We were taken by the remarks of Western Australian Premier Colin Barnett at the recent Africa DownUnder (ADU) Conference in Perth. This was a rich and informed dinner talk at the ADU event, far from the usual ‘puff’ that we sometimes get at such occasions. Several African mining ministers listened as the Premier offered some principles that he believed were important in mining for both governments and industry.
What drives the WA economy is its mining industry: the value of its mining production last year was just under $100 billion and over 50% of Australian mining is in WA. The size of the industry means that the state dominates Australia’s exports and economic relationship with Asia, and Australia’s investment in mining in Africa.
About 70% of Australia investment in the mining industries of Africa is sourced from WA, which is home to nearly 200 companies involved in African mining. Other than mining, and agriculture, WA has geographic parallels with Africa—remoteness, long distance, and high travel costs.
Premier Barnett noted that Australian companies are trusted and respected in Africa—even if relations with governments aren’t always rosy. It was clear at the recent ADU conference that they understand the importance of early and active community engagement. By contrast, Chinese mining operators in Africa normally work on the basis of getting the project up-and-running quickly, and worry about community relations later.
He pointed out that, in terms of mining governance, WA had made mistakes but they’d learned from them. Africa and Australia could work together when it comes to the principles that should govern the extractive sector. The Premier strongly argued any state must be absolutely clear about the ownership of its minerals, and that it was important to remind companies and buyer countries of this. He noted the need for a clear distinction between the ownership, and development, of minerals.
That’s certainly a big issue in Africa. Initially, huge concessions were offered in some African states to get miners in. Now some governments want to renegotiate royalty agreements, particularly where governments have only seen a tiny fraction of the profits. Corruption is another significant drain on mining profits for many African countries. At the same time, some African governments have demonstrated limited capacity to adequately account for the monies they do receive; foreign companies often complain that their ‘community development funds’ rarely reach their intended target because various officials will always take their cut.
Premier Barnett stressed the need for a clear, legally backed and credible system of progressing from exploration to export: from prospecting licences to exploration licences; retention licences to preserve access to the deposit; and ultimately to a mining licence. Developing and maintaining a system of accounting for mining, he stressed, is complex and expensive. But because mining is a high-risk business, companies need security and predictability of the process.
That’s a strong point. Unfortunately in many parts of Africa, there’s little or no capacity to create the institutional environment required to produce wider benefits from the resource in the way that Australia has been able to achieve.
African countries need to be realistic. Many have abundant natural resources and mineral wealth—which are worth precisely zero unless developed. Governments often underestimate the significant steps over many years needed before a viable mining industry comes into being. Viability requires certainty and clarity on taxes and rules, upon which the long-term planning necessary for high-risk mining investment is based. Some African governments are considering policies which hint at the opposite: a changeable fiscal regime and regular interventions by officials. The bottom line is clear: mining won’t develop in African countries that have fledgling industries unless capital and investors (private and foreign) can be drawn into the sector.
The Premier stressed that states shouldn’t give away a mineral or hydrocarbon for no price: indeed, it’s in the long-term interest of the mining industry itself that the host nation derive a fair return for the mineral resources it owns. He pointed out the need for a tight taxation system, which minimises the risk of companies shifting profits, and he made it very clear that, even if a company made no profit or a loss, it shouldn’t get its minerals for free.
He informed his audience that that the African mining industry wasn’t a threat to Australia: the fact that many West Australian companies are involved in projects in Africa showed that WA benefits by the growth of Africa’s mining industry. The Premier offered to send some of WA’s most experienced and best officials in mining to African states to offer advice, based on WA’s experience as a developed mining economy, should African states wish to draw on that advice. Skills transfer like this is an excellent way for Australia to cooperate with African countries.
The WA Premier’s offer should be taken up. Some governments in Africa need to better understand and respond to the global drivers of mining investment. They’ll then be able to devise more investor-friendly jurisdictions while remaining sensitive to the key concerns of local communities. This will also enable the type of junior miners most likely to invest in some of the still highly uncertain mining landscapes in Africa.
Western Australia is at the forefront of Australia’s emerging relations with Africa. Next year Premier Barnett will make his first trip to Africa. It will be interesting to see what develops from there.
Anthony Bergin is deputy director at ASPI. Terence McNamee is deputy director of the Brenthurst Foundation, South Africa. Image courtesy of Lars Hammar.