Did You Know?

The Mining and Metals industry plays a crucial role in many socioeconomic systems, supplying essential materials for various economic activities like energy, transportation, and construction. Its transformation has wide-reaching effects on essential industries.

(https://www.weforum.org/communities/mining-and-metals/)

Miningpresentsakeyandunderservedsustainability challengewiththedemandformetalssettoincrease alongwithcertaingreentechnologies-WorldEconomic Forum

(https://www.weforum.org/agenda/2024/04/sustainabl e-mining-uplink-radio-davos-podcast/)

Copperdemandcouldriseby40%in2035,whilesupply fromexistingassetsorcommittedprojectswillonly increaseby20%,meaningnewminingprojectswill needtobeginconstructioninthecomingyears -World EconomicForum

(https://www3.weforum.org/docs/WEF Mining and Metals 2023.pdf)

Lithiumdemandisexpectedtoincreasefive-foldby 2035,primarilyduetotheelectrificationoflight vehicles.-WorldEconomicForum

(https://www3.weforum.org/docs/WEF Mining and M etals 2023pdf)

T H E E C O N O M Y

Mining: The Economics of PPPs

AUTHOR:GraceKangotue ChiefResearcher/Economist@ RDJ Consulting

ResearchContributedby:LesleyMbanguandAlbertinaShigwedha ResearchandWritingIntern@ RDJ Consulting

(Courtesy:Canva)

Mining plays an indispensable role in the extraction and supply of critical minerals, which are essential for various advanced technologies and industries. These minerals, such as lithium, cobalt, rare earth elements, and others, are vital components in a wide array of applications, from renewable energy technologies to advanced electronics and defense systems The growing demand for these materials, driven by the global transition towards green energy and digitalization, underscores the crucial role of mining in securing a stable and sustainable supply chain.

One of the most significant reasons for the increasing need for mining critical minerals is the global shift towards renewable energy Technologies such as electric vehicles (EVs), solar panels, and wind turbines rely heavily on specific critical minerals For instance, lithium, nickel, and cobalt are key elements in the production of batteries for EVs and energy storage systems, while rare earth elements are essential in the manufacture of magnets used in wind turbines and electric motors

Therefore, it is no surprise that mining is essential for the socio-economic development of many resource-rich African economies. The mining sector contributes positively to these countries' economic growth through contributions to gross national products (GDP), employment opportunities, income generation, government fiscal receipts, and foreign exchange earnings (Nambinga and Mubita, 2021) In 2023, the mining sector was reported to contribute over 14% to Namibia's GDP (Chamber of Mines of Namibia) and over 16% to Botswana's GDP (Statista, 2024) underscoring its role as the backbone of these economies.

According to the International Monetary Fund (IMF) in their April 2024 Regional Economic Outlook Analytical Note, Sub-Saharan Africa is home to over 30% of the world’s critical minerals The extraction of these minerals is estimated to boost the region’s GDP by at least 12% or more by 2050. Despite this, the majority of African mining is predominantly focused on the extraction of minerals and not processing However, the IMF report emphasized that if the region develops processing industries, the benefits from mining could greatly exceed the projected 12% by 2025

The mining industry is capital-intensive, requiring significant investment, specialized skills, and advanced technology, which limits African countries' ability to move into minerals processing As a irony, many mining ventures in Africa are owned by governments and often financed through “large loans” from organizations such as the IMF, World Bank (WB) and African Development Bank Group (AfDB) for example. This financing model burdens African nations with debt where these nations have to pay high interest payment on loans over long term periods This debt burdens, forces African governments to limit funding on other essential projects and public services. Therefore, it is imperative that African governments explore alternative financing mechanisms to finance mining activities and engage in processing industries to maximize mining gains

One viable alternative is the public-private partnership (PPP) Defined by South Africa’s Department of National Treasury, a PPP is a contract between a public-sector institution and a private party, where the private party performs functions typically provided by the public sector or uses state property under the PPP agreement These agreements enable the public sector to leverage private sector innovation, expertise, and funding to develop or operate projects addressing community needs. In return, private sectors earn returns on investment (ROI) through government taxes or user fees. Due to the sizes of these projects and investment requirements, they are normally designed on a long-term concessional basis to enable the private sector to recoup its ROI

One of the primary contributions of PPPs to mining critical minerals is the development of infrastructure. Mining operations often require substantial investment in transportation networks, energy supplies, and water resources Public entities can facilitate these developments by providing the necessary regulatory frameworks and initial capital investment, while private companies contribute their expertise and additional funding. This partnership ensures the efficient and timely development of infrastructure, which is crucial for accessing remote mining locations and transporting extracted minerals to processing facilities and global markets

When implemented correctly, PPPs can improve service provision, facilitate economic growth, and have proven successful in infrastructure development. The PPP framework is adaptable to mining projects, accommodating high-cost investments through infrastructure or capital investment in host countries

Case Study: Chiadzwa Diamond Mining in Zimbabwe

A 2013 study by Gumbo on ‘Public-Private Partnerships (PPPs) and Sustainable Natural Resources Exploitation in Africa’ focused on diamond mining in Chiadzwa, Zimbabwe The Zimbabwe Mining Development Corporation (ZMDC), a parastatal, was licensed to invest in mining to eliminate informal mining activities and restore order However, ZMDC did not have the financial, technical, and skills capacity required for mining. The government faced difficulties accessing the required capital investments. As an alternative, the Zimbabwean government formed a 50/50 partnership between the ZMDC subsidiary Marange Resources and two companies (Canadile Miners and Grandwell Holdings) in 2009, creating Mbada Diamonds Joint Venture

These PPP joint venture partnership was later operated by three companies (Mbada, Anjin, and DMC). This PPP improved mining operations, productivity, restored order, and harmonized diamond exploitation in Chiadzwa Additionally, they generated wealth and improved citizens' lives According to Gumbo’s study, The involvement of private companies resulted in US$684.5 million from diamond exports, with Mbada Diamonds contributing US$308.3 million, Anjin generating US$209.9 million, DMC providing US$100 8 million, and Marange Resources contributing US$236, 317

The Chiadzwa case demonstrates that PPPs can be successfully implemented in mining, alleviating government debt and positively contributing to the balance of payments while improving citizens' cost of living. Furthermore, South Africa’s incorporation of black economic empowerment in their PPP framework ensures that black South Africans benefit from PPP-led projects This initiative could be emulated and refined by other African states in their policies.

In conclusion, Public-Private Partnerships (PPPs) are crucial in the mining of critical minerals, providing the necessary infrastructure, fostering innovation, mitigating risks, and promoting sustainable practices This presents a promising alternative for financing and developing mining projects in Africa By leveraging private sector resources and expertise, African governments can enhance their mining sectors, reduce debt burdens, and improveeconomicoutcomesfortheircitizens

As always, the conversation continues esa@rdjpublishing.africa and we look forward to your commentsorevenbetter,yourcompliments

Readings:

https://www npc gov na/wp-content/uploads/2022/02/TheImpact-of-Mining-sector-to-the-Namibia-economy-FINAL pdf https://chamberofmines org na/wpcontent/uploads/2024/04/2023-Presidents-Report-for-AGM-on-24April-2024-Final-3 pdf https://www statista com/statistics/1374772/gdp-share-ofmining-and-diamond-industry-in-botswana/ https://www imf org/en/Publications/REO/SSA/Issues/2024/04/19/ regional-economic-outlook-for-sub-saharan-africa-april-2024 https://www gtac gov za/wp-content/uploads/2022/03/GTACsPublic-Private-Partnership-Manual-Module-2-Code-of-GoodPractice-for-BEE-In-PPPs pdf https://ppp worldbank org/public-privatepartnership/overview/ppp-objectives https://www researchgate net/publication/268685987 PublicPrivate Partnerships PPPs and Sustainable Natural Resources Exploitation in Africa Lessons from Diamond Mining in Chiadz wa Zimbabwe