Africa’s Mining Delusions Block Clear Thinking

As the Mining Indaba, the massive annual exhibition in Cape Town that bills itself as the “biggest mining investment event”, winds to a close today, it is clear that the powerful overlords of Africa’s mining sector haven’t learnt any new songs since the jamboree started 25 years ago.

When that first Mining Indaba was held, its host country, in many ways Africa’s standard-bearer in all matters mining, derived 43% of its export earnings from minerals, and the mining sector alone was responsible for more than 500,000 jobs. Since then, the sector’s share of exports has dropped by 40% and its direct output of jobs is down by 10%. And as everyone knows, this has nothing to do with South Africa moving up the value chain. In fact, real "value added" in the South African mining sector has been contracting since 2015.

Even though the continued decline of the South African mining sector has been a matter of concern within South Africa for a while now, the festive air at the Indaba, and the rousing speeches celebrating the triumph of African mining, mirrors perfectly the general attitude among Africa’s elite regarding the sector.

It is true that ordinary Africans are worried about the weak employment figures; the appalling poverty of mining towns in most of the continent; and the growing havoc that so-called illegal, artisanal, mining is wreaking on the natural environment. The more activist-minded lament the “neo-colonial” structure of the continent’s mining industries and the continued transfer of wealth abroad.

What both elites and masses agree on though is that Africa’s mining sector holds the key to massive transformation of the continent due to the sheer raw wealth creation potential. Cynics might add that elites and masses differ as to how that wealth should be shared, but there is certainly no disagreement that Africa’s mineral wealth is substantial.

That consensus operates by focusing much of the analysis on policies meant to police the wealth by identifying illegalities everywhere. Since the wealth is so prodigious, as the thinking goes, were it not for thieves, brigands, and smugglers so much could be done; every African could be swimming in riches.

Whilst the fundamental idea of sound management of mineral resources, including improved security and anti-corruption measures, to ensure a more inclusive and equitable sharing of the proceeds of mining is very sensible, the development of the right policies that can actually do this is seriously impeded by a number of delusions. In the interest of space, this article shall discuss only three of them.

The Changing Nature of the Global Trade in Mineral Commodities

To simplify the analysis in respect of the first point, let us limit ourselves to gold, the mineral that comes up by far the most when smuggling; poor disclosure and illegal repatriation of export proceeds; and illegal mining, especially in conflict areas, come up.

The hypocrisy of Western gold traders who claim compliance with high supply chain standards but still find ways to buy conflict-tainted and environment-harming minerals has been analysed ad nauseum.

However, the really important development in the gold, and by extension precious minerals, market is the ongoing globalisation of trading and settlements away from the traditional hubs of London, Zurich, and other European capitals.

Whilst most commentators focused on the pricing power shifts portended by the opening of the Shanghai Gold Exchange, the more important trend was the shifting of physical flows away from Europe into Asia. China, Dubai and India now account for nearly two-thirds of trade movements. These non-OECD countries are naturally far less aligned with ongoing efforts to enforce supply chain traceability, whether for conflict management or anti-corruption purposes.

Electronic trading, the use of complex derivatives, and highly fluid intermixing of ore batches in local and regional refineries, are all conspiring to make nonsense of many of the OECD safeguards that well-meaning activists and consultants have been banking their hopes on in the quest to retain more of Africa’s mineral wealth in Africa.

The continuous push of policing and command-and-control measures to consolidate and batten down the supply chains, whilst perfectly understandable, is increasingly futile.

The Tenuous Classifications of Big, Small, Good & Bad

The first point above about supply chain abstraction leads naturally to the second one below.

In seeking to consolidate control and more aggressively police mineral supply chains, African governments find themselves depending more and more, for logical coherence in their policies and actions, on supposed distinctions among small-scale, large-scale, artisanal, and illegal mining.

In June 2017, the Government of Ghana looked at its mining law, locked on to the classification of about 1350 mining groups identified by their licenses as “small scale”, and then imposed a summary ban on their activities. Ghana's laws attempt to distinguish these operators from the, usually Western-owned, “large scale” operators by the extent of their mining acreage, type of equipment, nationality of owners, and regulatory costs, even though over the years the influx of aggressive, highly adept, Chinese mining services and support firms has made nonsense of many of these limiting attributes. The Chinese have succeeded in pooling concessions owned by Ghanaians fronting for them into very sizable fields, and then gone ahead to deploy the same types of equipment being used by the large-scale mining companies.

The intriguing outcome of this small-scale mining ban though was not the spectacle of rural mobs lynching some military officers and the increasing speculation of Chinese pimps diverting to other, more mysterious, pursuits, but the legitimacy crisis it is provoking for the country’s mining statistics.

Before the ban in 2016, gold output was 3.84 million ounces, of which a full 1.24 million ounces was classed as small-scale mined. Everyone thus expected a significant drop in output following the ban. Instead, gold exports shot up to 4.61 million ounces in 2017, and, according to provisional figures, 4.3 million ounces in 2018. Only about 10% of this massive jump can be explained away by higher gold prices prompting large-scale producers to increase their output since recent retrenchments in the large mines have made short-term expansions of output impractical (in fact, the nation’s historically most important gold producer, in the storied town of Obuasi, reopened its shuttered mines only in 2019). 

The mystery of these episodes of expanding output, despite the suppression of one-third of the industry, is easily explained by a widely known, but officially denied, theory: the dealers who buy from small scale miners sometimes sell to large scale miners, and some large-scale miners are in league with small scale miners. Along similar lines, some illegal miners sell to small-scale miners, government agencies turn a blind eye when illegal gold is brought for stamping, and shrewd, usually foreign, dealers are in the middle of it all. What exists therefore is not neat demarcations of the industry into pretty little blocs, but a complex, much more fluid than supposed, intermixture of supply and value chains.

Similar dynamics are at play across Eastern Congo, Rwanda, Burundi and Uganda, and dare I even add, Tanzania.

Africa Operates on the Margins

The last of the three points is also the most contentious, most colourful, and most relevant for the key message I would like to convey.

A typical course catalogue at the University of Edinburgh asks: “By whom, and how exactly is the extraction of Africa's vast mineral wealth governed?” This is of course the question that rightly provokes so much angst, but how problematic the premise.

Contrast Africa, a continent of 1.2 billion, producing non-fuel minerals valued at about $82 billion per annum with, say, Australia, a country of 25 million, producing the same class of minerals but worth $150 billion per annum. This is the reality that many have never bothered to confront.

Despite the vast amounts of data being collected all the time into the major mineralogical databases - including those maintained by the South Africans, the British and the Americans – and the fact that this is one of the few areas where resources expended on studying Africa matches what has been spent elsewhere, folks continue to promote the misleading notion of an Africa swimming in mineral wealth. The reason is partly due to the abuse of statistical inference by many commentators on Africa’s political economy.

For example, many folks are met with statements such as “30% of all mineral reserves in the world are in Africa” (AfDB, 2016) with no explanation as to whether this factoid refers to tonnage, acreage, dollar value or some other mysterious, gnostic, variable. To understand the situation properly, there are a number of key aspects to bear in mind.

Firstly, the issue of concentration.

For example, it is indeed true that Africa has 32% of the world’s estimated reserves of bauxite, but 80% of this quantity is in Guinea alone. Africa does have 40% of the world’s chromium, but 99% of it is in South Africa. Africa may have nearly 60% of the world’s cobalt, but nearly 90% of it is in the DRC. Africa has nearly 20% of the world’s iron ore, but as much as 90% of it is tucked in South Africa’s open mine pits. The continent may have 70% of the world’s phosphate reserves, but 90% of it is in Moroccan possession. Africa may mine 77.5% of the world’s platinum, but 99% of the mining happens in South Africa and Zimbabwe. It may have 94% of the platinum-group mineral reserves, but nearly 98% of all of those sit in South Africa. Very few African countries account for the mineral wealth we hear so much about. The vast majority of Africa’s 54 countries are dirt poor in minerals, literally.

Secondly, there is a problem of economic weight.

Africa is found seriously wanting when it comes to those minerals used most extensively in industry and large-scale economic activities. Add concentration and geo-strategic importance, and the situation becomes almost desperate.

For example, Africa has only about 7% of the world’s nickel, of which 70% is in South Africa. Africa has only 1% of the world’s rare earth metals, a group of some of the most geo-strategically valuable minerals. And as usual, 90% of them are in South Africa. The continent produces only 3.5% of the world’s tin output and holds only 4% of the proven reserves, 98% of it stuck in the DRC. Only 3.5% of the world’s coal, a major input in making 75% of the world’s steel, is in Africa. Because this class of minerals also contain the most intensively used minerals, the value of industrial minerals far outstrips that of other classes. That is why, coal alone, or iron ore alone, earns Australia TWICE what all of South Africa’s rich array of minerals bring in every year.

Nor are trends in value addition and value reprogramming helping matters. Take Africa’s boast that it has nearly 50% of the world’s diamonds. Novel technologies, such as chemical vapor deposition, mean that, unfortunately, only 1% of diamonds used for industrial purposes are mined nowadays anyway. The rest is synthesized in the lab, virtually none of it in Africa. Africa’s strategic importance in the raw diamond trade is thus 0.5% or less.

And as we have already indicated, these trends are not improving. If anything, they may be worsening. Consider that South Africa, the world’s leading gold producer in 1970, mining over 1000 tons of gold per annum then, is today ranked 7th, and struggling to produce even 150 tons. The US, on the other hand, which in 1970 could only produce about 50 tons of gold and a bit, now mines 250 tons of gold per annum. Africa’s strategic importance in the Global minerals sector is evidently declining.

The marginality of the African position in global mining is reflected in a far more interesting trend than relative share of global output, however. It is best captured in a trend that drives the key message of this article: the rise of marginality as a comparative advantage.

Across Africa, more and more deposits of minerals are no longer compatible with large scale mining at all. Nearly 60% of the gold fields in South Africa are marginal, which is the inevitable corollary of 75% of mines being unprofitable. The unprofitability is however only a feature of a particular way of framing the industry: giant, integrated, complexes held together by vast economies of scale.

When one considers the impact of emerging recovery and reclamation technologies, and adopt a more forward-looking and creative attitude to small-scale and so-called, artisanal, miners; implement the same “extension services” and other support systems that in the context of Asian agriculture created the green revolution; and change the financial investment incentives for foreign operators to transfer capacity to local communities, small-scale mining can become an environmentally friendly, mass employment generating, and wealth distributing engine of growth.

Africa does not have to play in the big leagues to attain such levels of respectability. In fact, in some ways it would be retreating from those conventional global stakes into a more community-embedded and decentralised mining system, obviating the need for much of the central policing seen as de rigueur.

It requires commitment however. After witnessing a more than 20% drop in oil reserves in the last decade, Nigeria’s oil sector became mired in a stagnation fast turning into decline. Oil majors begun to relinquish acreage at an increasing pace. The need to take the idea of marginality seriously started to press very hard, and laws were passed. But half-hearted implementation has led to less than a third of the marginal fields designated for indigenous firms successfully producing oil. Lack of access to technology, inability to secure capital from the markets, and management incapacity have all taken their toll.

Angola, having committed to marginal field development as its path out of slowing output growth, has pledged to develop a more holistic strategy and embrace the small stakes of mining glory with enthusiasm and diligence.

The rest of Africa should take heed. The continent should stop deluding itself about sitting on a bounty; broaden policy beyond command and control, focusing instead on innovation; and stop trusting in international policing actions in the supply chain to secure the coop of the golden goose, which may yet lay its golden eggs.