The mining industry is arguably one of the major drivers of most economies on the African continent. Whilst the mineral assets of African countries are undeniably attractive and profitable, it has in recent years courted controversy in respect of the local beneficiation of minerals, particularly the regulatory requirements driving this trend.

Most African States have devised legislation and policies which attempt to achieve a balance between the interests of investors and those of their citizenry. Some of these countries are already in the process of implementing these laws and policies. The attempt to achieve this balance is driven by the need by African governments to arrest the socio-economic challenges that have for decades troubled the African continent. Whilst this balance is needed and crucial, it is regrettable that efforts to attain this balance have in some cases only served to damage relations between governments and foreign investors. The situation is further worsened by the uncertainty of the legal framework, meant to facilitate mineral beneficiation across Africa. 

The domestic mineral beneficiation agenda promoted by most African countries has spawned policies which are to a large extent characterised by resource nationalism, or at the very least by nationalisation undertones. In South Africa, if the changes proposed in the Mineral and Petroleum Resources Development Amendment Bill 2013 are to come into force, it will be compulsory for right holders to offer a certain amount of designated minerals to local beneficiators. A right holder would need to satisfy stipulated local beneficiation requirements before exporting any designated minerals, failing which it would need written approval from the Minister to do so. Similarly, the Zimbabwean government appears to be moving towards restricting the exportation of raw platinum minerals. Recently, Zimbabwe asked major platinum producers in the country to produce plans for the construction of a major refinery plant. It is anticipated the construction of this plant will result in a reduction in the amount of raw materials being exported, and as such boost domestic production and local economy.

It is not only in South Africa and Zimbabwe where the State has sought to enhance its control over natural resources, particularly through the local beneficiation of minerals. This is replicated in most mining jurisdictions across Africa. In accordance with the Mali Mining Codes 2012, the government is pursuing a policy almost identical to the one proposed by South Africa to treat, refine and transform their minerals locally unless express consent is obtained from the Department of Mining to do so externally.

Rather than compelling companies to locally beneficiate minerals, some countries have adopted alternate methods of promoting local beneficiation. Zambia for example, has been encouraging domestic value-addition of mineral resources by providing generous tax incentives. Another noteworthy model of local beneficiation is that of Botswana where the government has partnered with De Beers and has actively promoted local beneficiation. Today, the beneficiation programmes in Botswana include diamond sorting, valuing, cutting, polishing, marketing and retailing.

Local Beneficiation of minerals can have a positive socio-economic impact in local communities. Beneficiation often contributes to the development of key infrastructure and is a major source of employment for local people. Moreover, the revenues accrued from activity contribute positively to export and foreign exchange earnings. Despite these positives, questions remain: whether locally beneficiating minerals can anchor sustainable development in Africa?; whether locally beneficiating minerals is the panacea for stunted socio-economic growth, and more importantly whether the current regulatory frameworks can sustain these initiatives?

As noted previously the regulatory frameworks being developed across Africa are oriented towards promoting the local beneficiation of minerals. However, in some cases these proposed frameworks contribute to uncertainty. For instance, in South Africa there is no clarity as to which minerals are to be declared as designated minerals for local beneficiation purposes or the mineral quantities companies will be required to offer to local beneficiators. In the Democratic Republic of Congo, the government has twice delayed its intended ban on the export of copper   and cobalt concentrate, making the final implementation of such a policy unpredictable.  The danger with such ambiguity is that it damages investor confidence and greatly undermines security of tenure in the mining industry, which are key to securing investor confidence in capital intensive industries such as mining.

It is trite that pursuing a domestic mineral beneficiation agenda in a capital intensive industry was always going to be difficult. Beneficiation itself requires extensive capital funding, adequate infrastructure as well as energy, the three of which are challenges for most African States, States which are also burdened by social welfare challenges. African governments have a daunting task to establish predictable, stable and globally competitive mining industries while concurrently eradicating poverty in their countries. The two imperatives are uneasy bedfellows and if not carefully managed one of the two could inadvertently buckle. Perhaps the time has come for both African governments and investors to build partnerships so as to develop new strategies; bespoke ones, which are cognisant of the individual country’s historical, social and economic dimensions and that seek to achieve an equitable balance between the varying interests.

As much as strategies may and must differ from one country to another, it is probable that mineral beneficiation policies which are premised on strategies which recognise the importance of legislative certainty and security of tenure among others are likely to achieve a more favourable result. Aligning mineral beneficiation policies with the spirit of certainty, security of tenure and sustainability in general may see governments and investors moving in the same direction and perhaps confronting issues of energy and market establishment together.

Written by Lucas Moalusi and Isaac Munyuki, Fasken Martineau