A leading economist has warned that the eagerness with which global miners are investing in Africa belies the risks that operating mines on the continent offer the unwary investor, after the issue of nationalising South Africa’s mines returned to centre stage.
The characterisation came after the Congress of South African Trade Unions (Cosatu) revealed that its tripartheid alliance partner – the ruling African National Congress (ANC) – is now researching how to execute the policy.
“Beyond the standard risks that miners have to deal with anywhere, like commodity price and currency fluctuation, operating a mine in Africa has a number of risks unique to the continent,” said Robin Hancock, Business Development Executive at Alexander Forbes Risk Services.
He said that while nationalisation currently looms large in South Africa, it has been a perennial on the African risk radar for over 40 years.
“Governments can’t and don’t run mines, instead they appoint private operators to do so. When losses occur in mining these typically run into the hundreds of millions. Experience has shown that governments traditionally don’t insure, however, the private operators running nationalised mines still need to insure their very substantial risks which remain unchanged regardless of who owns the mine,” he said.
Hancook said therefore that if, as in Zimbabwe, nationalisation takes the form of requiring majority ownership to be held by a local company, or perhaps in South Africa’s case, by a local black-owned company, the major risks remain the same and will have to be insured as before.
“If anything, risks and premiums will actually increase as often nationalised mines lose many of the high level technical and managerial skills that their private competitors are able to retain. This typically leads to increased risk and losses” added Hancock.
Meanwhile, South African tycoon Cyril Ramaphosa said he believes the ANC Youth League and the country’s mining giants can find a way forward to turn the nationalisation “threat” into an opportunity.
In a Sunday Times column, Ramaphosa said anyone who wishes to see South Africa becoming a successful and prosperous country should welcome initiatives that are aimed at reducing poverty and inequality and making the economy more inclusive.
He said there were better, less costly, less value destructive and smarter ways to fix the economy than through nationalisation.
“We should learn from many countries that have tried this option and failed. Successful countries have always shied away from reinventing a wheel that does not move. The mode of debate needs to change. Business should demonstrate not merely that it is opposed to nationalisation, but, more importantly, that it is truly committed to economic transformation,” Ramaphosa said