The Great Mineral Problem of Africa
Mineral resources are abundant in African nations, but the extraction of these resources has frequently been marked by a lack of transparency and fairness. Many mining companies within the global majority have come under fire for allegedly striking deals that favour them at the expense of the host nations. Previous African regimes that did not have the best interests of their citizens at heart signed many of these contracts. African nations are coming to the realisation that they must renegotiate their mining agreements in order to guarantee that they receive a fair part of the riches created by their natural resources. These new deals need to be transparent, fair, and mutually beneficial, with clear guidelines on tax rates, royalties, and local content. African countries are also demanding greater involvement in the management of their mineral resources to ensure that they benefit from them in the long term.
For any nation, the effects of unfair mining contracts are severe; they not only fail to realise the full worth of their natural resources, but also lose out on potential income that could be used to fund urgently required programs for social and economic development. Approximately 30% of the world’s mineral reserves, including 40% of gold, 60% of cobalt, and 90% of platinum, are located in Africa, according to the African Development Bank. According to the World Bank, more than half of Africa’s population still lives on less than $1.90 a day, despite the continent’s enormous mineral resources.
A report by the African Union indicates that many mining contracts in Africa are negotiated in secrecy, with little or no input from local communities or civil society organisations. This lack of transparency often leads to the frequent exploitation of vulnerable communities, environmental degradation, and the displacement of people from their homes.
In comparison to what they would pay in other nations, mining corporations frequently negotiate tax rates that are much lower. This deprives African nations of much-needed funds that could be used for social services like healthcare and education. For instance, the Democratic Republic of the Congo missed out on $1.36 billion in revenue between 2013 and 2015 as a result of lower than average tax rates agreed in mining contracts, according to a report by the Natural Resource Governance Institute.
Rethinking Mining Contracts: The Impact on the Mining Industry in Africa
Mali and the Democratic Republic of the Congo are two African nations with significant mineral resources, but their agreements with multinational mining firms have frequently come under scrutiny for being vague and unjust to the host nations. Leaders in these nations, alongside many of these multinational mining companies, have recently acknowledged the necessity of renegotiating agreements in order to forge cooperative relationships that are mutually beneficial to both parties.
President Felix Tshisekedi of the Democratic Republic of the Congo (DRC) has made preparations to renegotiate mining agreements, particularly those that his predecessor, Joseph Kabila, inked with China. Tshisekedi is of the opinion that the nation needs to alter its agreements with miners in order to establish win-win ventures that profit both investors and the Congolese people. The Tenke Fungurume copper and cobalt mine in the DRC was acquired by the Chinese business China Molybdenum for $2.65 billion in 2016, making it one of the largest mining transactions in the nation’s history.
The DRC’s decision to renegotiate mining agreements couldn’t have come at a better time, considering the rising demand for minerals necessary for the creation of renewable energy and electric vehicle technology. The demand for cobalt, for instance, which is a crucial component in the batteries that power electric vehicles, is anticipated to increase by more than 300% by the year 2030. By renegotiating contracts, the DRC could ensure that it gets a fair share of the profits from its mineral wealth and invests in infrastructure and social services that benefit the population. This would also encourage responsible mining practices and help address issues such as child labour and environmental degradation in the sector.
It is worth noting that the renegotiation process is not without its challenges. Mining companies have been reluctant to cede control and change the terms of their contracts. However, the DRC government has made it clear that it will not tolerate unfair and opaque contracts that do not benefit the country. The government is currently conducting a review of all mining contracts, and any contracts found to be lacking in transparency and fairness will be renegotiated or terminated.
Similar plans have recently been made public by President Bah N’Daw of Mali to renegotiate mining agreements with multinational firms in order to guarantee that the nation receives a fair portion of the revenue from its mineral resources. According to the International Crisis Group, Mali is the third-largest producer of gold in Africa, with gold making up 80% of its mining exports. Mali has also recently discovered sizable quantities of lithium, a vital mineral used in electric vehicle batteries. The advantages of mining have not, however, been equally dispersed since many Malians continue to live in poverty. According to research by the Africa Progress Panel, illicit financial flows, which include tax evasion by multinational mining firms, cause Africa to lose almost $50 billion in income annually.
A new mining agreement between the Mali government and Barrick Gold was reached in 2020, increasing the government’s ownership of the Loulo-Gounkoto mine from 20% to 80% in exchange for Barrick’s promise to construct a refinery there. The Extractive Industries Transparency Initiative estimates that Mali’s mining industry brought in $1.3 billion in revenue in 2019, with gold accounting for almost 95% of the total. It has been hailed as a triumph that Mali’s government was able to increase its share of the profits from the country’s mineral resources while simultaneously luring new investment to the industry through the renegotiation of mining contracts.
Renegotiating mining contracts in the DRC and in Mali presents an opportunity for the countries to establish a model for responsible and mutually beneficial partnerships between mining companies and host countries. It could also set a precedent for other African countries that are grappling with comparable issues. If successful, this approach could ensure that African countries benefit from their mineral wealth and contribute to sustainable development that benefits everyone.
Towards a Win-Win Partnership
The mining sector in Africa is significantly impacted by the renegotiation of mining contracts. Foreign investors are being compelled to reconsider how they conduct business in the area, and some are opting to completely withdraw. Due to these opportunities being created for local investors and businesses, the industry may experience longer-term growth that is more equitable and sustainable.
The continent of Africa is thought to contain 30% of the world’s mineral resources, according to the Africa Mining Vision. However, only around 10% of the world’s mining output is produced on the continent. Renegotiating mining agreements is essential if African nations are to receive a fair share of the riches created by their natural resources. For instance, the Democratic Republic of the Congo, the top cobalt producer in the world, increased its cobalt and copper mining royalties in 2019 from 2% to 10%. This action is anticipated to increase revenue for the nation and develop a more resilient mining sector.
Renegotiation of mining contracts is also presenting local businesses and investors with chances to invest in the mining sector. For instance, the government of Mali established Société des Mines du Mandé (SOMIMA) to handle the nation’s gold reserves. To develop the mines, SOMIMA is anticipated to collaborate with foreign businesses, resulting in the creation of local jobs and economic prosperity.
Long-term gains will accrue to all parties involved in a more sustainable and inclusive mining industry. African countries will generate more revenue from their mineral resources, which can be invested in social and economic development. The renegotiation of mining contracts paves the way for a more stable and predictable business environment for mining companies, attracting increased investment and creating a greater number of job opportunities. Ultimately, a win-win situation for all parties involved.
