African changes bring new challenges, new opportunities
Demography, connectivity and democracy will be the key factors shaping the business operating environment for the 150 ASX listed miners in Africa over the next decade, according to EY partner Christian Mion, a 30-year veteran of the mining industry across Africa.
Mion says that with 17 presidential elections in African countries in the next 18 months, the pace of change may step-up and mining businesses will need to closely monitor on-the-ground changes and manage accordingly.
“Change is happening at a different rate in each of the 54 countries in Africa but the trends across the continent are consistent, fuelled by increasing populations, generational change and the increased connectivity of the digital age,” says Mion.
“With greater democracy and transparency, comes more elaborate regulatory and legal frameworks. It is very important that mining businesses operating in these countries understand the way democracy is being built and managed, the most likely issues to arise and how mining policies are likely to evolve. This is of course different for each country and it is very fluid – there is no one-size-fits-all answer.”
Mion says an increasing focus on anti-bribery and corruption is an area that mining companies operating in Africa “need to be acutely aware of”, and have the appropriate due diligence in place through their supply chains.
After 15 years travelling to Africa and working with Australian companies on the ground there, Gavin Buckingham, EY Australia Mining & Metals Partner, says against the backdrop of rapid change, lower commodity prices mean the operational focus of mining businesses in Africa remain the same as everywhere else – on productivity, particularly labour productivity, equipment utilisation, and cost containment.
“This is especially challenging in an environment where access to power is often an issue and with greater government and community focus on what mining companies are adding to the economy.”
Buckingham says while mining investment into Africa – including from Australia – has slowed in the past couple of years in response to lower commodity prices and economic uncertainty, the lure of large, relatively untapped mineral wealth makes the region attractive for future investment.
More than a quarter (28.0%) of respondents to EY’s Africa Attractiveness Survey 2015 ranked mining and metals as the sector with the highest growth potential for Africa in the next two years.
Similarly, while global mining and metals investment remains subdued, EY’s recent Mergers, acquisitions and capital raising in mining and metals 1H 2015 report showed a slight increase in investment in emerging and frontier markets for precious and base metals exploration assets.
Buckingham says increased infrastructure investment through the African Development Bank’s Africa50 Fund should also be encouraging for investors, with lack of infrastructure historically one of the biggest challenges for mining businesses there.
“The other aspect is the strong emergence of the middle class and increased levels of discretionary spend. From a skills attraction and retention perspective this is important because it means that Africa will be able to attract and retain talent better than it has in the past,” he says.
“I’m on the ground in Africa five or six times a year with EY African mining colleagues from our 46 offices across the region and the changes are noticeable.”
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