Mining: Regulatory trends in Africa - Peter Leon

The situation in Guinea, Ghana, Tanzania, the DRC and SA compared




Peter Leon, Partner and Co-Chair: Africa Practice



In the late 1980s and early 1990s: a severe debt crisis in emerging markets and funding issues led the international financial community to establish a package of economic reforms

The ‘Washington Consensus’ emerged, referring to views common to institutions such as the World Bank and International Monetary Fund (IMF):

The role of the state in the market should be limited to that of regulator, and its share should be limited to the fiscal take

While the state addresses key aspects of good economic governance, such as liberalised trade and macroeconomic stability, “private markets could allocate resources efficiently and generate robust growth”

In 1992, the World Bank’s Mining Unit, Industry and Energy Division, published a Strategy for African Mining, advocating policies “whereby governments focus on industry regulation and promotion, and private companies take the lead in operating, managing and owning mineral enterprises”

Between 1990 and 2000, thirty African states passed new mining legislation and many more made significant policy changes, directed towards attracting greater foreign investment through decreased regulation, liberalised social and labour policies, and more private sector friendly ownership and taxation schemes

During this period, there was strong competition for foreign direct investment and resource-rich developing countries aimed to create investor friendly regulatory frameworks

After the turn of the century, the relaxed regulatory frameworks that characterised the Washington Consensus era were criticised by many African countries, even by some former staff of the World Bank and the IMF

Critiques typically stemmed from the presumed failure of the “trickle-down” effect of the free market envisaged by the Washington Consensus, as well as the view that liberalised markets were failing to meet Africa’s development challenges

During the commodities boom of the 2000s, these perceptions were exacerbated by the considerable profits made by many multinational mining companies


The commodities boom and the rapid emergence of new investors into the African mining sector, particularly from the BRICS countries (Brazil, Russia, India, China and South Africa), placed governments in a position to “drive a harder bargain”

This was accompanied by a call for a post-Washington Consensus agenda for African mining, with the focus on equitable and sustainable development, and greater governmental intervention to “correct market failures”

As a result, African governments came under pressure to revise their mining codes and renegotiate mine development agreements to give states a “fairer share” of their natural resource endowments

The trend is best illustrated by the adoption of the African Mining Vision (AMV) in 2009 by the Heads of State at the African Union (AU) Summit:

It was developed over two years by the AU Commission, African Development Bank (AfDB) and United Nations Economic Commission for Africa (UNECA)

It has subsequently been recognised by the European Union (EU) as the basis for EU-AU cooperation

The AMV advances a holistic framework for improving Africa’s mining regimes, focused on balancing the requirements of transparency and accountability with the need to integrate mining into Africa’s long term economic development

- The AMV aims to transform natural resource capital and “transient” wealth into lasting sources of capital and industrial growth, with the ultimate objective of reducing African states’ dependence on primary resource exports

- The AMV and the global financial crisis have given many African governments the impetus to increase state intervention in the mining sector, which has affected their attractiveness as investment destinations, particularly during the recent commodities downturn

- It is worth considering the following examples of the recent regulatory trends:

Guinea, Ghana, Tanzania, Democratic Republic of Congo and South Africa

- It is useful to track these countries’ scores over the past five years on the Fraser Institute’s Investment Attractiveness Index, which is weighted 40 per cent by policy (regulatory attractiveness) and 60 per cent by mineral potential (geological attractiveness).



- Guinea possesses the world's largest deposits of bauxite for the production of aluminium and major high grade deposits of iron ore

- President Alpha Condé, soon after taking office in 2010, declared that the 1995 Mining Code would be revised to increase the state’s share of mining revenue. All major mining development agreements would be subject to renegotiation

- The new Mining Code took effect in September 2011:

- giving the state 15% free equity participation in all companies holding titles for exploration or exploitation of bauxite, iron ore or gold, with an option to acquire another 20% on terms to be agreed with the mining company

- creating a new state-owned miningcompany, Soguipami, to hold and administer the state's shares as well as mining properties surrendered to the state

- introducing immediate tax and royalty changes, notwithstanding the stability guarantees in the 1995 Code and mining agreements signed under that law

- requiring mining companies to hire and train local employees and to procure goods and services from local sources

- The industry resisted the reforms, and the state almost immediately “suspended” the new fiscal terms and in effect did not enforce the remaining provisions

- This created real uncertainty in the mineral regulatory framework

- To address the criticism against the 2011 Code, the government introduced a 2013 Bill completely overhauling the fiscal provisions of the 2011 Code, but also providing for mining titles to be withdrawn for a mining company’s failure to withhold and remit capital gains tax due following a sale of shares or an indirect change of control

- In the Fraser Institute’s Annual Survey, Guinea fell from its ranking of 76th in 2011 to 91st in 2012, recovering in 2013 and 2014 to 78th and 76th respectively, but plummeting in 2015 to 103rd out of 109 jurisdictions (joining the ranks of the ten worst mining jurisdictions in the world)


- Ghana is Africa’s second-largest and the world’s sixth-largest gold producer

- The 2006 Minerals and Mining Act echoed the Washington Consensus (resulting from a process started in 1995 with the assistance of the World Bank), creating a regulatory regime more attractive to investors than its 1986 predecessor:

- setting specific time frames for processing applications for the acquisition, transfer and mortgage of mineral rights

- providing for stabilised mine development agreements with foreign investors

- removing the windfall profit tax

- establishing a modern mineral cadastre to prevent overlapping mineral rights

- significantly reducing administrative discretion in the grant, renewal and transfer of mining rights

- In the wake of the commodities boom, however, government policy started moving in the direction of greater state intervention

- In its 2012 budget, the government made provision to reintroduce the windfall profit tax at 10%. As a result of declining gold prices and the threat of significant job losses, the government subsequently put this proposal on hold

- At the same time, the government established a committee to renew and re- evaluate stability agreements to ensure that they yielded better social and economic returns. By 2015, new agreements had not been reached, causing uncertainty and a loss of investor confidence

- In 2014, the Minerals and Mining (Amendment) Law amended the 2006 Act, among other things, removing the fixed five per cent royalty and empowering the Minister of Lands and Natural Resources to prescribe new rates by regulation

- In the Fraser Institute’s Annual Survey, from its enviable ranking of 17th in 2011, Ghana fell to 38th in 2012, and then fluctuated from 30th in 2013 to 44th in 2014 and 31st in 2015. This is indicative of the regulatory uncertainty wrought by the 2012 and 2014 reforms


- Tanzania is Africa’s third-largest gold producer and the world’s only known source of tanzanite

- In April 2010, Tanzania adopted a new Mining Act:

- providing for free state equity participation in large-scale mining projects

- confining mineral rights for small-scale mining and gemstone mining to Tanzanian citizens or corporations exclusively controlled by Tanzanians

- authorising the negotiation of mine development agreements with companies investing US$100m or more, which may include a free state carry

- increasing royalty rates and changing their basis from net to gross value

- requiring mining licence applications to contain a plan for procurement of local goods and services

- In 2016, the Tanzanian government approved new Minimum Shareholding and Public Offering Regulations, to ensure that the benefits of the mining sector “are shared more equitably between multinational mining companies and the state”

- requiring existing holders of special mining licences to list at least 30 per cent of their shares on the Dar es Salaam Stock Exchange

- require holders of special mining licences to have a minimum of 30 per cent local ownership of all paid up shares

- empowering the Minister for Energy and Minerals to revoke the special mining licence of a company which failed to comply with these regulations

- In the Fraser Institute’s Annual Survey, Tanzania slid from its ranking of 43rd and 41st  in 2011 and 2012 respectively, to 65th, 52nd and 69th  in 2013, 2014 and 2015


- The DRC is the world’s largest cobalt producer, Africa’s largest copper producer and a major source of diamonds, gold, tantalum and tin

- The current Mining Code of 2002 strikes a relatively reasonable balance between the interests of the government and the private sector:

- basing the grant of mining titles on the “first-come, first-served” principle, permitting the Minister of Mines to submit a mining title to tender (open or closed) only in exceptional circumstances

- allowing foreign companies to operate without a local partner, but giving the state a five per cent free carry

- requiring small-scale miners (where investment is less than US$ 2 million and reserves do not exceed ten years of operation) to operate through a local company in which local investors own at least 25 percent of share capital

- restricting companies to a maximum of five per cent foreign employees for management staff and ten per cent for other positions

- In 2007, a review of DRC mining contracts recommended that 37 contracts should be renegotiated and 24 terminated. As DRC mining contracts are not public, it is difficult to know the full extent to which this was implemented

- In 2012, the government announced its intention to reform the mining code:

- prohibiting companies from sterilising deposits (i.e. minimum work quotas)

- restricting the freedom to transfer rights and shares in rights

- increasing the state’s free carry from five per cent to thirty per cent

- increasing royalties on copper, cobalt and gold from three to six per cent

- imposing local beneficiation requirements

- In February 2016, at the Mining Indaba, the Mines Minister announced that the government had abandoned these proposed reforms

- In the Fraser Institute’s Annual Survey, the DRC fell from 54th in 2011 to 75th in both 2013 and 2014, but recovered to 67th in 2014 and 60th in 2015


- Despite depressed commodity prices and a mining industry struggling to remain profitable, the SA government remains determined to impose further regulatory requirements on the industry

- The 2013 Mineral and Petroleum Resources Development Amendment Bill

- essentially confers legislative powers on the Minister of Mineral Resources, and widens his administrative discretion (to an extent that is unconstitutional)

- requiring prior Ministerial consent for the transfer of any interest in an unlisted company and a controlling interest in a listed company (which will have serious implications for capital markets involved in trading South African securities)

- empowering the Minister to designate any mineral or mineral product for local beneficiation, prescribed quotas of which must be offered to local processors at “mine gate” prices, failing which they may not be exported without prior Ministerial consent (which amount to an export licensing regime and thus a quantitative restrictions on exports, prohibited by the GATT and the SA-EU Trade, Development and Cooperation Agreement)

- The 2013 Bill was first passed by Parliament in 2014 but was referred back by the President over procedural and substantive concerns about its constitutionality

- A revised version of the Bill was passed by the National Assembly on 1 November 2016, which does not address the President’s substantive concerns, and will now be processed by the National Council of Provinces. It will be finalised in 2017

- In April 2016, the Minister unexpectedly published a draft new Mining Charter (a third iteration of the black economic empowerment policy for the mining sector):

- retrospectively abolishing the "once empowered, always empowered" principle (which was already the subject of litigation brought by the Chamber of Mines)

- Narrowing the pool of eligible beneficiaries for employment equity and preferential procurement, as well as drastically increasing the quotas for both

- increased the social contributions required of mining rights holders

- On 16 November 2016, a revised version of the draft Charter (apparently ignoring most of the Chamber of Mines’ concerns) was presented to Parliament and a final version is due to be published in December 2016


- The African Mining Vision and a sense that African mineral jurisdictions were not obtaining a fair share of resource rents has led to an upsurge in resource nationalism in the noughties, particularly in the wake of the post-2000 commodities boom

- This was combined with the end of the Washington consensus following the global financial crisis in 2008-2009

- The end of the commodities boom in 2014 has created considerable fiscal pressure on African mining countries

- Some have by and large responded pragmatically (DRC and Ghana), while others have become more interventionist (Guinea, Tanzania and South Africa)

- As commodity prices recover, will resource nationalism resume?