Mineral-rich neighbours increase their appeal to the kind of investors SA wants
Recent overhauls of mining legislation in Namibia, Angola and Zimbabwe could start to attract investment away from SA, as long as SA fails to make its mining code and legislation more competitive.
Namibia, Angola and Zimbabwe have changed their mining legislation recently in an effort to attract and incentivise new investments in the sector.
These changes are more fundamental than revising their tax regimes. In fact, there is little evidence that tax incentives alone attract investment to mining, according to a recent report by the International Institute for Sustainable Development.
"Effectiveness also depends on the type of foreign investment that is being made. The mining sector involves location-specific resources that cannot be moved, making investment less mobile and less responsive to incentives," the institute said.
Another way African governments can make their mineral wealth more inviting to foreign investors is to undertake regional infrastructure development, rather than placing the onus of development on the mining sector.
In the long term, governments expect to derive maximum benefit from their finite mineral resources and in various countries governments have later repudiated special deals that were signed to entice mining investment.
Namibia appears to be the most conducive to foreign investment in Southern Africa at present, though recent amendments to legislation in Angola could attract as much, if not more, interest.
Last year Namibia reviewed its key legislation, the Minerals (Prospecting and Mining) Act of 1992. The revised act is yet to be made public.
Diamonds account for about 70% of all Namibia's mineral exports, but it could also become a lithium exporter, given sufficient investment. One of the challenges to achieving this is the oversupply of lithium on the global market, but with longer-term forecasts to 2025 suggesting demand will remain strong, there is considerable scope for the government to encourage investment in this area.
Canadian-listed Desert Lion Energy is examining the feasibility of developing the country's first lithium mine project near Windhoek.
Angola has made the biggest strides in revamping its mining legislation. Even before João Lourenço took over as president in September 2017, his predecessor, José Eduardo dos Santos, began to enact presidential and executive decrees in this regard.
The Mining Code remains the bedrock of mineral legislation in the country, but new legislation aims to provide greater clarity and guidance on mining exploration, evaluation and marketing of resources, with a view to attracting new investments under the banner of economic diversification.
Between 2014 and 2017 a series of presidential and executive decrees defined new exploration areas, exempted a list of mining equipment imports from customs duties and fees, approved a policy on the selling of rough diamonds and established an agency to supervise the gold market. Last year Angola updated its Private Investment Law and introduced a new Competition Law.
In May, Lourenço announced that the requirement for foreign companies to partner with Angolans when investing in diamonds would also be revised. This is a positive move, since at present foreign companies can only be minority partners and all production must be sold through the state-owned trading company, Sodiam, at below-market prices.
One of the key changes in Zimbabwe has been removing the requirement for 51% indigenous ownership of mines, except in platinum and diamonds. The government is also considering removing this requirement for diamond miners.
With the change of leadership in Zimbabwe, and a positive approach from its president, Emmerson Mnangagwa, we have seen some interest from South African clients in investing in Zimbabwe, though no real money has followed. Potential investors are still cautious and foreign exchange restrictions are still a deterrent.
The Zimbabwean government takes 70% of foreign currency earnings and converts them to bond notes, which means miners earn only 30% in hard currency. This was recently relaxed to 60:40 for gold and platinum miners, but this still makes it impossible for mining companies to run their businesses as they need dollars to pay for spares and parts.
Until the Zimbabwean government can address its forex shortages, there will be only limited mining investment. This is unfortunate as Zimbabwe has great potential for mining as a result of its mineral resources and educated population, including a highly efficient civil service. If the economy could be stabilised, the foundation exists for a larger mining industry.
• Dickinson is a partner at Webber Wentzel with expertise on mining law