A success story for African mining

The MIGA (Multilateral Investment Guarantee Agency) symposium was held in Montreal from 22-24 May. It brought together some 40 African mining ministers, most of the important donor agencies and representatives of around 25 mining companies. MIGA, which is a specialised agency of the World Bank, promotes the flow of private investment to developing countries. It provides insurance against political risks and assists member countries in attracting foreign investment.

The purpose of the symposium was to attract investors from all over the world in order to exploit the rich mining possibilities offered by many African states. Several of the countries that attended went to considerable effort to present themselves well, and it was evident that some are quickly learning what it takes to attract foreign investors.

The climate for mining investment in most African states has improved tremendously over the last two to three years. Most countries have introduced new mining codes, clearly defining the rights and obligations of foreign investors. State-owned companies are also being privatised, taxation has been made more reasonable and institutions in the mining sector, such as geological surveys, are becoming more efficient.

All this has led to a big increase in exploration for new deposits and a substantial increase in investment. At present, the activity is particularly heavy in West Africa, where many countries have very good gold potential. The European Community is contributing to this development in several ways. The biggest success so far has been the exploration campaign in Mali, funded under that country's Lomé National Indicative Programme (NIP), which led to the discovery of the Sadiola gold deposit. A world-class gold mine will be built here, bringing substantial benefits to the country.

The World Bank has also supported many African countries in their efforts to reform the legal and administrative framework for the mining industry. An important element, however, in attracting mining companies is the availability of good geological data. This is a very expensive activity, which does not bring immediate returns, if at all. So it is not appropriate to finance this through bank loans. The NlPs and SYSMIN Fund, on the other hand, are instruments that are well-suited to this kind of work. The Community has already financed a series of airborne geophysical surveys in Botswana and Namibia -to mention just two examples-and a new Sysmin project is currently being prepared for Burkina Faso.

The Commission Unit responsible for Mining Cooperation and Sysmin (VIIIl.B.5) was represented at the symposium. Its main purpose for being there was to present the functioning of Sysmin and the Community's cooperation in the field of mining to ACP ministers, mining companies and other donor agencies.

Current state of the mining sector

The mining sector is currently very active. Exploration in West Africa doubled between 1993 and 1995 and new mines are being opened all the time. A lot of this new activity is to be found in the gold sector. This is mainly due to the development of cheaper production methods combined with a much more positive investment climate in many African countries. A gold mine takes less time to reach the production stage than, for example, a copper mine, with the former being far less dependent on good infrastructure. Outside the gold sector, activity is much more subdued. While base-metal prices are at a reasonable level, the pay-back period is much longer and the lack of suitable infrastructure kills many projects.

For many countries, mining is a key area in the growth of the private sector. State-ownad mines are being privatised and the new mines that are being opened have little or no state participation. Foreign investors are bringing in the most up-to-date mining technologies and business methods, and they are faced with the need to train local people in technical and business skills. Supporting the mining sector is clearly an efficient way of supporting private sector development.

SYSMIN's future role

Given that most metals are currently fetching quite high prices, it is probable that relatively few ACP countries will be eligible for SYSMIN assistance over the next two to three years. The viability of most existing mines is not thought to be under threat and they should continue to be profitable. Thus, countries that are heavily dependent on mining should not experience severe losses in export income, which in turn means that relatively few SYSMIN requests are expected during the period of Lomé IV's second financial protocol. At the same time, the financial allocation for SYSMIN has been increased from ECU 48Om to ECU 575m.

When trying to attract new mining investors, it is essential for a country to have good geological information. Private companies are normally unwilling to undertake much general prospect ion, such as airborne geophysical surveys, because it is very expensive and, if they do, it is usually limited to very small areas.

At present, companies are tending to restrict their activities to areas for which general information is already available. These points were raised by several of the mining companies that attended the symposium.

But the present mining boom is not going to last for ever. Metal prices are volatile and, with the next downturn in the business cycle, a decline in metal prices will surely follow. So it is essential to prepare the basis for future mining activities by collecting general data. Given that a significant part of the SYSMIN allocation may remain unused because of a lack of requests, it would be worthwhile to consider whether a part could be reallocated to prepare general geological data for mining activities in the next century.

F. B.-H.