure and energy projects, will be the top dogs in attracting local and FD investments and therefore in advancing their economies. According to the International Monetary Fund (IMF), which has been studying fluctuations in global metal prices since 1850, we are probably halfway through a 20-year commodity boom. However, if we then consider that there are other countries (including African countries) that will also enter the industralisation and rapid urbanisation stages just like China and India, then step-increases in demand for raw materials/commodities could be with us for more decades to come. Therefore, for any African country to fail to play a significant part in this resource boom era, will sure be a let down of historic proportions to millions of its expectant and jobless citizens. Nevertheless, major progress in developing the resource sector is taking shape across Africa. Closer home, Mozambique's concerted efforts in promoting investment in resources sector are paying dividends with the recent discovery of 13 billion more tonnes of thermal and coking coal reserves in the Zambeze area, bringing the country's total coal reserves to over 23 billion tonnes. Coking or metallurgical coal is a key ingredient in steelmaking while thermal coal is used in power generation. Analysts forecast Mozambique to become the world's largest coking coal exporter after Australia. Riversdale, the Australian mining company that discovered the Zambeze coal reserves, has generated a lot of interest globally and is now a subject of a take-over bid by international mining companies. Rio Tinto has offered nearly US$4 billion to acquire the company. Riversdale is also planning to construct a 500MW coal-fired power plant in Tete province. Added to that is another recent discovery of natural gas in the far north Rovuma Basin, Mozambique, by US firm Anadarko. The discovery heightened the exploration drive and a second well drilled led to a discovery of oil and gas, suggesting that the country could be loaded with hydrocarbon riches. Natural gas is so far seen to present the greatest opportunity for power generation and export as liquefied natural gas (LNG). The state power firm Electricidade de Mocambique (EMD) plans to develop a 1GW (i.e. 1000 MW) gas-fired power plant. With excess power production, the country will be marketing its power on the Southern African Power Pool (SAPP). Other major players in that country include Vale of Brazil, which is operating the Moatize coal project and is planning a major rail network development. For sure, Mozambique's state revenues will wax greatly. In Guinea's Simandou iron ore complex, Rio Tinto partnered by Chinalco, International Finance Corporation and Guinea government, was first off the blocks in developing its iron-ore project. What then are the benefits? The $10 billion project under construction is said to be "the largest integrated mine-and-infrastructure project ever developed in Africa" and will undoubtedly transform the West African country's economic landscape and put West Africa in the same league with the world's top iron ore producers Brazil and Australia. Ninety percent of the current 1,600 workers at the project are Guinean and at peak construction a total of 13,000 workers will be hired and eventually 4,000 workers will remain at production stage (i.e. actual mining stage). Infrastructure work has already begun with the revamping of national roads, construction of vocational training centres, development of service and construction wharfs (dockside), power generation facilities. And there is more, royalties and taxes will also find their way into the government's coffers. We can also draw lessons from other major developments taking place in the resource sector elsewhere in the world. In Mongolia, the Oyu Tolgoi $6 billion copper-gold mine under construction is another interesting big mining project. Dubbed to become one of the biggest copper-gold mines on the planet, the mine is 66% owned by Canadian company Ivanhoe Mines and 34% by the Mongolian government. The sheer pace of the project, which currently employs over 5,500 workers and is scheduled to start commercial production late in 2012, is captivating. Some of the mine's highlights include the following:
Other Sub Sahara African countries experiencing significant investment activity in mining are Zambia (copper), DRC (copper etc), Tanzania (gold, uranium), Angola (deepwater oil), Botswana (coal, diamond) and Namibia (uranium). The DRC, however, has the most fascinating potential. With estimated mineral resources in excess of US$24 trillion, no wonder we are witnessing a rush by major mining firms to that country.
As partly demonstrated above, we should always put emphasis on promoting mining holistically –training programmes and facilities for locals, value addition like processing of mineral ore before export and even setting up manufacturing plants as opposed to always exporting unprocessed mineral ore. A case in point is platinum which is mined in Zimbabwe and shipped to South Africa as unprocessed ore for processing. Why should we continue to ship out value?That said, any natural resources and commodities story could not be complete without looking at their current biggest market - the emerging (or is it emerged) economic powers, China and India – and drawing lessons from them. While the BRIC countries (Brazil, Russia, India and China) will remain the major force of economic growth, for now China stands out a mile apart. India is not too far behind. According to a research by Standard Chartered, China is poised to be the world's biggest economy by 2020 and by 2030; its economy will be 20% bigger than the current global economy! Of course backed by an internal market of 1.3 billion people (compared to about 700 million people in Europe and America combined) and rapid urbanisation, one can understand why the Chinese economy appears to be on steroids. More importantly, the above points to a huge and beckoning market for African raw material exports, especially to China and India. Potentially, billions of revenue dollars from exports of everything we have – i.e. copper, coal, platinum, tantalite, gold, iron ore, diamonds, uranium, oil, soya beans, cotton, tobacco, sugar etc - can come from the Asian market. Revenue from the resource sector can eliminate our national debts and poverty, create employment and ignite practically every sector of our economies. To demonstrate the importance of natural resources and commodities (minerals, oil, gas and agricultural commodities e.g. wheat and corn) let's take Australia whose economy was unscathed by the global recession, as an example. Its economic stability and prosperity can be attributed to its robust and world-beating resource sector. With global leadership in coal and iron ore exports and commercially producing over 50 different minerals, that country is benefiting immensely from the emerging economies' demand for raw materials. In 2010, the country's raw materials/commodities exports were set to surpass the $200 billion mark led by iron ore and coal exports! Efforts being made by the Zimbabwean government to take aboard serious international miners (who are friendly and willing) partnered by indigenous players for significant mining projects are commendable and will certainly bear fruits in exploiting the riches of e.g. the Great Dyke, Marange area and other mineral rich regions. Nobody can predict the future with certainty, but what is certain is that everything changes or perishes one way or the other, the only constant is the living God. The issues (sanctions, bad publicity and political discord) besetting Zimbabwe will come to pass. Any investor, especially private equity funds, which does not have Zimbabwe on their radar screens, will likely miss out as this resource-rich country warms up to unleash its full potential. Now, fast forward to 2030, with dedicated investment programmes in mining, energy and infrastructure projects, SANDMAZ (South Africa, Nigeria, DRC, Mozambique, Angola, Zimbabwe, etc) could be the centre stage as the world's top producers of platinum, copper, coking coal, seaborne thermal coal, tantalite, oil & gas, uranium, diamonds, gold and agricultural commodities like soya bean, cotton, beef, tobacco and corn/maize. Some members of this group will have with the highest GDP and economic growth rates in the world. The fast-paced growth in telecommunication is laying the foundations for an exponential growth. As we witness a growing majority of young people throughout Africa, who will be hungry for jobs sooner rather than later, investing now in the resource sector could be a panacea for employment creation and economic growth for African countries – Zimbabwe included. Globally, the demand for natural resources will continue to be driven by rapid urbanisation, quest for more energy/fuel, new technology and concerns over currency stability. Africa as a region has the largest reserves of natural resources and has the best long-term economic potential than any region on the planet. Such is the resource blessing that we have and it is this generation that should awaken and fight a good fight for economic development and prosperity. Noel T Ngangira is a Harare based consultant and investment advisor focused on the resource sector. He can be contacted on e-mail: ntngangira@gmail.com |
Saturday, February 19, 2011
Myth of Africa’s ‘resource curse’
Myth of Africa's 'resource curse'
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