By: Njiraini Muchira
Just when Kenya and Tanzania are undertaking reforms to ensure their mining sector plays a central role in economic growth, a report by Canada’s Fraser Institute has cast a dark cloud on its attractiveness, after ranking them at the bottom of the pile.
Its Annual Survey of Mining Companies 2017 index ranks Kenya as the second worst mining destination in the world, after Guatemala, and the worst in Africa.
According to Fraser Institute, which is a leading think-tank that shapes public policy and influences private sector decisions through its research, Tanzania is the fourth least attractive destination in Africa and ranks at position 78 out of 91 countries globally.
Hostile environment
Dar’s ranking has dropped from 59 out of 104 in 2016, attributed to increasing concern among investors over uncertainty regarding the administration, interpretation and enforcement of existing regulations, trade barriers, and security.
“Legislative changes in Tanzania, which are being retrospectively applied, undermine the sanctity of contracts and remove recourse for international arbitration to resolve disputes with the government. This creates uncertainty and instability and makes for a particularly hostile investment environment,” says the report.
Industry players say that the poor ranking of Kenya and Tanzania, which have been at the forefront of implementing initiatives to drive growth of the mining sector, is an indication that the reforms do not resonate well with investors.
Reviewing laws
“The index tells policy makers that investors do not consider East Africa a destination to put their money in, largely because the regulatory environment is not friendly,” Moses Njeru, Kenya Chamber of Mines chief executive officer, told The EastAfrican.
The two countries want mining revenues to contribute at least 10 per cent of GDP from less than one per cent for Kenya and 3.5 per cent for Dar.
In Kenya, the government published regulations compelling foreign companies to cede some shareholding to the government and list at the stock market in line with the Mining Act, 2016.
The regulations stipulate that foreign companies investing at least $100 million must list at the stock market to allow Kenyans to benefit from the minerals and to check the mass repatriation of revenues.
But foreign investors say they are already overburdened by the capital-intensive exploration activities, the lack of critical seismic data, forcing them to undertake their own surveys; the steep compensation to landowners and the requirement that they invest at least 1 per cent of their capital in community development.
Tanzania has reviewed its mining laws to enable it to renegotiate mining contracts with foreign companies, which it accused of tax evasion and under-declaring volumes and types of minerals exported.
The laws are the Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Bill, 2017, the Natural Wealth and Resources (Permanent Sovereignty) Bill, 2017, and the Written Laws (Miscellaneous Amendments) Act, 2017.
The laws seek to increase mining taxes, force companies to renegotiate their contracts, allow the state to own up to 50 per cent shares in mining companies, ensure mining companies invest in local smelters to add value to the raw minerals, create jobs as well as stamp out corrupt practices and tax evasion.
Rethinking strategies
Following these changes, some prospective investors have held off their plans to enter Tanzania.
London-based Tremont Investment cancelled a bid for Australia’s Cradle Resources while Shanta Gold cancelled a takeover bid for Helio Resource Corp, citing the new regulations.
The move has also seen companies operating in the country rethink their strategies, with some, like Acacia Mining, scaling down their operations.
According to the Fraser index, although geologic and economic evaluations are always pre-requisites for exploration, a region’s policy climate has taken on increased importance in attracting and winning investments in today’s globally competitive setup.
This is because 40 per cent of investment decisions are determined by policy factors while the remaining 60 per cent are based on the assessment of a jurisdiction’s mineral potential.
“A best practice environment is one which contains a world-class regulatory environment, highly competitive taxation, no political risk or uncertainty, and a fully stable mining regime,” the report says.
The index ranks Finland as the most attractive destination in the world while Ghana is ranked as the most attractive in Africa at position 22 globally.
Guatemala is the least attractive jurisdiction in the world for investment. Also at the bottom (beginning with the worst) are Kenya, Argentina, Mozambique, Bolivia, Venezuela, Romania, China and Nicaragua.
Ethiopia, which has seen its once promising mining sector plummet due to a rise in illicit trade and political instability, was also ranked among the worst destinations in Africa after Kenya and Mozambique. Globally, it was ranked at position 81 out of 91 countries.
Source: The East African
