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Can West Africa survive COVID-19?

The mining and natural resources sector in Ghana has regularly been in the spotlight for many reasons, including that it has been the beneficiary of extensive exploration and development of operating gold mines for approximately 20 years.

While Ghana, like most mining jurisdictions in Africa, has had its ups and downs, investment in exploration and mine development has been steady, with good returns.

This article first appeared in Mining Review Africa Issue 5, 2020
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This has been mostly due to a combination of factors such as the relative accessibility of the gold reserves, better infrastructure, in comparison to many West African countries, better access to semi-skilled and skilled workforce, and a relatively stable policy and regulatory regime.

Ghana has also however faced significant challenges including socio-economic demands for participation in the benefits that flow from the mining and natural resources sector, community activism, a large artisanal subsector with the consequences that flow from this largely unregulated subsector, such as smuggling, environmental impacts, and exploitation of vulnerable people.

Making investment-smart decisions early on

The relatively accessible gold reserves and low – cost extraction, has also meant that neighbours such as Mali and, more recently, Burkina Faso have also been benefitting from substantial investment.

Read more about mining in West Africa

Unlike the often naïve references to the “Country of Africa”, West Africa comprises 16 states (as identified by the United Nations) and is appropriately referred to, in regional terms, as West Africa.

West Africa recognised the importance of regional solidarity, as far back as 1975 (and possibly further back), when the Economic Community of West African States (ECOWAS) was established by treaty, amongst member states.

The vision of ECOWAS has been simple – to create regional opportunities for growth and development by removing barriers, and making it easy to do business in West Africa, so that the citizens of the member states, can benefit. ECOWAS’s vision 2020 has been focused on promoting economic cooperation and regional integration for the development of the West African economy, and has the stated goal of “…transforming ECOWAS from a body of states to a community of people”.

It is not difficult to see why West Africa has been viewed by investors as an attractive destination.

South African investors, and the international investment community who had not been looking at West Africa for opportunities, certainly would have taken note of the comments by representatives of the Public Investment Corporation, in 2019, that the Public Investment Corporation had set its sights on investment in West Africa, rather than South Africa, because of the potential return on investments.

With its abundance of untapped mineral resources (although the vast majority of exploration and mine development has been focused on gold, West Africa also has substantial deposits of iron ore, diamonds, bauxite, phosphate, and uranium), the stability of ECOWAS, and common policy and legislative frameworks in the region which contributes to investor confidence, there should have been substantially more investment, particularly in countries other than Ghana, Mali and Burkina Faso, and while there has been investment in Senegal and the Ivory Coast, expectations have been higher, for more significant investment in West Africa.

Why then the struggle?

The question, logically, therefore, is what is preventing more substantial investment? The primary reason seems to be significant, and justifiable concerns regarding illegal mining operations, and regional security and stability.

Many West African states have faced the challenge of illegal mining which goes hand in hand with criminal organisations and structures, smuggling, child labour, and rule by fear.

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The recent attacks on mining personnel in Burkina Faso, seemingly at the hands of organisations which have been branded by international bodies as terrorists, and expansion of incursions of these organisations into West African states, has caused alarm.

There is also the very real concern that illegal, artisanal, and large-scale mining would be the target for these incursions, because the gold reserves, which are relatively easily accessible, can fund the activities of these organisations.

The impact of COVID-19

West Africa, like the rest of the world, is also facing the consequences of COVID-19. COVID-19 has played havoc with international markets, which will also inevitably impact on West Africa, as demand decreases.

While countries like Ghana and Mali may be in a better position to implement the necessary measures to address the contraction and spread of COVID-19, other West African States may not be in the same position, and COVID-19, together with the regional security concerns, is likely to impact on West Africa’s mining and natural resources sector, for some time to come.

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This is extremely unfortunate, particularly in view of West Africa’s history of trying to make investment in the region as easy as possible, the benefits that can flow to citizens of the West African states, and the significant potential of the mining and natural resources sector to contribute meaningfully to growth and development in West Africa.

Its relatively accessible gold reserves, low cost extraction, and ease of doing business, is unfortunately being overshadowed by COVID-19 and the regional security concerns.

In the post COVID-19 world, West Africa may still be an attractive investment destination because of the availability of large untapped mineral resources, and the relative low cost of extraction, if it can address the primary concerns surrounding regional security.

The usual challenges faced by mining jurisdictions such as infrastructure development and accessibility to semi-skilled and skilled workers, can be addressed, relatively easily, with the flow of investment.

AUTHOR: Warren Beech, Partner: Head of Mining and Infrastructure, Eversheds Sutherland (SA)