Lynda Loxton
After years of neglect, the African mining industry is attracting unprecedented attention from as far afield as North America and Australia.
This was borne out strongly this week as more than 500 delegates from Africa and elsewhere turned up for the first annual Investing in African Mining Conference/Indaba in Cape Town.
The reason for this interest was spelt out by delegate after delegate African countries had largely abandoned their various failed post- colonial economic experiments, had knuckled down to serious economic reforms and were becoming less regulated and more investor friendly.
They warned, however, that this trend had to continue and had to be accompanied by political stability and a lack of corruption.
For their part, African mining ministers said they had heard the message and spelt out what they had done, and would continue to do, to attract investment. About 30 African countries have made significant changes to their mining investment codes over the last 10 years.
Financial advisers attending the conference confirmed the increasing popularity of Africa as an investment destination but warned that there was still a long way to go until Africa was as popular as the booming South East Asian markets, despite its enormous reserves of untapped wealth.
The economic tigers of South-East Asia and the rapidly developing economies of Latin America are likely to remain the investment focus, but the smaller markets and particularly those undergoing restructuring will undoubtably command increasing attention, says Michael Spriggs, director of SBC Warburg in London.
These included the small, but well established markets of Southern Africa (Namibia, Botswana and Zimbabwe) and the embryonic markets of Central Africa (Ghana and Kenya).
Spriggs said the single largest factor holding back investment in Africa was investor views on country risk. Quantifying this risk was problematical because it inevitably involved subjective judgments but a useful reference was the estimates published by the Economist Intelligence Unit (EIU).
EIU ranked about 85 countries, with scores ranging from 100 (Bosnia and Iraq) to five (Singapore). Fewer than half of these had developed markets, and not all had significant mining industries.
Spriggs said the 21 countries included from Africa fell into three broad groups:
l low-risk markets of Southern Africa (South Africa, Namibia, Botswana) and North Africa (Morocco, Egypt and Tunisia);
l moderate risk markets (Ghana, Zimbabwe and Kenya);
l high-risk areas of North Africa (Libya, Algeria) and Central Africa (Zaire, Sudan).
These rankings inevitably vary with changing circumstances in individual countries, mainly political movements but, as the crisis in Mexico in 1994 showed, economic policies and debt management are also important.
Other important considerations for investors include: security of tenure, right to repatriate profits, management and equity control and a consistent tax regime.
Africas efforts have begun to show some tangible results. A recent review by the Financial Times of the spending plans of 154 mining companies showed that 12% of their combined exploration budgets were destined for Africa in 1995. Planned expenditure in Africa rose 61% to $320-million.
The challenge for Africa is to transform these exploration dollars into long-term investment and judging by the many serious one-to-one meetings held between African and Western mining companies and investors at this weeks conference, they might just do it.