By Anthony Aisi
The recent decision by the Kenyan government requiring foreign mining companies to hand over more than a third of their operations to local owners has sounded a death knell for the fledgling mining industry, with thousands of Kenyans staring at unemployment and a slowdown of the economy at a time when government was declaredly pursuing avenues to spur economic growth.
Mining has been touted as the next big thing to spur Kenya to mid level economy status – as a surge in global commodity prices and investor appetite for new frontier markets revive interest in Kenya’s mining potential, after decades when the country has stood apart from most other African nations in leaving its abundant natural resources almost entirely untapped.
The industry contributed an estimated Sh7.246 billion to the economy in 2011 according to statistics by the KNBS with a 7.1 per cent growth a figure expected to increase with more finds in gas, oil and the recent increased finds in niobium that has the deposit at Mrima hill as the 4
th largest in the world. The discoveries would have seen the country’s mining export revenues overtake coffee, which brings in about $200 million per year, as Kenya’s fourth-largest source of hard currency.
Yet they had been touted as only the first results, from a base of natural resources that geologists claim is as rich in Kenya as elsewhere in Africa.
However, the nationalisation, which government argues is meant to create more opportunities for local owners, now looks set to end the industry’s first forays and usher in more years ahead of Kenya’s near-unique status as an unmined land.
Mining is a capital intensive venture and even multinationals must explore far and wide to source funding through long term credit facilities and rights issue for each new mining venture. Virtually no local company can marshal the kind of capital required to engage in prospecting and exploration, which local financial institutions would find hard to fund.
Typically, British oil company, Ophir Energy PLC had to raise 20 billion shillings mid this year through a fund raising campaign at the London Stock Exchange which it said would be invested in the eastern Africa region. Australian firm Base Resources likewise launched a share offer in order to raise Sh3.41 billion to finance operations at its titanium mine in Kwale.
Yet the Kenyan government recently struggled to get Sh7billion to finance the purchase of biometric voter registration kits to be used in the general elections.
Strained by ballooning public debt and with no feasible mechanism to get local funding, it only got reprieve when Standard Chartered Bank London gave it a loan through a government-to-government tender between Kenya and Canada.
For foreign investors, Kenyan investments have now been reclassified as “highly risky” following the nationalisation announcement, spelling doom for many projects that had made it onto the drawing board.
Existing operations are also now threatened, with shares of Australia-based mining company Base Resources Limited, which is developing the US$260 million Kwale Mineral Sands project on the Kenyan coast, down by 35 per cent the day after the nationalisation announcement, as foreign investors fled investments in Kenya.
The Kwale project which is still in its early stages has employed over 170 locals with an expected 1,000 more jobs once the project becomes fully operational.
Historically, nationalisation of minerals has had catastrophic effects on countries economies, some of which have never recovered to date, with their subsequent attempts to reverse nationalisation and woo more investors continuing to hit snags.
After Zambia’s government nationalised Anglo American and Selection Trust’s copper mines in 1969, copper production peaked at 750 000 tons in 1973 and then went into decline. By the turn of the century annual production was a mere 275 000 tons, a fall of more than three-fifths in less than 30 years.
Similarly, the contribution of copper to Zambia’s GDP and government revenue declined rapidly after nationalisation with the overall contribution to the economy gradually shrinking to nothing. Ultimately, the Zambian government ended up hiring back the private companies to manage the mines.
The Democratic Republic of Congo has also expressed interest in increasing state participation in mining projects to 35 per cent from 5 per cent and raise royalties on mineral exports, according to a report obtained by the country’s business association.
However, this has sparked heated debate on the adverse effect the government decision will have on multinationals who have invested capital in the projects even as government bets on mining for revenue. The country already has at least twenty-five international mining companies actively involved, is the world’s largest cobalt producer and was the 10th-largest exporter of copper last year, and also has deposits of gold, iron, diamonds, tin and coltan. Its total mineral wealth is estimated to be $24 trillion – equivalent to the GDP of Europe and the United States combined, but most of it is still under developed due to lack of state of the art machinery by local companies to exploit these resources