Why is Africa’s share of mining investment so low?

Gabon is looking to process 100% of minerals locally by 2025. In Zimbabwe, an export ban on unprocessed platinum and chrome will take effect within two years. This is a gamble since it risks inhibiting investment.

Infrastructure makes up about 75% of total project costs in the sector. The problem is particularly acute in Africa because of its size and because, South Africa aside, most countries offer poor existing infrastructure by global standards.

Rio Tinto’s Simandou project in Guinea, for instance, will cost in excess of $13.5bn (out of a total project cost of $20bn) to create a 650km multi-user railway and deepwater port for the 100m tonnes per-year iron-ore mine.

Smaller projects may not offer the economies of scale necessary to make the infrastructure worth paying for, at least not in isolation from other sectors. Standard Bank has said that infrastructure spending of $10bn is required over the next 10 years to enable the effective exploitation of African resources.

There is also the problem of access to water and energy. Water costs are up 250% since 2009 and energy costs are up 260% since 2000. Eskom power costs have significantly exceeded inflation and over 2013–18, prices will rise a further 8% a year on average. 

The solution lies in attracting and training the right talent, and using this and appropriate innovation to turn around mining operations.

A good example is AngloGold Ashanti’s new boring technology. Its CEO Srinivasan Venkatakrishnan calls it “a game changer, or a paradigm shift. If we do nothing, the gold industry is in terminal decline”.

Greater productivity, Ernst & Young argue, can be achieved through changes to mine plans, reassessing the methods used, changing the equipment fleet (and its configuration), reducing production, and increasing automation.

The risks the sector as a whole faces seem to be particularly acute in Africa. If the continent is to win a greater share of investment to realise the jobs and prosperity its mineral endowment has to offer, these risks must be understood and better navigated.