African countries have to put up their homes to attract mining investments

In April, the Fraser Institute, a Canadian think tank on politics, released 2021 Annual survey of mining companieswhich assesses how mining stocks and public policy factors such as taxation and the regulatory environment affect the attractiveness of exploration investments.

South Africa, the Democratic Republic of the Congo and Zimbabwe were ranked among the least attractive jurisdictions in the world for mining investments. Morocco was the only African country that ranked in the top 10 of the investment attractiveness index.

The survey results come at a time when the international investment community has its eyes fixed on the upcoming Investing in African Mining Indaba, at an annual mining conference, dedicated to the successful capitalization and development of mining interests in Africa.

Integration of ESG practices

This year theme è Evolution of African Mining: Investing in the Energy Transition, ESG and the Economies. Over the past decade, the energy transition and environmental, social and governance (ESG) factors have gained prominence on the global stage. Historically, ESG considerations have been largely ignored because unethical companies would outsource social and environmental costs with impunity. The deterrents against such behavior were absent or insufficient. This has led to environmental degradation and the abuse of human rights.

But, due to mounting external pressures, companies are forced to integrate ESG principles into their daily business operations and their long-term investment strategies. Part of the goal is to force companies to internalize those costs that have been outsourced, passed on to the people who could least afford them.

Among these external pressures are growing concerns about climate change and overall corporate social responsibility. The latest intergovernmental group on climate change relationship, for example, points out that temperatures could rise by more than 3 ° C, with catastrophic consequences. As a result, many industries, especially extractive industries, have come under greater scrutiny by investors and affected communities.

This generated significant ESG risks for the industry. For example, a coal mine in Kromdraaispruit in Mpumalanga decanted millions of liters of acidic water in the adjacent river system in February of this year. This resulted in the elimination of tons of fish. in addition, the drainage from the acid mine spilled into the Saalboomspruit, the Wilge River and the Olifants River before reaching the Loskop Dam.

The acid water spill covered a 58km stretch and irreparably damaged the aquatic life of that region. The coal mine was also reportedly due to close, as it was old and disused. Beyond the negative externalities imposed on people and the environment, this case also exposes the misconduct associated with many mine closure and rehabilitation processes.

Given the risks on the surface, integrating ESG practices into day-to-day business operations (as a critical risk mitigation strategy) should be on the agenda of all global mining conferences. It is encouraging that Mining Indaba’s stated goal this year is to integrate ESG priorities into how the mining industry thinks about its future.

Global investment

Over the past two years, the global economy has been negatively impacted by the Covid-19 pandemic. the Update on the global economic outlook published by the International Monetary Fund in January this year, it said global growth is expected to decline from 5.9% in 2021 to 4.4% in 2022 and 3.8% the following year. This largely reflects expected declines in two of the largest economies: the United States and China, respectively.

But it seems likely that negative health outcomes will decrease as vaccination rates improve. Evidently Covid-19 pandemic it has had an interconnected effect on the global economy, world trade and cross-border investment.

The slowdown in growth is increasingly accompanied by the pressure to adhere to ESG standards. Allocating capital for mining projects, for example, increasingly requires integrating ESG standards into regulatory frameworks. But, until now, adhering to ESG criteria has meant different things to different investors, and no standards have been applied consistently.

In response, the Regulation on disclosure on sustainable finance, published by the European supervisory authorities, was formulated as a set of European Union rules that aims to make the sustainability profile of funds more comparable and better understood by final investors. It focuses on predefined metrics for evaluating the ESG results of the investment process. With greater emphasis on disclosure, the purpose of the regulation is to better identify any harmful effects of investee companies.

Despite negative global trends, foreign direct investment in the mining sector continues to hold great potential to finance infrastructure development and to build towards sustainable economic growth and poverty reduction, especially in African mineral rich jurisdictions.

But the Fraser Institute survey ranked Africa’s top mining jurisdictions among the least attractive for mining investments based on the following key policy factors:

* Uncertainty about the administration, interpretation or application of existing mining regulations;

* Uncertainty about environmental regulations, which includes: stability of regulations, consistency and timing of the regulatory process, non-science-based regulations;

* Tax regime, which includes: personnel, company, payroll, capital and complexity of tax obligations;

* Socio-economic agreements and community development conditions; Other

* Labor regulations.

The survey questionnaire was answered by managers and executives of mining companies who are familiar with the regulatory environment of the relevant mining jurisdictions. But one of the methodological limitations of the survey noted in the past is a relatively low response rate from managers and executives.

Strong investor confidence

However, having efficient and lean mining application processes is a key driver that will restore investor confidence in the African mining sector.

For example, the South African Mineral Resources Administration System (Samrad), an online mining rights and prospecting system it wasn’t efficientnor has it provided the transparency needed to build trust in the industry, particularly with stakeholders who are most affected by mining projects.

It is essential to have an adequate standard electronic file formatting system that publishes Samrad details complete with all accepted and granted mining and prospecting rights. Also, the Department of Mineral Resources and Energy must develop the system to provide the exact status of the backlog of applications, the progress made in clearing by province and type of application.

Finally, a stable and reliable regulatory environment is needed to boost investor confidence, along with mining policies that are in line with ESG considerations. At the heart of it all is the implementation of good governance practices that will enable transparent and accountable mechanisms that give investors the confidence to finance responsible mining on the African continent.

The views expressed are those of the author and do not reflect the policy or official position of Mail & Guardian.

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