African free trade and the mining sector

Virusha Subban Baker McKenzie

Africa isthe world’s top producer of numerous critical mineral commodities.

Withthe rapidincreasein the rateof theglobal energy transition, the continent’s miningindustry hasa roleto play in sourcing and supplying these criticalminerals for usein cleanenergyprojects, manufacturing capacity, electric vehiclesand other sustainable solutions.

The continentis alarge supplier ofbauxite, chromium, cobalt,copper, gold, iron ore,platinum group metals, lithium,rare earth metals and zinc,with most of them being exportedas ores, concentrates or metals.

Exporting thesecritical minerals asraw materials, however, reduces Africa’s trading position toone of price takerand subjectsthe continent’s miningsector to changes inglobal commodity markets. Addingto these challenges, thecurrent disruptions inglobal supply chains arehampering the tradeofthesecommoditiesin Africa, withmining companies now subjectto long delays and higher costs.

Thishigh levelofglobal and economicuncertainty has the addedeffect of holding back investmentin new mining projects,placing more obstacles inthe way of a continentthat desperately needs to be able to capitalise on its mineral resource base.

Enterthe AfricanContinental FreeTrade Area (AfCFTA), whichis intended toact asastrong impetusfor governments toaddress their infrastructure gaps,boost their manufacturingcapacity, streamline their supply chains andoverhaul regulations relating to trade, crossborder initiatives, investment-friendly policies and capital flows.

For example, Tanzania’s construction of the Standard Gauge RailwayProject is expected toprovide asafe and reliablemeans forefficiently transportingpeople and cargo toand from the existing Dar es Salaam port.

Otherlargeprojectsunder way include the TransMaghreb Highway in North Africa, theNorth-South Multimodal Corridor, the Central Corridor project and the Abidjan-Lagos Corridor Highway project.

According tothe World EconomicForum’s(WEF)latest report, “AfCFTA: A New Era for GlobalBusiness and Investment in Africa”, investment in transportand logistics will be crucial to enable the tradeof goodsin Africa, including in the mining sector. Thereport notesthat AfCFTA is expected to increase trade demand by 28%, whichwill leadto a requirement for “2-million trucks, 100,000 rail wagons, 250 aircraft andmore than 100 vessels by 2030” riers and facilitate investment from international firms”

The report goeson to say that “public-private collaboration can help remove obstaclesin thesupplychain, improve cross-border payments and access to trade finance, reduce the costs and delays of moving goods across borders, help to mainstream environmental sustainability, and tackle barriers to investment entry and expansion” exchanges,and legaland regulatory support. that limitedproduction capabilitieswithin Africaare currently being compensated forthrough foreignimports. Thismanufacturing deficitis intended to be eventually satisfiedwithin thecontinent and enabled by AfCFTA.

The intendedadvantages ofthesenewtoolsarealigned with the goals of the Africa Mining Vision (AMV), which was adopted by AU heads of state in 2009.

For theAMV tobe successful,Africa’scountriesand itsregional bodiesmust implement integrated resource-based development and industrialisation policies that take into account operationsthat benefitlocal workers and communities, and that produceresults that arenetpositivefortheregion. Also essentialis theability of African nations tobe able to successfully negotiate with globalmining companiesand stipulatethe importanceof local inputs.

The tradein mineralcommodities in Africais expected tobenefitfromthesereforms, but the extensive infrastructure development that is neededtofacilitatethemovementofgoodsacrossborders will clearly take time.

Projects arealready in progress to boost continentwide infrastructureneeds.

To assistwith muchneeded investment in the sector, the WEF notes in its report that it is working with the AfCFTA secretariat on trade and investment tools that align with the AfCFTA negotiation process. The tools are intendedto identifyareas “wherepublic-privatecollaboration can helpreduce bar-

Oneof theaims ofthe AMV is the “transparent, equitable and optimal exploitation ofmineral resources to underpin broadbasedsustainablegrowthand socioeconomic development”.Also listedasintended goalsoftheAMVaretheneed to facilitate and nurture human resources and skills, provide supporting infrastructure, encourageinstruments of collaboration, promote local beneficiation and value addition of minerals, establish an industrial base, ensure cross-border compliance with corporate governance and ESG, and establish enabling markets and platformsfor servicessuchas capital raising, commodity

Regionally, mining legislation must beintegrated with the continent’s industrialand trade policies. One of the intendedresultsofthesepolicies isthat Africancountries will beable tolaunch more lucrative value addition industries that are involved in thefinalproductmanufacturing of raw minerals.

Recent BakerMcKenzie research,compiled inconjunction with thereport from Oxford Economicstitled AfCFTA:A $3-trillionOpportunity,revealed thatmore than75%ofAfricanexportsto the restof theworld are heavilyfocused onnatural resources, primarilyraw materials.According tothis report, manufacturing represents on average only 10% of GDP in Africa. This means

AfCFTA is providing the opportunityforAfricancountriesto diversifytheir economies,scale upproductioncapacity, improvetheir trade in services and widen therange offinalproducts made inAfrica. Closerintegration ofneighbouring economies is also a potential avenue for creating scale and competitiveness through domestic market enlargement, thereby promoting development throughgreater efficiency. This relates to both intraregionaltrade andtrade with non-African nations. Taking a longer view, regional trade co-operation couldpotentially becomea successfulbridge forconnectingtheregion’swealthier andpoorer nations,promoting the growth of value chains and laying the foundationsfor more international exportsof thecontinent’s resourcesand itsmanufacturedproducts. Accordingto the goals of the AfCFTA and the AMV,the keybeneficiariesof improvedmanufacturing andtrade acrossthe continent areintendedto be Africa and its citizens.