Exchange controls are blocking South African investment in Africa’s mining boom while China extends its reach on the continent, a conference heard on Wednesday.
”Exchange controls are still restricting South African companies enormously getting involved in Africa,” said Neil Gardyne, executive director of the New Africa Mining Fund.
”As a private equity fund, exchange controls have inhibited us enormously,” he told the International Mining in Africa conference in Johannesburg.
The fund, one of the few players in South Africa to invest in early-stage mining exploration projects, has benefited from a relaxation of foreign exchange rules last year, but a complete removal was needed, he added.
”Johannesburg should be financial centre of the creation of new exploration companies in Africa, but it’s not happening.”
Soaring commodity prices in recent years, largely fuelled by China’s insatiable appetite for resources, has spurred a rebound in exploration activity on the continent.
Exploration projects have surged to 278 in Africa, with Canadian firms responsible for 130 of them, said Frank Gregory, managing director of the Mineral Corporation consultancy.
Canadian investors are more willing to take risks in mining and have been rewarded by a major footprint in the sector.
Banks still reticent
Gardyne said South African financial institutions should follow the Canadian model and devote at least a small amount of funds to more risky mining investments.
The New Africa Mining Fund has invested around R400-million in eight projects since it was established four years ago.
”The [South African] banks are still very reticent to go into early stage exploration. You just cannot find early-stage, high-risk capital here,” he said.
At the same time, Chinese state-owned firms were aggressively sealing deals with governments, offering huge incentives such as developing infrastructure in exchange for mineral projects.
”Just in the last six months alone, there’s been a whopping R52-billion worth of transactions that have been done by the Chinese in Africa,” Gregory said.
Major Western mining companies were shifting their exploration attention to Asia and Russia, he added.
”A lot of Western companies are forsaking Africa, putting their [exploration] money into Asia and Russia … while the Eastern alliance are moving into Africa,” Gregory said.
At the World Economic Forum in Davos this year, Western companies complained that they were being squeezed out of Africa by discounted Chinese deals, appealing to the World Bank for help, he added.
”I think it might be a little too late. The game is on, it is dominated by China and India.” – Reuters 2007