GROWTH POTENTIAL OF THE RESOURCES SECTOR IN SUB-SAHARAN AFRICA

Ahead of the 2018 Mining Indaba (held from 5 to 8 February in Cape Town) we reflect on the mining sector in Sub-Saharan Africa (SSA) and the four countries in which we have offices. Our insights are as follows:

• Over the next decade SSA will continue to increase in popularity as an investment destination thanks to its natural resource wealth, a flourishing consumer market and infrastructural improvements.
• The resources sector will remain attractive to investors, mainly due to low labour costs, strong mining sector growth and a solid competitive landscape.
• There are also some challenges including policy uncertainty (due to mining-related regulatory changes particularly in the Democratic Republic of the Congo, Kenya, South Africa and Tanzania); the gradual stabilisation of commodity prices; as yet underdeveloped infrastructure; and relatively small mining sectors.

Kenya:

• An outperformer in the region, as a result of its relatively diversified economy, robust long-term growth prospects, and advantageous location in the East African Community.
• Real GDP growth was dampened by the drawn-out presidential election in 2017. The selection of President Uhuru Kenyatta will see these figures increasing into 2018/19.
• The economy remains burdened by large fiscal deficits and a growing debt burden. It is also vulnerable to volatility in external financial markets;
• Kenya has proven deposits of coal, gold, zircon, ilmenite and rutile and is understood to hold significant deposits of copper, limestone, manganese and niobium.
• Its nascent mining sector is set for growth. Government has recently updated mining legislation with the intention of making the industry more attractive to investors.

South Africa:

• One of the most trusted investment destinations in the region for the past 20 years and a relatively stable investment environment compared to many other SSA countries.
• Boasts a diversified competitive landscape, with both large international and smaller local players.
• Economic growth is predicted to rebound only slightly in 2017 and 2018, after a sharp slowdown in
• Investment will continue to face headwinds, driven by:
  • elevated unemployment levels;
  • sluggish credit growth;
  • fiscal consolidation (limiting government spending);
  • a deterioration in the investor friendliness of the regulatory environment (e.g. the suspended new Mining Charter); and
  • increased policy uncertainty.
• Has significant mineral reserves including coal, gold, iron ore, palladium and platinum.

Tanzania:

• Significant potential for development due to its:
  • East African Community integration;
  • vast, but underdeveloped natural resources, in particular mining deposits; and
  • natural gas sector, which will be transformative when developed: boosting growth, improving the balance of payments position and addressing electricity shortfalls.
• Tanzania has the potential to become one of the leading mining centres in SSA. It has vast coal and gold reserves.
• The challenging operating environment and underdeveloped infrastructure are currently impeding the mining industry.
• The trend towards resource nationalism is of concern to overseas investors, as are the growing restrictions and financial charges on foreign-owned mining operators.

Uganda:

• Economic growth is predicted to accelerate in 2018 owing to:
  • success in diversifying the export base, especially horticulture and gold;
  • improved trading links throughout the region; and
  • significant discoveries of oil and gas.
• Challenges include:
  • rising dissatisfaction with President Yoweri Museveni's decades-long rule;
  • corruption;
  • underemployment;
  • over-reliance on the agricultural sector (>60% of exports); and
  • unstable neighbouring countries which could lead to social unrest.
• The mining industry remains small, contributing around 0.4% to GDP in 2016.
• A national mineral survey, completed in 2014, identified resources such as coltan, copper, gold, nickel, tin and uranium.
• Policy statements indicate a desire to attract investors by creating a ‘favourable investment climate’, with transparent allocation of licences and up-to-date geophysical and geological data.
• A wide range of tax breaks (tax has in the past been seen as a stumbling block) as well as scrapping of import duties on mining equipment have also been proposed.

Additional Resources

• Mining Indaba Leaflet
• Mining Sector Brochure