Con­trast­ing per­for­mance for SSA and Euro­pean min­ers...

Zambian Business Times - - FRONT PAGE -

Europe and sub-Sa­ha­ran Africa are on op­po­site ends of BMI Re­search’s Min­ing Risk and Re­ward In­dex (RRI), as can be seen with Europe’s sig­nif­i­cantly stronger per­for­mance in coun­try and in­dus­try risk in­di­ca­tors, while sub-Sa­ha­ran Africa con­tin­ues to lag in coun­try re­ward scores.

The coun­try re­ward scores, re­search firm BMI says, in­clude elec­tri­fi­ca­tion rates, which bring to light the African con­ti­nent’s se­ri­ous in­fra­struc­ture deficit.

Nev­er­the­less, BMI’s in­dex in­di­cates that a highly dy­namic min­ing sec­tor with strong growth po­ten­tial and a di­verse com­mod­ity base will con­tinue to mean sub-Sa­ha­ran Africa re­mains as an at­trac­tive min­ing des­ti­na­tion rel­a­tive to the safer but slower growth en­vi­ron­ment in Europe.

Sub-Sa­ha­ran Africa’s risk/re­ward in­dex scores are, how­ever, par­tic­u­larly ham­pered by a weaker risk pro­file, BMI said, as key mar­kets re­main more prone to so­cial, eco­nomic and po­lit­i­cal up­heaval that poses risks to min­ing op­er­a­tions.

For in­stance, in the Demo­cratic Repub­lic of Congo (DRC), Pres­i­dent Joseph Ka­bila’s un­will­ing­ness to step down and or­gan­ise na­tional elec­tions since the end of his con­sti­tu­tion­ally man­dated term in De­cem­ber 2016 has since sparked in­creas­ing civil un­rest and mount­ing in­sur­gen­cies in the east­ern prov­inces.

As a re­sult, BMI notes, for­eign donors will likely with­draw aid, which lim­its gov­ern­ment’s cap­i­tal projects while si­mul­ta­ne­ously in­creas­ing the coun­try’s eco­nomic risk pro­file.

In com­par­i­son, BMI high­lighted that Europe’s strong rule of law and in­sti­tu­tions pro­vide a strong foun­da­tion for min­ing in­vest­ment, par­tic­u­larly at a time of low-risk tol­er­ance in the min­ing in­dus­try.

Mean­while, the in­fra­struc­ture deficit in Africa re­mains a key chal­lenge. De­spite BMI’s ex­pec­ta­tions for in­creas­ing reg­u­la­tory un­cer­tainty in the sub-Sa­ha­ran African min­ing in­dus­try this year, poor power in­fra­struc­ture will be the more im­por­tant fac­tor de­ter­min­ing the re­gion’s poor over­all scores, rel­a­tive to Europe.

Key min­ing mar­kets, in­clud­ing the DRC, which is highly de­pen­dent on elec­tric­ity im­ports, and Zam­bia, which is over-re­liant on hy­dropower, are prime ex­am­ples of sub-Sa­ha­ran Africa’s on­go­ing power woes, BMI stated.

The cor­re­la­tion be­tween low over­all scores and poor power in­fra­struc­ture among the re­gion’s mar­kets is re­flected in the re­gional rank­ings, where the three worst per­form­ing coun­tries on the BMI’s in­dex – Sierra Leona, Mau­ri­ta­nia and Liberia – are also last in the re­gion in terms of elec­tri­fi­ca­tion rates.

Both Sierra Leona and Liberia rank last glob­ally.

Elec­tri­fi­ca­tion rates, BMI added, are the only in­di­ca­tor which all Euro­pean coun­tries, with an av­er­age of 80.3, score higher in than all sub-Sa­ha­ran African coun­tries, which av­er­age 13.1.

In terms of reg­u­la­tions, BMI notes that it has pre­vi­ously in­di­cated how a se­ries of min­ing pol­icy changes in sub-Sa­ha­ran African mar­kets in re­cent months is in­creas­ing the risks to min­ing op­er­a­tions.

How­ever, BMI warns that Europe’s reg­u­la­tory en­vi­ron­ment does not fare much bet­ter, as re­flected by the reg­u­la­tory scores on its RRI, where the dis­tri­bu­tion of Europe and sub-Sa­ha­ran Africa on a coun­try-by-coun­try ba­sis is rel­a­tively dis­persed, with Botswana com­ing ahead of all Euro­pean peers, for ex­am­ple.

Min­ers op­er­at­ing in Europe re­main ham­pered by strin­gent en­vi­ron­ment reg­u­la­tions across the Euro­pean Union (EU), BMI’s in­dex noted.

The coal sec­tor will fare badly ow­ing to the in­dus­try’s large con­tri­bu­tion to global car­bon emis­sions and the grow­ing role of re­new­able sources of en­ergy gen­er­a­tion.

“In­deed, the Euro­pean Com­mis­sion is keen to dras­ti­cally re­duce re­gional re­liance on coal-fired power plants in a bid to cut pol­lu­tion lev­els, which are un­der­pinned by EU-wide 2020 and 2030 emis­sion tar­gets, as well as the cli­mate com­mit­ments agreed upon at the United Na­tions Con­fer­ence of the Par­ties 21 sum­mit in Paris in 2015.”

The pace of the de­cline will, how­ever, be spread un­evenly be­tween West­ern Europe and Cen­tral and East­ern Europe.

Mean­while, high growth and a di­verse com­mod­ity base will boost the sub-Sa­ha­ran African pro­file.

Although risks re­main wide­spread across sub-Sa­ha­ran Africa, BMI stated that the re­gion re­trains an at­trac­tive in­vest­ment out­look rel­a­tive to Europe ow­ing to a sig­nif­i­cantly more dy­namic and di­verse min­ing sec­tor.

“We ex­pect growth in var­i­ous African mar­kets to be boosted by in­vest­ment ben­e­fit­ing from un­der­de­vel­oped min­ing sec­tors, un­tapped re­sources and a di­verse com­mod­ity base.”

Sub-Sa­ha­ran African’s re­source base ranges from pre­cious met­als in­clud­ing pal­la­dium, plat­inum and gold, to base met­als like cop­per, nickel, baux­ite or tin and rare met­als that are used in bat­ter­ies, such as cobalt and lithium.

“We fore­cast the DRC, Mali and Côte d'Ivoire's min­ing in­dus­tries’ value to grow on av­er­age by over 10% a year dur­ing our fore­cast pe­riod from 2018 to 2022, as re­flected in strong min­ing in­dus­try growth scores for these,” BMI said.

On the other hand, the re­search firm added that Europe places third glob­ally in terms of vul­ner­a­bil­ity to com­mod­ity prices and sec­ond to last in terms of min­ing in­dus­try value growth, a re­flec­tion of the re­gion's al­ready highly de­vel­oped min­ing sec­tor, low dy­namism and rel­a­tively low com­mod­ity di­ver­sity.

The Euro­pean min­ing in­dus­try's de­pen­dence on iron-ore will be a key fac­tor be­hind sub­dued growth ex­pected across the re­gion over the com­ing years.

“We ex­pect iron-ore pro­duc­ers glob­ally to strug­gle over our fore­cast pe­riod from 2018 to 2022 as prices av­er­age lower, driven by a weaker de­mand out­look from pri­mary con­sumer, China. Only Ro­ma­nia will wit­ness sub­stan­tial growth over the com­ing years, mainly ow­ing to its start­ing po­si­tion from a very low base,” BMI said.

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