SA on backfoot in Africa’s new ‘gold rush’ as investors bank on rival nations

South Africa was once Africa’s undisputed mining champion. It built its major economy on gold and diamonds, particularly in the 20th century. But that status has been slipping, as was evident at the African Mining Indaba in Cape Town, where several other African mining countries shone brighter.

As Business Maverick Editor Tim Cohen wrote: “The big takeaway from the African Mining Indaba is incredibly obvious and simple: Africa is increasingly eating SA’s lunch”. He said for decades, mining companies had preferred to mine in South Africa — and possibly Botswana — rather than other African countries. But that was changing.

It’s not easy to quantify the decline, though the Fraser Institute ranked South Africa only 57th among 62 global mining jurisdictions in its 2022 mining Investment Attractiveness Index. Botswana ranked 10th, Côte d’Ivoire 30th, Ghana 33rd, Namibia 38th and Tanzania 53rd. Angola and Zambia ranked lower than South Africa — but it’s clear that all three, and others, are moving ahead, while South Africa is seemingly stagnating.

Minerals Council South Africa statistics show that mining net fixed investment was near zero in 2021. Several companies at the indaba privately said the operational and regulatory environment and the mineral rights processing systems in other African countries were more welcoming to investors than in South Africa.

Read more in Daily Maverick: After the Bell – Mining Indaba 2024: The broken mechanics of SA’s political system

“South Africa had largely dropped off the exploration radar, with its share of global exploration expenditure remaining below 1% for the last three years; two decades ago we were well above 5%,” another source said.

“South Africa has lagged [behind] its peers in Africa when it comes to implementing a modern, transparent cadastral system to efficiently manage mineral right applications and records,” Minerals Council spokesperson Allan Seccombe told ISS Today. “This has resulted in a backlog of thousands of unprocessed mining and prospecting right applications [and] mining permits.

“There are a plethora of regulations and policies to traverse to start an exploration project, build and operate a mine in South Africa — which add to the time it takes to start work. Coupled with severe constraints in electricity supplies and transport logistics, and a downturn in certain commodity prices, the domestic operating environment is challenging, making it a difficult mining investment destination for investors to consider.”

He noted however that the Minerals Council, its members and other business organisations were working with the government to address the logistics bottlenecks, crime and corruption to improve investor perceptions.

Duncan Wanblad, CEO of Anglo American — the bellwether of South African mining — told the indaba that Zambia and Angola were creating investor-friendly environments, while the pace of South Africa’s reforms needed to accelerate. He said Anglo American recently signed diamond mining investment contracts with Angola, where it was also exploring for copper and nickel. In Zambia it had begun prospecting for copper and cobalt.

Promises vs progress

Several analysts contrasted President Cyril Ramaphosa’s speech with that of Zambian President Hakainde Hichilema. Ramaphosa was full of promises to fix the many problems frustrating investment such as power shortages, rail transport and port bottlenecks, and the lack of a proper cadastral system. Hichilema listed eight new major mining investments totalling about $7-billion since becoming president in 2021.

Tanzania, the Democratic Republic of the Congo (DRC), Ghana, Angola, Sierra Leone, Côte d’Ivoire, Burkina Faso, Mozambique and Namibia all showcased their mineral attractions to investors at the indaba.

Tanzania was prominent. Like Zambia, it has emerged from an era of fraught relations with foreign mining houses. Under President Samia Suluhu Hassan, “an ambitious foray to position Tanzania as Africa’s leading mining destination of choice” has been launched. Ministry of Minerals Permanent Secretary Kheri Mahimbali said in 2023 the mining sector contributed to about 10% of GDP, generating nearly 60% of foreign exchange and attracting some $2-billion in investment.

It’s clear from the indaba that there is a new ‘gold rush’ in Africa — powered mostly by demand for critical minerals such as lithium, coltan and rare earth elements vital for electric vehicle batteries and other renewable energy technologies.

It is also clear that African mining countries are implementing policies to ensure they don’t again lose out on the benefits of mining investments. Examples are policies requiring that their minerals be beneficiated partly in-country, so that extra value flows to them, not foreign countries.

Ghana’s mining minister Samuel Jinapor said relations between African and industrialised countries were fundamentally different to 50 years ago, when the approach to mining was ‘dig and ship.’ Now African countries demand two things: value addition and indigenous participation. Ghana has policies to ensure that Lithium, for instance, can’t be exported raw, and there must be at least 30% Ghanaian participation. It will be interesting to see whether that sort of policy can be sustained.

Last year, Zambia and the DRC signed an agreement for a joint venture to develop electric vehicle batteries on their territories. This was strongly supported by the United States, which sees it as a way of frustrating China’s apparent effort to corner the market on critical minerals.

Jinapor exhibited a refreshing attitude toward investors. He said African countries had to create conducive environments for mining investment, including adequate transport, fair tax regimes and energy prices, and predictable regulation – ‘not changing the rules in the middle of the game.’

More broadly, mining had to guarantee the sanctity of contracts, democracy, the rule of law and independent judiciaries. Having done all that, African countries could insist that the highest end of the value chain be retained in-country.

Properly managed, Africa’s new ‘gold rush’ could be a big win for the continent as a whole. But if South Africa wants to retain its slice of the cake, it should accelerate the pace of reforms. The country is a major economic hub and anchor not only in Southern Africa but beyond — so its success or failure will ripple well beyond its borders. DM

Peter Fabricius, Consultant, Institute for Security Studies (ISS) Pretoria.

First published by ISS Today.