[miningmx.com] – THE Fraser Institute, a Canadian organisation that has a reputation for the authority of its business trends surveys, has some unpalatable reading for investors who believe Africa’s resources industry has come of age.
The institute, for instance, found the Democratic Republic of Congo (DRC) among the most corrupt places on earth to do mining exploration. Zimbabwe pips the DRC, just.
Absorb this survey anecdote of a company doing work in the DRC: “Corrupt beyond description and, from a mining point of view, a shambles in each and every conceiveable respect’. It’s not included, but what did they say about Zimbabwe?
Only 6% of respondents to the survey – dubbed the Policy Potential Index (PPI) Score – believe corruption in South Africa would stop them investing. But 46% of respondents thought corruption in South Africa was a strong deterrant to working there, while the balance of respondents thought corruption to be a “mild deterrant’.
Overall, it’s bad news for Africa as the Fraser Institute duly notes. “The average PPI score for Africa is down from 2011/2012, continuing a declining trend over the last five years,’ it said in its executive summary.
This is a worrying conclusion, but one seemingly at odds with other research such as the findings of Magnus Ecrisson, a co-founder of the Raw Materials Group, another exploration industry consultancy.
Ericsson observed at the recent Investing in African Mining Indaba that Africa accounted for about 10% of minerals production, but absorbed 17% of exploration spend; in other words, exploration firms were increasingly favouring Africa as a place to find minerals.
The truth of the matter, however, is in the investors’ growing sophistication of what Africa is: they don’t view the continent as a single investment proposition. Ericsson, for instance, found there was a shift away from southern Africa investment towards west Africa exploration spend.
Even within that observation there are nuances. The Fraser Institute found that Botswana was “. the bright spot in Africa’ ranking the best jurisdiction in which to do business on the continent. It was the least corrupt and offered policies that were most predictable to investors.
Another research house, Control Risks, found in its recently launched Risk Map that stakeholder expectations, governments especially, were never higher in Africa, and that this would lead to policy instability.
Mining code or policy reviews were underway in a host of African nations which included South Africa as well as Guinea, Kenya, Tanzania, Niger, Burkina Faso as well as the seat of African corruption, Zimbabwe.
The Islamic insurgency in Mali, hitherto an investment friendly destination for the world’s gold miners including AngloGold Ashanti and Randgold Resources, has also contributed to Africa’s declining reputation for political and policy certainty.
According to Roddy Barclay, an Africa analyst for Control Risks, the move towards Jihadism in Mali, as well as Algeria, is not the creation of some new-fangled Afrighanistan as set down in a February article by The Economist. “The rise of Islamism is to do with weakness in state institutions rather than something deep within the fabric of society,’ Barclay says.
Returning to the Fraser Institute’s study, it’s clear that it’s the existance of minerals potential that is driving policy instability rather than issues inherent in Africa or in South America.
Chile, once regularly in the top 10 of most certain policy jurisdictions, slipped again this year in the Fraser Institute’s rankings, falling to 23rd. (In fact, three of the top worst places to invest for miners were in South America compared to two countries in Africa.)
As for the most stable for minerals policy? Finland. Yes, that cornucopia of mineral wealth, followed by Sweden, Alberta, New Brunswick and Wyoming. In the world map of mineral hotspots, these jurisdictions are irrelevancies supporting the notion that minerals potential and policy uncertainty are often directly correlated.
Previous versions of the Fraser Institute report contained a most telling survey question which posed the most binary of choices: whether policy potential or mineral prospectivity was the most important factor for exploration companies.
Respondents by a factor of 60:40 thought mineral potential was more important proving the inescapable fact that miners have to go where the geology sends them.