- Africa’s largest trading partner is China together with South Africa
- Africa in terms of global trade remains largely excluded beyond the production of raw commodities
- The mining sector is Africa is set for strong growth in 2022
Financiers and banks in Africa do not expect the good times in the mining sector to slow down any time soon.
Mining companies presently enjoy high prices for the commodities they produce, exceptional production performance, and robust supply chains. These conditions have led to miners producing record profits and record returns for shareholders. The mining sector in Africa especially is particularly important.
They make a significant contribution to the fiscus of the countries where they operate. This is according to Standard Bank’s Corporate and Investment banking team responsible for mining and metals. Mines have proven to be a stable source of foreign exchange translating to an optimal balance of payments position and currency stability.
In South Africa especially, the treasury reported an unexpected tax windfall of ZAR 182 billion or US$ 12 billion dollars on account of the strong performance of the mining sector. The strong financial position of the mines as has been widely reported has enabled the mining houses to repair their balance sheets by deleveraging them and paying larger than usual dividends to their shareholders.
The mining industry has a critical role to play in shaping how the African continent participates in global trade. The continent’s largest trading partner, China has conceptualized and is implementing an initiative called the Belt and Road. This initiative broadly speaking is one where China looks to grow its influence and presence on the global economic stage by promoting what it calls economic participation and cooperation along 6 economic corridors.
Where the mining sector converges with the growth in influence of Africa in global trade is in terms of supplying commodities and natural resources that the rest of the world needs to develop its economy. Interestingly China has become a catalyst for mining investment in Africa. Chinese mining activity is on the rise. This is interesting because looking at any graphic illustration of the Belt & Road Initiative shows that Africa’s role is merely that of a supplier of natural resources and commodities. The African continent does not host any of the six economic corridors that the Chinese envisage will help its economic cooperation with other countries within the remit of the initiative. Geopolitical tensions have acted as a kind of serendipity for Africa.
This is especially where China is concerned. The Asian giant has been diversifying its investment and trade flow away from developed markets and more towards emerging markets. According to Standard Bank in 2021, China’s total outbound foreign direct investment totalled US$145.2 billion which translated to a year-on-year growth rate of 9.2%. At least a quarter of that outbound FDI from China is directed at the African mining and metals sector. This has been driven by an increased appetite for specific commodities in particular jurisdictions.
Chinese companies are demanding commodities from numerous countries in Africa ranging from copper in Zambia and the DRC. Lithium purchases by China have increased to just over US$ 1 billion from Mali, DRC, and Zimbabwe. There are potential opportunities for countries like South Africa and Ghana from the gold mining activities which take place there. Standard Bank’s CIB reports that “In Namibia, Chinese investors operate the only two large uranium mines in the country to secure raw feeds for Chinese nuclear energy initiatives, and there is also a significant investor and operator appetite for chrome assets in South Africa and Zimbabwe, as well as manganese assets in Ghana.”
- Mining continues to be an economic bellwether for many countries in Africa that are earning substantial amounts of money from selling natural commodities to China.
- China’s slowing economic growth will be a cause for concern for Africa
- As a mitigating factor for this slowdown in China and Asia, African economies need to look to other emerging markets for their own growth.
As far as global trade is concerned Africa has a central role to play. So critical is this role that should Africa be absent from the global trade equation the global economy simply will not prosper. Africa’s mining sector offers 2022 and going forward a real opportunity for expansion.
Africa’s economic transformation will come from its ability to leverage the comparative advantage position its natural resources offer. Africa needs to become the seventh corridor of the Belt & Road Initiative (BRI). China will be able to enhance its dominance in the global economy if it does more to invest in and develop economic ties with Africa.
Currently, the BRI in as far as Africa is concerned restricts the role of Africa in providing access to raw materials.
Africa can provide more than mere raw materials. The role the continent can play in the future of the global economy is more significant, especially considering its population demographics. Africa is home to the youngest population on the planet which is also the fastest-growing. Several of the countries on the continent are emerging as progressive democracies and as such are reaping the dividends of economic growth like Botswana and Zambia. Others though not democracies in the strictest sense of the term are emerging because of their strong authoritarian leadership and governance like Rwanda.
It remains a marvel how this east African country has transformed itself into the jewel of progress in less than a generation. There are still some areas on the continent as well that bear great promise and potential but are undermined by rampant and incessant corruption and misrule. Zimbabwe is one such case. The country since attaining its independence has regressed from the advanced industrial economy it was in 1980 to a perennial basket case characterized by policy inconsistency and poor governance.
Albeit, Zimbabwe has a great potential that if realized could transform its economy from one that is developing to one that is emerging. Its platinum reserves are among the largest in the world. The country has a relatively high population that is literate despite the declining state of that country’s education sector.
As far as potential investment is concerned Zimbabwe offers lucrative opportunities in the mining and agricultural sectors. South Africa is arguably one of the most advanced economies on the continent. It is no longer the largest economy, however. It lost that mantle to Nigeria. That economy has been undermined by weak macroeconomic fundamentals over the last 5 to 7 years.
This anaemic macroeconomic performance has resulted in a volatile exchange rate. Despite all its problems, South Africa also has great potential if only the country can deal with the problems in its economy like corruption.
Taking all this into consideration, Africa needs to harness the substantial resources it has, to not only compete effectively in the global economy but also to avoid being exploited and plundered. Africa has all that it takes to be the 7th corridor of the BRI. It is a matter of effective governance to ensure that the resources it is richly endowed with are extracted in such a way that the benefits accrue to all members of society. Africa’s mining sector is its trump card (the pun is intended).