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A news alert from Executive Research Associates (Pty) Ltd

Issue 88 10/7/2018
Legislative Change in the Mining Sector in Key African Countries
With Africa’s mining sector always in the investment spotlight, several countries this year revealed an emerging trend to legislative review, portending further uncertainty going forward.

After severe unhappiness in SOUTH AFRICA’S mining sector due to the onerous prescriptions of Mining Charter III compiled on former president Jacob Zuma’s watch, a second version was published in mid-June 2018. It reiterated earlier proposals that minimum shareholding of historically disadvantaged South Africans (HDSA) be increased from 26% to 30%; that at least 8% of this goes to host communities and qualifying employees; and that 14% go to black entrepreneurs. Of particular concern to investors this time around is a requirement that 5% of the noted 8% allocation takes the form of a non-transferrable “free carry” interest. Procurement prescriptions are also worrying with 40% of capital goods, 70% of services and 50% of consumables to be procured from black economic empowerment (BEE) entities. While some in the sector have been encouraged by the fresh tone set by South Africa’s new Mineral Resources Minister Gwede Mantashe, others remain concerned that the Charter in its current form will be a significant investment disincentive. Public consultation on the charter, scheduled to close 27 July, was extended to the end of August at the July Mining Conference, prolonging legislative uncertainty.

In contrast to South Africa, ANGOLA is firmly positioning its mining sector to attract foreign investment under newly elected President João Lourenço. A series of presidential decrees published on 18 May 2018 provided a legislative outline for the development of marginal oil fields and the cutting of taxes. Headline tax rates for marginal oil fields were halved, petroleum taxes were cut from 20% to 10% and petroleum income tax for marginal fields (discovery of reserves below 300 million barrels) was cut from 50% to 25%. The end of June 2018 also saw draft legislation easing restrictions on diamond mining sales, expected to bring diamond prices in Angola in line with the international market. This brings Angola closer to diversifying its economy away from oil and, while uncertainty is likely to persist, its plans to attract foreign investment, underpinned by tangible legislative reform, could make Angola’s mining sector increasingly appealing.

Similarly, according to NAMIBIA’S Mines Minister Tom Alweendo, the country is reviewing its mining legislation in a bid to make the sector more attractive to foreign investors. Despite optimism regarding 2018 diamond mining growth, forecast at 10.9%, the sector is projected to contract by 5.3% in 2019. To curb this, Namibia’s mining legislation review could see it scrap black ownership requirements. The revision of the mining act is expected to be complete by the end of 2018.

ZIMBABWE, also with an eye to attracting more foreign investment, amended its mining Bill on 31 May 2018, scrapping a clause requiring foreign mining companies to list locally. However, amendments also allow the Minister of Mines Winston Chitando to classify any mineral as strategic and recognises small-scale miners. This could pose a risk to mining investments if national interests supersede those of foreign investors. Political uncertainty and the associated risk of policy or legislative change is likely to remain high, at least until after the 30 July election.
Uncertainty can also be expected in ZAMBIA amid its latest mining legislation review. In February 2018 government announced that miners were obliged to transport 30% of their cargo for export by rail and in March 2018 it added that all local mining companies’ financial statements from 2012 to date were to be assessed to identify unpaid taxes, targeting corporate tax avoidance. Persistent inconsistency and uncertainty in the country’s mining sector, particularly as recent legislative changes signify a more restrictive policy direction, will inhibit investor enthusiasm.

In TANZANIA the last year saw various measures to increase the country’s sovereignty over its natural wealth and resources, including increased government control of mining operations and restrictions on exports and the repatriation of funds. Increased royalty rates and government shareholding in mineral rights were also introduced. In 2018, the Minister of Mines published a suite of new regulations on additional local shareholding requirements, and local content quotas for employment and procurement of products and services, including the use of strictly Tanzanian financial institutions, insurance brokerage firms and legal practitioners.

Other sub-Saharan African countries with pending legislative and mining code changes include the Democratic Republic of Congo (DRC), Ghana, Mali and Sierra Leone. While countries such as Angola, Zimbabwe and Namibia are becoming more investor-friendly, many countries’ legislative trajectory speaks to a trend of increasing resource nationalism in the mining sector which could see foreign investment deals become less lucrative.

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