As old alliances and economic ties are redrawn or torn up, Australia has a chance to improve relations with Africa. And the Federal Government could do worse than lean on its mining sector to provide support.
Australian-African relations have never been described as strong but what relationship there is can be largely framed through the massive investment made by Australian mining, exploration and METS companies, which can be conservatively estimated to be at least $60 billion.
Australian companies are active in more than 25 African jurisdictions and often they are the first foreign investors on the ground, willing to explore in countries deemed unattractive by most sectors.
Australian government should be leveraging this advantage but there are many in government who appear to get squeamish about the idea that Australia’s reputation in Africa is foremost as a mining country. Perhaps they’d rather we were thought of as a leader in IT, renewables or advanced manufacturing, but everyone on the continent knows all those areas are firmly dominated by China.
Neither can we provide defence assistance, infrastructure projects or, these days, even a meaningful aid budget.
What we can provide, however, are the skills, the regulatory knowhow and some of the capital to build sustainable mining industries in these countries.
When I say sustainable, I don’t exclusively mean environmentally and socially acceptable – although these are critical, particularly in Africa – but industries which can begin to sustain themselves, creating local enterprise and economic upliftment long after the initial investor has taken their returns and left.
African governments are eager to learn from the Australian experience, how our federal and state governments have been able to strike the balance between being “open for business” and building thriving local economies.
It is a balance many countries struggle with. It is hard to argue that Africa hasn’t been short-changed in previous mining booms and it is understandable many are grappling with ways to ensure they don’t miss out on the current gold boom. In the past, foreign investors have been too savvy for local authorities, avoiding paying their due with sophisticated tax minimisation schemes which largely underfunded, inexperienced government departments cannot match.
This often leads to a popular backlash against foreign miners and governments are forced to react. Whether they use a surgical knife or a sledgehammer becomes the issue.
Recent decades have seen countries such as Zambia, Tanzania and more recently Mali wield the latter, with governments ripping up agreements and kicking out foreign investors.
Extreme resource nationalism policies and heavy-handed local content laws are not the way to fuel growth, they only work to spook foreign capital, which is vital to every mining industry. Even Australia, the world’s most vibrant mining economy, is incapable of funding new developments without considerable foreign investment.
Capital in the 21st century is highly mobile and so any romantic notions governments may have about 100% locally-owned mines should probably be put aside and they should instead aspire to have sizeable chunks of their mining economies being controlled by local interests.
Investors are prepared to stomach a free-carried government interest, or local investor requirements, as long as they know the terms upfront and are assured they will not be changed. Companies can then make an investment assessment based on a known set of economic factors.
It is a similar situtation regarding localisation of services. Local content legislation is admirable, but just as Donald Trump’s copper tariff will not instantly create new domestic copper mines, no policy or law can magically create a sophisticated local mining contractor, engineer or drilling services provider. And governments shouldn’t expect local mining companies will instantly be able to visit the various financial centres of the world to raise the capital required for ongoing expansions or restarts. Or that local banks will have the risk appetite and intricate mining knowledge needed to fund these unique capital projects.
For all the admirable goals, progress must be steady and unspectacular if it is to be successful. What is needed is the surgical knife, a nuanced pragmatic approach to build policies, legislation and regulation which foster growth, not change the landscape completely.
Populism will deliver headlines, but not new mines.
Australia and Western Australia in particular has played an important role in helping some African countries build such equitable, transparent and investor-friendly frameworks but it has been low-key and mostly poorly funded.
Now, more than ever before, African countries are looking for exactly this kind of support to grow their mining industries and Australian mining and METS companies are looking for overseas opportunities to apply their expertise.
By combining with these global leaders, Australian government has a chance to become a partner of growth in Africa, rather than another provider of aid and pity.