BMI View: Africa's mining sector is set to receive far greater attention over the coming months and years given the continent's reserves of huge high-grade deposits across an array of metals. This will see the continent become a global player in iron ore and coal exports and ensure it continues to receive substantial interest from China as it seeks to secure future deposits to feed its rapidly growing economy. However, there are significant risks to this bullish outlook, most notably regarding the continent's lack of adequate infrastructure and rising political risks that will weigh on investment.1. Lack Of Infrastructure Is The Greatest Challenge The most significant threat to investment in Africa's huge untapped mineral reserves is the lack of adequate infrastructure. While demand for mining in Africa has increased hugely over the past few years on the back of elevated metal prices and depleted resources elsewhere, development of infrastructure has yet to catch up and looks set to disrupt operations unless significant development is undertaken (See BMI Online, 'Infrastructure Poses Greatest Challenge To Investment In Africa', February 7 2012).
Infrastructure Woes To Weigh On Investment
West Africa illustrates this issue most clearly. We forecast the region will export around 200mntpa (mn tonnes per annum) of iron ore by 2015, putting a severe strain on infrastructure. While there are some projects on the way as illustrated by our Infrastructure team's Key Projects Databas e, more will need to be announced to avoid these mines being delayed and further investment deterred. Indeed, investment from the major miners has been forthcoming, but further interest is constrained by the absence of sufficient railway or road capacity and a lack of port terminals. 2. Resource Nationalism Will Increase We expect far greater state intervention in Africa's mining sector over the coming years as metal prices remain elevated and governments see the sector as an easy way to increase revenues (See BMI Online, 'Mozambique Set To Benefit From Increasing Regulation & Taxes Elsewhere', November 28 2011). For the most part, we do not expect these measures to deter investment in Africa, given that much of the world is enacting similar tax increases and that Africa contains some of the world's largest untapped high-grade mineral deposits which will continue to attract investment.
Table: Recent Government Intervention
Government plans to implement an option to ensure it can purchase up to 35% of mining projects.
Government plans to revise its mining code to ease the passage of investment.
All future mining projects will be awarded to a state-owned company under plans unveiled by the government.
Government is looking into revising its mining code to improve environment regulations and increase taxes.
Government announced plans to ensure mining companies provide for the local community.
Plans to introduce a super tax on mining companies.
Mining companies will have to be 51%-owned by indigenous Zimbabweans.
President Sata plans to increase taxes on the mining sector and ensure Zambians are employed in managerial positions in mining projects.
Trying To Plug The Gap
Guinea & Sierra Leone To Drive Output Growth
5. Southern Africa To Become A Key Coal Exporter Southern Africa will be one of the key growth drivers in global coal exports over the next few years as production in Mozambique, South Africa and, to a lesser extent, Zambia and Botswana increases substantially ( See BMI Online, 'Coal: Southern African Exports To Boom', February 2 2012). With little domestic demand for coal, almost all of this growth in production will be exported to China and India as exports from Australia and Indonesia slow down on the back of higher taxes and rising domestic demand in exporting countries.