Few Winners As Regulation Tightens Across Africa
BMI View: We expect Sierra Leone, Mozambique and Ghana to be some of the few beneficiaries from the current swathe of tightening mining regulation and resource nationalism across Africa. Whilst we do not expect higher taxes to deter investment in countries such as Zambia and Ghana, we are concerned over regulation proposed in Tanzania and, in particular, Zimbabwe as well the prospects for greater government involvement in South Africa and Guinea . Looking ahead we expect some of the new African mining players, such as Liberia and Cameroon to seek to increase the government's involvement and benefit from rapid growth in their mining sectors.
We expect the wave of government intervention in the mining sector to continue as prices remain elevated by historical standards and governments seek greater benefit from their mineral reserves.
Investment into Tanzania and Zimbabwe are most at risk given the countries' push for punitive tax and ownership laws.
Mozambique and Sierra Leone will see investment continue as their governments pursue business-friendly polices while other countries seek more stringent regulation
The recent swathe of governments across Africa pursuing more nationalistic measures in their mining sectors will deter investment in parts of the continent, in particular in Tanzania, Guinea and South Africa. In contrast, countries such as Sierra Leone and Mozambique are well positioned to benefit from increasing regulation elsewhere as respective governments continue with pro-business policies to attract investment . Sierra Leone will gain from the continent ' s drive for greater resource nationalism. In line with our expectations, the incumbent Ernest Koroma won the election last month and has committed to maintain the country ' s business friendly approach that has attracted a swathe of investment over the past few years. Sierra Leone will particularly benefit from events in Guinea, its neighbour, which has similar resources but has a more nationalist government that is seeking sub stantial control over the mining sector though state ownership and higher taxes. In Mozambique, the government plans to submit a draft of a revised mining law by the end of the year in a bid to streamline procedures and attract more investment to its booming coal sector. The government has stated that its new mining code will not change royalties or mining taxes, and is purely to speed up the licence process and reduce bureaucracy for mining investment, a move that appears to be wholly positive for the sector.
Zambia's government recently announced plans to double mining royalties to 6% and increase regulation regarding environment practices. Ghana has also stated plans to raise taxes on mining companies to fund infrastructure projects and other social projects following similar plans in Guinea and Namibia. 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. Indeed, the doubling of royalties in Zambia brings the country in line with other major copper producers such as Peru and Chile, and thus it will not lose competiveness compared with its peers. In addition, Zambia's copper reserves, West Africa's iron ore deposits and much of the continent's gold and coal reserves are high-grade, thus providing miners with higher margins than elsewhere. Furthermore, under the previous administration in Zambia, there were numerous protests directed at mining companies that disrupted production, especially Chinese-run mines over the lack of contribution to the development of the country. Therefore, by raising taxes on mining companies, the government may assuage some of the local concerns if the sector is visibly seen as benefitting the country at large. It is also important to note that in many countries on the continent there are far greater impediments to investment than tax increases, namely political risk, lack of adequate infrastructure and security concerns.
|Favourable Regulation To Drive Mozambique & Sierra Leone|
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