Doing business in a post-Covid-19 Africa

LEGAL & BUSINESS

DOING BUSINESS IN A post-Covid-19 Africa

Even before the global Covid-19 pandemic, and the implementation of stringent lockdowns and other measures, in response, Africa’s mining and natural resources sector faced significant challenges. By Warren Beech*

Some of the challenges include policy and only survive, but indeed thrive. The mining and natural regulatory uncertainty, uncertain commodity resources sector cannot be viewed in isolation, because it is cycles and prices, ageing and unreliable generally the ‘engine room’ of the economy, and it is a good infrastructure (roads, rail, electricity and water), barometer of the health of the economy in each country. loss of investor confidence, ageing mines and mining The sector also typically plays a critical role in complexes that are extremely expensive to keep running, transformation and development, and if it is not stakeholder demands – particularly from communities performing properly, this has a knock-on effect on most, around mines – illegal mining, and concerns surrounding if not all, other sectors. The mining and natural resources security and corruption. sector is multifaceted, and requires a strong network of

Each year, Africa markets itself to the investment associated industries and sectors to ensure that it can community as being ‘open for business’; however, the operate efficiently. various challenges have continued to plague the mining Where the mining and natural resources sector is and natural resources sector, but there have been some underperforming, it often results in significant adverse positive, success stories, along the way – particularly in consequences (including the failure to deliver on sociothose countries that support their mining and natural economic expectations), which often manifest themselves resources sector through the implementation of a financial, in community unrest and disruption, and provide a basis regulatory and business environment that makes it easy for stakeholders to argue in favour of resource nationalism. to do business. Examples include various countries in West In some instances, underperformance is used to support Africa, Botswana and Namibia. the call for nationalisation of the mining and natural

The global Covid-19 pandemic has changed the resources sector. Africa was facing strident calls for landscape, substantially, and, possibly, forever. Several of nationalisation of its mining and natural resources sector, the positive lessons learnt, particularly those relating to even before the Covid-19 pandemic, and it is likely, because hygiene practices, may be in place for a long time, but the of the significant and deep socio-economic impact of negative consequences of the Covid-19 pandemic are the pandemic, that many governments will be likely to include significant increases in unemployment, challenged to move across the spectrum of which will exacerbate an already desperate socio-economic nationalism, to nationalisation. landscape and may mean that the drive to reopen Many African countries that have vast economies and provide employment will overshadow mineral resources have implemented resource other lessons learnt from Covid-19. nationalism measures, incrementally, to ensure

The pandemic has, however, also opened up that investors are not scared off, but will in any opportunities for stakeholders in the mining and natural event be locked in by their investment, which resources sector to do things differently, more efficiently, allows further measures to be implemented, in and more cost-effectively (one of the key concerns support of resource nationalism, over time. regarding the sustainability of mining operations across Africa). The pandemic has created the natural opportunity Mining legal framework to reconsider, and possibly accelerate, the transition to One of the most significant challenges, mechanisation, automation, and the implementation of prior to the Covid-19 pandemic was structures and business models that rely on the internet of business integrity, corruption things and artificial intelligence. and irregular processes. It is likely that these challenges will Nationalism and nationalisation remain after the pandemic In the post-Covid-19 landscape, those countries that make and it is possible that the it the easiest to invest and do business are likely to not measures that have been

Warren Beech has over 20 years’ experience as a lawyer in the mining industry

LEGAL & BUSINESS

The Covid-19 pandemic could potentially fast-track mechanisation efforts in mines

implemented to address Covid-19 may have the unintended consequence of actually facilitating corruption and impacting on business integrity. Actual or perceived corruption has played a significant role in investor decisions, and more and more companies are focusing on compliance, anti-bribery and other anticorruption measures.

Whether this has been driven by listings requirements, legislation, reputational risk or moral grounds, compliance and monitoring programmes have increased in complexity with a strong emphasis on acknowledging the current borderless world, the slippery slope of the first ‘facilitation payment’ made to expedite and facilitate licencing processes, and socio-economic realities.

The mining and natural resources sector in African countries (as it does in the rest of the world) operates within a highly regulated

FOLLOW THE LINK legal framework, which means that the sector is subject to constant Read the full story: interpretation and application of miningnews.co.za/2020/07/28/ existing mining and environmental doing-business-in-a-postcovid-19-africa laws, changes to mining and environmental laws, and the promulgation of new mining and environmental laws, at regular intervals. In addition, other laws that may apply to the mining and natural resources sector also undergo regular changes and replacement, at regular intervals. This all means that the sector has to dedicate appropriate resources to ensure that the relevant mining operations keep up date with changes and implement appropriate programmes to ensure compliance. The allocation and dedication of resources to do so cannot be underestimated. There are potentially significant consequences that may flow from non-compliance, including the issuing of compliance notices and directives, the imposition of administrative or criminal fines, and, in the worst-case scenarios, the suspension or revocation of prospecting and mining rights.

Competing for investors

Another reality is that each country is in competition for investment. A common saying among investors is that capital, like water, finds its way around obstacles. However, it is also said that capital is extremely scared – it runs at the first sign of trouble.

Countries that are able to cut through the ‘red tape’ and provide an investment-friendly environment, including policy and regulatory certainty and stability, are likely to attract better quality investment. Countries also able to demonstrate strong support for the rule of law and outspokenness on corruption are likely to find themselves as even better investment destinations.

Importantly, however, it is vital for investors to understand the critical importance of the ‘social licence to mine’, and that the consequences of not obtaining this social licence can be catastrophic: after significant investment, relevant mining and environmental licences may not be issued, and, even if they are – and operations do start up – the operations can be disrupted, suspended, and the relevant rights to prospect and mine can be taken away in the worst cases.

The second example is West Africa. West African countries like Ghana have been in the spotlight for many reasons, including being the beneficiary of extensive exploration and development of operating gold mines for approximately 20 years.

This has been due to a combination of factors, such as the relative accessibility of the gold reserves, better infrastructure in comparison to other countries, better access to a semiskilled and skilled workforce, and a relatively stable policy and regulatory regime. The relative accessibility of the gold reserves and the low-cost extraction have also meant that neighbours, such as Mali and now Burkina Faso, have been benefiting from substantial investment.

West African countries recognised the importance of regional solidarity as far back as 1975, when the Economic Community of West African States (Ecowas) was established by treaty. The vision of Ecowas has been simple – to create regional opportunities for growth and development by removing barriers and making it easy to do business in West Africa, so that citizens of the member states can benefit.

West Africa has been viewed by investors as an attractive destination, and this is likely to continue, even in the post-Covid-19 world. Its abundance of untapped mineral resources (including gold, iron ore, diamonds, bauxite, phosphate and uranium), the stability of Ecowas and common policy and legislation frameworks in the region contribute to investor confidence. So, West Africa may see good investment provided that it can address significant concerns regarding illegal mining operations, and regional security and stability.

The recent attacks on mining personnel in Burkina Faso has caused alarm, and there is a real concern that illegal, artisanal and large-scale mining could be a target for incursions from neighbouring countries because the gold reserves, which are relatively easily available, can fund the activities of the various organisations that have apparently been carrying out these attacks.

Africa will remain an important investment destination, particularly focused on the mining and natural resources sector. It is essential for investors to properly understand the challenges that they will face in each country and to be realistic about expectations. Investors must also acknowledge the importance of the ‘social licence’ and full compliance with the mining and environmental laws that apply in each country.