Australia has managed to carve out a sweet spot for its economy out of its mining sector.
The continental island nation is a top mining destination. The mining industry is acknowledged by that country’s government to be a critical component of that economy and enjoys strong support.
- Australia is a leading mining destination due to its ability to attract and generate spending on mineral exploration or prospecting
- The country has the highest exploration and prospecting spending, especially its western region
- Australia’s success with its mining industry has crucial lessons for countries in Southern Africa that are also reliant on the mining industry for their economic livelihoods
The title of top mining destination emanates from the amount of exploration spending that mining entrepreneurs are willing to spend and have spent in that jurisdiction.
Mineral exploration expenditure in that country has consistently been on the rise every year since June 2016 to date. The only time that exploration spending decreased in Australia was in the two years from June 2014 to 2016. This was justifiable because that period coincided with softening commodity prices, which reduced the viability somewhat of prospecting for minerals.
Since 2016 exploration spending has been on the rise. In June 2016, the country recorded US$ 237 million in exploration spending, and as of June 2022, the country has recorded US$ 708 million in spending on mineral exploration, according to the Australia Bureau of Statistics.
Mineral exploration is important because it indicates the overall direction of a country’s mining industry. It shows whether a country’s mining industry is in its nascent or descent. Suppose a stakeholder is interested to know the prospects of a country’s mining industry in the first place. In that case, they should look to is the amount of money that is being spent to prospect for that country’s mineral resources.
More mineral exploration is desirable as opposed to less. Prospecting sustains the mining industry because it indicates that more mines will be built in the future, and hence there will be more in terms of mineral production. So central is the mining industry to Australia’s economic health that it contributes no less than 35% of export receipts of that country.
- Australia’s mining industry demonstrates the importance of strategic partnerships with high-growth economies, focusing on mining activity on the export of a basket of key commodities, and creating an enabling environment for the mining sector to thrive
- The country recorded at least US$700 million adjusted for seasonal exploration and prospecting expenditures changes
- Southern African countries though endowed with mineral resources have not had the same success that Australia has with its mining industry
This has been aided by its strategic location in China, enabling it to take full advantage of the Chinese economic miracle. As China has grown and continues to grow, so has the Asian country’s need for industrial minerals, which Australia has happily supplied. Australia has contributed immensely contributed to the creation of the Chinese economic engine.
This is the first lesson for Africa’s countries that rely on the mining sector for their livelihood. They need to have strategic partnerships with growing economies. High-growth economies like China provide a steady source of demand for natural resources that African countries have in abundance. Recently Australia has lost this strategic trade advantage with China over a dispute. Consequently, China has been looking to other countries to supply it with the resources it needs to build and grow its economy. The second lesson from Australia for mining nations in Africa is closely related to the concept of comparative advantage.
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That country is known to be a leading exporter of the following commodities: iron ore, coal, lead, and gold. Statistics show that Australia is the second largest exporter of gold. The country is the world’s largest exporter of iron ore and coal.
African countries with vast mineral resources will need to develop a niche commodity they are known for. For South Africa and Zimbabwe, gold comes easily to mind. The niche mineral commodity a country can be known for need not be static or set in stone, as it were. Commodities can vary according to mineral exploration and development in that country. The most desirable state of being in is what Australia is currently. It is a large exporter of a basket or portfolio of commodities.
World Bank officials Marek Hanusch and Gracelin Baskaran, in a blog post titled, “What is the contribution of the mining sector to Southern African economies?” state that the development of many Southern African countries is inextricably linked to the mining sector.
For example, South Africa’s Johannesburg-Pretoria metropolitan area, a regional economic and financial hub, developed because of the local gold supply in the late 1800s. The same analogy can be applied to Zimbabwe, Botswana, and other countries in southern Africa. Their study found that the mining industry had a net positive benefit in all seven countries covered by the analysis.
- Mining and exploration account for at least 10% of the Australian economy, whereas it accounts for 8.7% of the economy in South Africa
- South Africa, unlike Australia, has seen a steady decline in mining activity and mineral exploration recently
Interestingly to note, their study also showed that countries that have appropriated a higher net benefit from the mining industry have tended to have investment climates that encourage further investment. This study by the World Bank, though conducted in 2019, concurs with the UNCTAD World Investment Report data for 2022.
This is specifically in the case of South Africa, which has enjoyed the most benefit from the mining sector in the southern region. This benefit translated into further foreign direct investment flows of more than US$ 40 billion in 2021 alone, up from US$ 3 billion in 2020.
This is in contrast with Zimbabwe, which has been an investment pariah for the last two decades. Zimbabwe has not appropriated as much from its mining sector relative to South Africa, especially when viewed through the foreign direct investment lens. According to its central bank, the country garnered foreign direct investment proceeds of US$ 103 million for the year.
Regardless of the poor showing in FDI terms, the country has recorded a 33% rise in export earnings driven primarily by the mining industry to US$ 5.45 billion. This is to show that the mining sector is central to southern Africa’s economic development. The Minerals Council of South Africa, in its Facts and Figures 2021 document, emphasizes the economic importance of the mining sector. Consider the snapshot below:
What shows from a cursory glance at these statistics from the mining industry lobby group is the direct contribution of the mining industry to the country’s gross domestic product in a single year. The mining industry in 2021 contributed ZAR 480.9 billion (US$30 billion) to the economy of South Africa. For perspective, the mining industry’s contribution to South Africa for 2021 alone is 1.5 times larger than the economy of Zimbabwe! This is notwithstanding its contribution to tax revenues and employment.
Naturally, one would be tempted to believe that the respective mining industries of countries that make up southern Africa are booming. Granted, they are enjoying the benefit of rising commodity prices but to say the industries are booming would be misleading.
South Africa, for its part, through the department of mineral resources, set an ambitious target which is to attract mineral exploration spending of at least US$400 million by 2025. This target has been widely criticized by industry players for being unrealistic. South Africa is fast losing its pull as a mining destination due to unsustainable mining and labour laws and a generally hostile environment to mining.
Suffice it to say that what the government aims to achieve in three years with exploration spending is just over half of Australia’s mineral exploration records in a year. In conclusion, the lessons for southern African countries looking to become top mining destinations for investment and exploration like Australia are firstly to have strategic trade partnerships with countries experiencing rapid growth and need basic resources to build their economies.
The second lesson is to develop niche mining activities and commodities that they are known for. They should focus on their comparative advantages, like Australia, a world leader in coal, iron ore, lead, and gold.
Lastly, southern African countries should spare no effort in making their environments friendly to foreign direct investment in the mining industry.
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