2011 Africa - Investment Destination for Miners - PART II

 THIS POST WAS ORIGINALLY PUBLISHED DECEMBER 20-24, 2010

Legal

As every cautious investor, those looking for Africa, understand quite clearly all perils and advantages of this business. Here, I would like to pinpoint to a few of them.

Key Challenges arising when investing in Africa

• Lack of clarity of some energy, mining, company and tax laws and their interpretation, or no relevant law
• Erratic publication of regulations and case law and lack of consistency in the interpretation of the law (by local courts and administrative authorities)
• New trend of "resource nationalism"/creeping expropriation (due to unstable governments or volatile price of natural resources)
• Implied laws and mandatory laws mean that there may be more than the contents of the contract
• Difficulty in finding viable local lawyers to advise on international projects
• Corruption/transparency issues
• Payment default risks for economic transactions with companies in African states
• Influence of NGOS

Source: Strategies for achieving "Bankability" for mining projects in Francophone Africa

 WSJ: Investing in Africa - Political Risks

The Wall Street Journal in today's feature: AFRICA RISING presents an interesting overview of the latest developments on the continent. One of the articles directly discusses mining investments:

Mining Fight Shows Pressures on Multinationals . Rio Tinto's Troubles as Guinea Seeks Iron-Ore Riches Reflect Tensions at Play Across Continent
Analyzing the recent situation in Guinea, the author points:
"That tension illustrates a common challenge to conducting business in Africa. Even as elections and transparent governance become more widespread, political risks remain significant for investors big and small. Changes in government frequently change the tilt of a country's playing field, bringing some investors into favor while ushering out others."
There is a reproduction of an useful graph here:

And a lot of interactive material, like this page:

this is a highly recommended reading for those interested in African business developments.

CHINA

The issue of Chinese investments in Africa is well studied – on the Internet one may find a lot of academic and political papers on it. Indeed. It seems that China pays a very close attention to Africa – and this is proven by just released by the Government a White Paper on China-Africa economic and trade cooperation: China-Africa Economic and Trade Cooperation (full text)

By the end of 2009 China’s investment in Africa reached $9.33 billion USD. Since 1980-ies China  accelerated  investment over 49 African countries. China has signed bilateral agreements with 33 African countries to promote investment and agreements with 11 African countries to avoid double taxation. While the mentioned White Paper examines all aspects of the issue, I would highly recommend to download and read this 400+ pager monograph Chinese Investments In Africa: A labour perspective from African Labor Research Network. This is a very detailed analysis featuring most of the African countries. This interesting table shows the shift in accents in natural resources:

A survey on investment of China in Africa is given in this presentation: Chinese Mining Investment in Africa with this graph explaining the process:
When looking at destinations – it is well depicted in this graph:

Source:   Chinese Trade and Investment Activities in Africa by The African Development Bank Group
More visual is the graph depicting China’s Overseas Direct Investments (ODIs) represented by The World Resources Institute

This week some worth reading news was released on China’s investments in Zambia:

“… Chinese investment turnover in Zambia has been projected to hit US$1.4 billion at the end of December and rake in $40 million revenue for the Zambian Government. Currently more than 300 Chinese companies operate in Zambia, increasing the total value of investment from $500 million in 2006 to $1.26 billion in 2009. Chinese enterprises now account for 60% of Zambia’s infrastructure market, 50% construction materials market, 20% mining projects and 10% of agriculture and service market…”

Those interested may look into Chinese Aid and Investment in Zambia National Consultation Workshop Report
More resources:
An academic analysis is provided by these two gentlemen:   Yin-Wong Cheung and XingWang Qian
China’s Outward Direct Investment in Africa
China’s Pursuit of Africa’s Natural Resources by  Center for Strategic Leadership, U.S. Army War College