Focusing on four key themes: (1) the upside and downside of risks caused by elevated commodity prices, (2) how sanctions against Russia will affect mining activities in the region, (3) the effects of exploration activities and prospective project development in the region, and (4) and the future of mining in Africa, the report's key findings include:
- Sanctions against Russia—which have largely been more severe than initially expected—will disrupt Russian mining activities in Sub‑Saharan Africa, without having a serious negative impact on domestic mining sectors themselves.
- African economies will face manageable downside risks, which are markedly outweighed by the risks to the upside that stem from steep commodity price growth. This is due mainly to the insignificance of Russian exports for African economies.
- As sanctions become increasingly severe, the EIU expects that Russian miners will struggle to finance current and prospective operations, and may ultimately be forced to sell their concessions for reduced amounts.
- Russia's mining activities in Africa have been growing in recent years, and are increasingly concentrated in weakly governed and authoritarian states. We expect this to continue as the West continues to exclude Russia from the global economy.
- Although higher prices will benefit current production and operations, inflation will disrupt exploration activities and prospective projects. High energy costs, coupled with heightened global risk and uncertainty, will add to the costs of project development.
The EIU explains that "The African continent is home to substantial reserves of copper and cobalt (in the Democratic Republic of the Congo—DRC—Zambia, South Africa and Zimbabwe), diamonds (in Botswana and Angola), platinum (in South Africa and Zimbabwe), uranium (in Namibia, Niger and South Africa), gold (in Ghana, South Africa and Sudan), iron (in South Africa), manganese (in South Africa, Gabon and Ghana), bauxite (in Guinea), lithium (in Zimbabwe), coal (in South Africa and Mozambique), natural gas (in Algeria, Egypt and Nigeria) and petroleum (in Nigeria, Angola, Algeria and Libya)." Moreover, "Africa contains about 12% of total global oil reserves, 12% of natural gas reserves, more than 80% of platinum group metals and more than 40% of the world's gold. Extraction of Africa's reserves has been largely hindered by weak domestic governance structures and policy impediments, alongside the high risk of investments in Africa and low commodity prices during 2016‑20. This has resulted in a notable shortage of exploration activity in the African mining sector."
The report, however, encouragingly points out that "many African commodity exporters—Zambia and Namibia in particular—have initiated procedures to create a business-friendly environment in order to attract investments into their domestic mining sectors. Elevated commodity prices are fueling an export boom across Africa." What is more, "High prices for copper, oil, iron ore, aluminum and gas will stoke investments and are all helping to reduce external imbalances, stabilize currencies and boost economic growth. However, downside risks abound. The continent depends on energy imports (as net crude exporters have insufficient refinery capacity), and the war in Ukraine is set to stoke strong inflationary pressures."
With respect to the impact of Russia's unprovoked invasion of Ukraine on African economies, the EIU notes: "Total African exports to Russia add up to only about US$5bn, with imports totaling about US$14bn. Total trade between the regions is small, at about US$20bn, and trade disruptions resulting from the Russia-Ukraine conflict will not seriously affect African economies. However, it will affect certain African industries, such as cocoa and tobacco, and textiles and clothing." The EIU expects "the clothing industry in Tunisia, in particular, to be hit by negative impact. The tobacco industries in Nigeria, Tanzania and Mozambique will also be affected by the conflict."
Lastly, the EIU is forecasting "that Africa's mining sector traders will not be heavily affected by loss of Russian exports or activity. The total amount of exports to Russia is relatively small, and the growth in commodity prices will outweigh any marginal loss to total exports." The report importantly notes that "alternative export partners, China in particular, will take up the excess output. Given the strong demand for global commodities, the small amount of lost Russian exports will quickly be taken up by alternative buyers. In countries such as Sudan, Mali and the CAR, discrete Russian mining operations are likely to continue, circumventing sanctions."
What political and economic developments do you think will shape Africa's mining sector?
Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.