India losing out on African minerals

Lubumbashi’s nondescript Luano International Airport has been abuzz with visitors coming in from China, South Korea, Japan and other countries, many of them looking to tie their supplies of cobalt. Katanga province of Democratic Republic of Congo (DRC), a francophone central African country that has attracted global attention in the recent past for all the wrong reasons, is the source of about 60 per cent of global cobalt supplies. With China, India, Europe and several other countries embarking on the electric vehicles bandwagon, the requirement for cobalt, which is a key component of batteries, has seen its prices shoot up from about $50,000 per tonne to $90,000 now. Analysts are predicting even higher prices if the demand continues to grow. To grab a higher share of margins, the DRC government has recently approved a new mining code that has, among other things, enhanced the royalty rates on cobalt from 3 per cent to 10 per cent. While there has been a hue and cry about the new legislation, the investment environment remains quite optimistic, in spite of political uncertainties because of Joseph Kabila choosing to stay on in power even after his mandate lapsed in December 2016, which, in turn, has led to often violent protests and ethnic conflicts.

One of the key features of this curious mixture of energy mineral investment landscape across Africa is the great Chinese scramble. Mostly state-owned, the Chinese companies have sought greater access to minerals and have made acquisitions in assets replacing US, Australian and Canadian companies, made investments in greenfield projects on scales that are not always justified by their reserves, and are generally seen on a prowl to gobble up any assets, available or sometimes coercively made available. They have been competing with global mining and trading behemoths like Glencore and Trafigura. They are also seen as good exit options for other miners and investors due to their willingness to put a good bargain on the table. In some countries, where political risks are higher, the Chinese are observed to manage well through influencing the African governments.

The other key feature is that of African resource nationalism — manifested through fiscal provisions such as high royalties, super profit taxes, value addition requirements, and mandatory local content in employment, sourcing and even ownerships. Governance structures not being robust in several countries notwithstanding, swift changes are being made in the legislative frameworks aimed at capturing the perceived fleeing profits. Large Chinese investments that have faced challenges of localisation of workforce have also led to resentment and, sometimes, conflicts, which, in turn, have pressurised local leaderships to push for an even higher degree of nationalism. In all this, however, the most conspicuous feature has been nearly invisible Indian hand. Mostly privately-owned, Indian efforts in the hunt of strategic minerals in Africa have been disconcerted and uncoordinated. The Indian state-owned entities such as Nalco, NMDC and a few others have expressed their desire to spearhead global investments and acquisitions of assets, but the efforts so far have to sign up consultants and investment bankers, and take up a few reconnaissance trips to a few of the African countries, and even these efforts have been sluggish. Several private mine-owners in Africa have been forced to adopt the strategy of low-key low-scale operations to not attract Chinese attention and look for tie-ups with the global traders, and Koreans or Japanese users. Some have also signed contracts with the Chinese to supply most of their products and have been happy to retain ownerships in their assets. Ducking or collaborating with the Goliath in the market are seemingly the only options.

This while Indian miners have had a good run in the continent and are considered benevolent investors in their local communities. Indian diaspora in several of the African countries has created a certain goodwill that can be considered a great asset to be leveraged. India, too, has ambitious plans for electric vehicles and renewable energy, which, coupled with plans of Make in India initiative, necessitates securing key raw material sources such as copper, cobalt, tungsten, tantalum, and several others, it is imperative that the Indian invisible hand becomes visible and prominent. India may not be able to match the fiscal might of the Chinese but the proverbial Indian soft power can give a competitive advantage to Indian investors. The way to go is to consider inclusive growth of mining communities, being good corporate citizens in host countries and support the aspirational populace in their attempts to improve their standards of living. These could also be coupled with support for democratic values, which would be distinctive. These can help Indians develop sustainable supplies while deepening its relationships with African nations, many of which are on the rise. Private sector efforts need to be supported and supplemented by governmentowned companies, which have so far had few success stories in asset acquisitions in Africa.

Drawing a strategic road map around securing energy and other minerals, in consultation with industry associations, can help government agencies to support Indian private investors and government-owned companies in their battles in Africa. It may be a little late in the war for resources, but a coordinated effort supplemented by compassionate plan can help India win still.