As 2019 draws to an end it is important to reflect on the journey of the sector in the last twelve months and sift through the insights that it has offered as we prepare for 2020.
2019 started with high hopes and expectations of the mining sector in Southern Africa, the sector was primed to play a significant role in steering economic recovery and to strengthen economic growth.
Whilst the sector did register some positives, its overall performance can be described as passable but undeniably below the expectations that had been initially projected.
This has been a consequence of both internal and external factors.
The region has seen considerable regulatory movement over the past few years with mineral rich countries implementing national initiatives that drive transformative and inclusive broad-based development goals.
These measures have been received with some apprehension by the investment market thus driving the risk profile of the region up and negatively impacting the ability to attract adequate capital.
2019 has largely been utilized to attempt to clear the air concerning these initiatives and gaining investor and business confidence back, however investors are still approaching the region with caution and this has slowed down the rate of investment and interest in the region.
In addition, the global economic performance for 2019 remained weak and precarious throughout the year and has also undoubtedly shrunk any anticipated margins of growth or significant improvement for the delicate economies of Southern Africa.
Whilst little can be done about the overall economic global performance, it is a considered view that the regions’ ability to excel in the mining sector in 2020 and beyond is dependent on the regions ability to tackle and improve proficiency in a couple of areas that have shown themselves to have significant impact on the performance of the mining sector.
Some of these areas which seem common to most of the region include energy and water, innovation, regulatory coherence and practicality, artisanal mining and regional cooperation.
As highlighted above, a lot of regulatory movement has been witnessed in Southern Africa over the last few years largely due to the widespread realignment of mining policy towards a transformative and inclusive direction.
In addition, many mineral rich governments have sought to enhance the returns of the sector through significant structural and tax adjustments such as Zambia’s revised tax structures, the Democratic Republic of Congo’s upwards review of strategic minerals taxes and the tax dispute between the Government of Tanzania and Acacia Mining which has recently been resolved.
The reasons underlying the realignment of regulatory structures are largely derived from the common wish to enhance the returns from the sector and ensure it the equitable distribution of the sectors wealth.
However, the success of all these initiatives will depend on how effectively governments are able to align these initiatives in a manner that creates a coherent and stable regulatory and economic environment.
Regulatory coherence and certainty are not created by merely stating the rules clearly.
Coherence and certainty exists when all the rules in the mining sector are aligned to speak to the same objectives, further to that, the objectives of all the mining rules should be aligned and in harmony with rules from other sectors that support and interact with the mining industry’s deliverables.
Finally, coherence also means that in totality all these rules that are crafted for the mining industry should also be consistent with the structural, economic and social capacity of the state in question.
Any variance in this alignment creates the risk of uncertainty and potentially jeopardizes the success of the desired outcomes.
For instance, the agenda to address transformation and inclusivity in the sector must be carefully tailored with efforts to increase the capacity of the beneficiaries of the move.
The wealth of the mining sector is not merely contained in the salary or dividend, but in the ability to extract and leverage the value and potential contained in the horizontal and lateral relationships within the sector.
This latent wealth can only be tapped into when the individuals who are entering the fray can identify, create, nurture and employ different skills and capacity within these networks.
Therefore, introducing laws that enforce transformation without structuring and implementing corresponding initiatives to continually support, monitor, equip and enhance the skills and capacity of the target groups until they are firmly set will result in very lukewarm results.
Energy is undeniably a problem for the region. South Africa has experienced problems with the going concern vulnerability of Eskom.
The vulnerability of the South African grid also puts a risk some of its neighbors who rely on imported electricity from it, with countries such as Namibia importing the bulk of their requirements from South Africa.
Zimbabwe has also experienced significant deterioration in its ability to generate or secure adequate electricity for business and domestic consumption and this has led to businesses heavily depending on alternative energy sources over long periods of time.
As a result, the cost of business has increased sharply. Mining relies on the availability and reliability of electricity, and instances where it is disrupted, it relies on the affordability of alternative energy sources.
At present the availability of electricity from the regional grid is precarious and the general cost of alternative energy is also high. The price of electricity itself has also been increasing been and this is duly reflected in the overall increased cost of mining.
The region needs to attend to the prevailing constraints in the energy sector both nationally and regionally. The region needs to prioritize the stabilization and viability of public producers, encourage more private producers and independent power grids and accelerate energy projects in order to stabilize supply and lower the cost or electricity.
The development of renewable energy initiatives is also strategic to this cause, the region should reach a point where at least 50% of the energy delivered to the grid is derived from clean energy over the next few years.
Whilst the utilization of coal is not immediately under threat in Africa, it will increasingly carry a punitive cost in line with the global stance against its carbon footprint.
This premium will inevitably increase the cost of electricity generated from coal and resultantly the cost of doing business will keep increasing especially in the mining sector.
Following from the same, the pace and scope of energy projects initiatives should increase and be at the top of the region’s agenda.
The region has also experienced the full wrath of a successive droughts over the last few years and is currently experiencing one. This has compromised the availability of water and increased the competition for access to water.
South Africa has struggled with very low water levels in many of its major dams, Namibia declared a state of emergency in response to the drought in May 2019 Zimbabwe and Mozambique are also being ravaged by the drought.
The mining sector is invariably affected by the prolonged drought conditions. Its direct result has been an increased competition for access to raw water, increased costs of accessing underground water sources, and increased cost in re-engineering mine water management systems and the water use foot print.
The limit of water resources brings into perspective the need to come up with adaptable mine water use systems that improve the repurposing and re-treatment of used water and the need to adapt to processing methods that significantly reduce water use or avoid the use of water altogether.
Access to both clean and raw water is vital for mining and if the region continues to experience extreme weather phenomena it becomes extremely important to quickly put in place national and regional strategies that are coherent and strategic in addressing the impact of water scarcity and sustainable water management initiatives.
The continued advancement of mining technology is at the center of the sustainability for the mining sector. Mining companies are constantly being faced by challenges that require advanced tools that improve the accuracy of targeting and defining mineral deposits whilst also lowering the cost of exploration, mining and processing.
Precision mining is going to play a large role in assisting the industry to reduce its impact and footprint on the environment and in surrounding communities and society.
The region needs to employ its resident knowledge and resources to develop strategies and technology that advances precision mining and circular economy principles.
The region needs to focus on the importance of innovation and direct more resources and effort in building capacity for advancing its own technological solutions.
Innovation should become a culture and should lead the efforts of full industrialization by producing tailor made solutions which are applicable to the needs of the region.
This is particularly important in mining where the integration of block chain, automation and artificial intelligence is set to change the sector.
As all these solutions become available it is important for the region, and Africa at large, to shape and adapt these tools to suite their own context and needs.
Conscious leadership is needed in this area because Africa has largely been comfortable with being a consumer of technology rather than a progenitor of it and this has limited the scope and impact of its own potential.
The impact and growth of the artisanal sector continues to make is mark in southern Africa. 2019 witnessed devastating accidents that saw mass fatalities at various artisanal mine sites across the region.
It is clear that while there is a flurry of attention on the sector it has not resulted in a fully organized and structured industry.
Most artisanal activities still remain illegal, their conditions of work remain as precarious as ever, conflict continues to flare, the degradation of the environment continues and their product still feeds the illicit mineral market.
This is an indication that the energy and commitment towards formalizing this sector are failing and need to be revisited. The sector has immense potential to address critical short comings in areas such as unemployment, diversification of rural and semi-rural areas and broad-based development but the region has still not managed to harness the energy and potential of the sector.
In 2018, South Africa launched a pilot programme in Kimberley which sought to test run the incorporation of artisanal miners in the diamond industry in the form of a public private partnership with a mine called Ekapa Minerals.
The Department of Mineral Resources and Ekapa gave approximately 800 artisanal miners licenses to mine old diamond fields.
However, sadly it has been recently reported that the project is being compromised by attacks and violence being meted out by other artisanal miners who are not part of the project.
This has eventually compromised and threatened the success of the pilot. The effort being made by the Department of Mineral Resources is commendable, however this project exemplifies why formalization efforts across the region have not really achieved resounding results.
The Democratic Republic of Congo, Mozambique and Tanzania have made legal provision for legalizing artisanal miners but have not registered significant success in formalizing the sector.
Zimbabwe has also given safe passage to product coming from the gold artisanal sector but has not legally legitimized the sector.
Current efforts cross the region are making the following flawed assumptions, firstly that by merely introducing laws that give artisanal miners legitimacy then the sector will fall in line and can be regulated by prevailing supporting commercial legal structure.
Secondly that the sector will self – organize and thirdly by making the mistake of over relying on the private sector and international support groups to do the bulk of the work in spearheading solutions.
It is good to give legitimacy to the sector through legal recognition; however, this is only the first step.
The current regime for commercial regulation has been modelled to support highly organized and skilled enterprises which can meet the requirements stipulated by the law.
The same regulatory structure is not suitable or appropriate for the artisanal mining sector.
The constituents of the artisanal sector fall far below the ability to meet ad maintain the requirements of prevailing commercial and financial rules.
The sector needs an entirely new set of rules that support individual, highly mobile and limited resource enterprises as characterized by artisan miners. The sector needs its own definitions and its own supportive structure that re-defines the concept of “enterprise” itself.
It is also important to acknowledge that the artisanal mining sector has been left to organize for a long time and it has resulted in a sophisticated and highly efficient maze of rules and social networks with formidable and fierce resilience.
Following from the same, the sector will not easily fall into line with regulation. Concerted and highly organized effort is required to break up these informal commercial networks that have been set up and the highly loyal social networks that are utilized to process, buy, transport and smuggle minerals illicitly.
This effort needs to be structured, resilient and persuasive in its mandate. The sector will not self-organize, it requires to be led into organizing with a firm hand.
There are characteristics that have emerged from the sector such as the brazen use of violence amongst the artisanal miners themselves and towards surrounding communities and even security forces that clearly calls upon a highly coordinated and structured approach to be enforced by governments in support of any laws that may be introduced to legitimize the sector.
Utilizing the army or police to merely disperse or arrest artisanal miners is not a lasting solution, government must coordinate the effort by providing a robust solution that absorbs artisanal miners into formal structures that are clearly defined and supported from national to district cell level.
Many governments have also unconsciously left private sector efforts to lead the efforts of formalization of the artisanal sector through corporate supported partnerships.
In the DRC this has led to the most notable organized formalization structures being led through internationally coordinated organizations in specific mineral groups such as the International Tin Research Institutes Tin Supply Initiative (iTSCi). DeBeers also has also spear headed the Gemfair pilot programme which is most notable project in the diamond sector.
The private sector has its role in terms of assisting the sector to formalize however, this must occur in the larger framework of rules and structures that are defined and coordinated by government.
Governments must lead the process by firstly by having a clear vision of how the sector will integrate, its objectives and the deliverables of the sector within the mining industry.
Secondly it needs to come up with the structure of the sector duly partnered with a capable institutional, technical, financial and social support framework from which place all other stakeholders can thereafter join and support the effort.
The challenge posed by the formalization of the artisanal sector also brings into perspective the potential of regional coordination and how it is currently underutilized in southern Africa.
The issues identified in this analysis are structural issues that can be resolutely addressed by pooling resources and utilizing the structures of the Southern Africa Development Community to give strategic advantage of the regions mining sector.
The worlds mineral market is highly competitive on access to capital, supply chains an access to markets. Such an environment calls upon collective effort to leverage the resources of the region in a holistic and structured manner.
It is in the interests of the region for the regulatory and business environment in the mining sector to be harmonious and permissive to business viability.
The mining sector can still lead the revival of economic stability in the region and promote industrialization if every facet of the inputs to economic, structural and regulatory success are dealt with proactively and decisively.
The industry can also be transformed and become inclusive if efforts towards this objective are not just targeted at economic assimilation but also address broader social and capacity limitations.
As we look towards 2020 it is important to take stock of the structural, regulatory and economic limitations and see how they can be addressed in order to tap into the potential of the sector.
If the regions’ mining sector wants to gain strategic advantage and bring its full potential to fruition it needs to take some lessons provided by Adam Smith in his book called, “Wealth of Nations” published in 1776.
Whilst the book has its roots in economics, it can also impart useful insight to those who regulate the mining sector and its players. In his reflections, Adam Smith notes that weaker nations that can reach a point of equality of courage and force like that of stronger nations which in turn will inspire mutual fear and resultantly be the most effective weapon in overcoming injustice.
According to his view, this equality of force can be reached by prioritizing the exchange of knowledge and innovation which thereafter results in commercial strength.
The mining industry in Southern Africa has tremendous potential to deliver more results. It has room to increase the value and scope of its returns if it can purposefully heed, learn and employ the lessons of resilience and adaptation skills that other mining industries have shown or are pursuing.
Whilst its performance is currently passable and weak, it can achieve equality of force and higher returns by leveraging knowledge, innovation and good practice.