Africa is endowed with abundant mineral resources, including gold, silver, copper, uranium, cobalt, and many other metals which are key inputs to manufacturing processes around the world. The mining and extractive sector has contributed and continues to contribute a significant share of Africa’s exports, revenue and GDP annually. In 2019, minerals and fossil fuels accounted for over a third of exports from at least 60% of African countries. Additionally, 42 out of 54 African countries are classified as resource dependent, with 18 countries classified as dependent on non-fuel minerals, 10 as dependent on energy or fuel exports and the rest as dependent on agricultural exports. Mineral resources contribute a significant amount of fiscal revenues, foreign currency reserves and employment to African countries. Clearly, the mining and natural resources sector is critical in driving economic growth and development on the continent. Discussions about Africa’s extractive sector are often overshadowed by an over-emphasis on oil and gas resources. This makes it imperative to discuss non-fuel mineral extraction industries in-depth.

This Policy Paper discusses the untapped potential of Africa’s mining sector, especially the key trends, drivers, opportunities, challenges, and strategies needed to expand the sector and drive economic transformation on the continent.

Introduction

Emerging economies in Africa are at the forefront of the reinvestment of natural resource rents for the sustainable growth of the overall economy. Africa has immense natural resource endowments, especially in minerals used for technological development and manufacturing. As concerns about globalclimatechangecontinueto fueltransitions to renewable energy, Africa ispoised to benefit since the continent is endowed with many of the metals and minerals critical in clean energy production. For example, Africa produces about 80% of the total world supply of platinum, 50% of manganese, two-thirds of cobalt, and a significant amount of chromium2. Demand for these minerals is expected to increase substantially in the near future because they are required in the production of batteries, wind turbines, and solar energy3. Even though global climate change presents some challenges to the mining industry, it also creates an opportunity for investors to benefit from increased global demand for minerals required in clean energy production.

Sub-Saharan Africa is mostly dependent on natural resource rents for economic growth5. Minerals, ore, and metal exports accounted for 20% on average of total merchandise exports in 20176. In some countries, minerals constitute more than 50% of total merchandise exports. For example, minerals and metals accounted for 92% of total merchandise exports from Botswana between 2013 and 2017 and 81% of total merchandise exports from the Democratic Republic of Congo during the same time period. Over the past decade, Africa’s mining sector has proved resilient to adverse conditions in the global economy, such as the financial crisis of 2007-8 and the decline in world commodity prices since 2014, even if the COVID-19 pandemic has recently exacerbated the forward pressure on commodity prices. Most base metals and precious minerals have experienced sharp price declines because of demand side shocks when pandemic-related shutdowns started. The only exception was gold, the price of which has increased because of its perceived value as a safe-haven asset.

In 2008, the mining sector was bolstered by the African Union’s Africa Mining Vision (AMV), which seeks to build capacity, improve transparency and management of revenues, confront environmental and social challenges, and develop linkages with other productive sectors, especially manufacturing16. Africa accounts for a substantial share of global production of bauxite, chromite, cobalt, industrial diamonds, gold, iron ore, lead, copper, manganese, phosphate, and uranium17. Mining now makes up a significant portion of many of Africa’s national economies, with ores and metals accounting for 20%, on average, of total merchandise exports18. However, there is a substantial variation in the significance of mineral production across the continent, which tends to be driven more by differences in structural endowments than by the investment climate. For example, the mining sector accounts for more than half of total exports from countries including Burkina Faso, the DRC, Guinea, Mauritania, Mozambique, and Zambia. In such places, mining accounts for a significant concentration of economic production and a significant amount of foreign exchange earnings—in DRC, Botswana, and Guinea, for example, mining represented more than one-fifth of total fiscal revenues in 201519. On the other hand, many countries in North Africa and Central Africa produce less non-fuel minerals, largely depending instead on oil extraction and agriculture respectively, although Morocco represents an exception to this rule as a world leader in phosphate reserves.

Despite the seemingly contradictory relationship between mining and development, there is some evidence that the sector has been an important source of employment and infrastructural development in some of Africa’s most poorly managed economies. . One main challenge to the mining sector in Africa is that the clear majority of resource exports leave the continent unrefined. However, some countries are ratcheting up efforts to build linkages between mining and manufacturing, such as by the construction of cement factories. Roughly 12% of the new investments in South Africa are targeted towards processed minerals.

Importance of the Sector

The mining and natural resource sector is just as critical to human development as to economic growth. The stabilization of mining industries can be a necessary step to curtailing detrimental inflation, national debt, and outsized shocks to commodity prices. Political stability is a critical aspect of the mining industry’s success because it gives positive assurance that countries can avoid the resource curse, and encourages greater foreign investment. The mining and natural resource sector is just as critical to human development as to economic growth. The stabilization of mining industries can be a necessary step to curtailing detrimental inflation, national debt, and outsized shocks to commodity prices. Political stability is a critical aspect of the mining industry’s success because it gives positive assurance that countries can avoid the resource curse, and encourages greater foreign investment. Theminingindustryhasbeenakeydriverofgrowththroughouthistory—firsttheironandbronzeages, then the industrial revolution, and now the infrastructure of the modern information era. Research and analyses of the mining and natural resource sector are often focused on the macroeconomic impacts of the sector. Well-managed resources can be fundamental to overall economic growth, while also contributing to employment growth and income generation.

Despite the presence of significant challenges and risks within the Africa mining sector, several opportunities for investors are still available for exploration. Africa is home to many mineral resources, a significant portion of which unexplored or under-explored. The challenges of investment and growth in Africa’s mining sector depend, to a large degree, on the type of mining activity pursued.

Conclusion

Collaboration Among Mining Companies,governments,civil society,andotherstakeholdersisthe key to unlocking the potential of Africa’s mining and natural resource sector. Each of these stakeholders must avoid disputes and ensure equitable sharing of opportunity, wealth, and decision-making. The mining sector has suffered from fluctuations conflict,commodity priceboomsandbusts,corruption, and lack of accessible capital, but there is significant potential to overcome these challenges and ensure the mining sector is a revenue-generating stalwart for future decades.

References

African Development Bank Group. 2012. “Mining industry prospect in Africa”. https://www.afdb.org/en/blogs/afdb-championing-inclusive-growth-across-africa/post/mining-industry-prospects-in-africa

Africa Development Bank. 2020. “Africa Economic Brief - COVID-19 and gold mining in Africa: Turning challengesintoopportunities”-Volume11|Issue5.https://www.afdb.org/en/documents/africa-economic-brief-covid-19-and-gold-mining-africa-turning-challenges-opportunities-volume-11-issue-5

Africa Union. 2009. “Africa Mining Vision February 2019.” http://www.saprin.org/ghana/research/gha_mining.pdf.