Disruption in the African mining and natural resources sector
03 Jul 2019
Despite concerns regarding regulatory and policy uncertainty across Africa, as demonstrated by the implementation of radical new laws in Tanzania, and the publication of the third version of the Mining Charter in South Africa, perceptions surrounding corruption and nepotism, and inadequate infrastructure (water, roads, electricity and ports), there are a number of current and potential investors who hold a positive view of investment in Africa, including the natural resources sector.
These positive views generally have their basis in the potential that Africa has as a market and its source of mining and natural resources. These positive views also often acknowledge the improvement of investability of many African countries for various reasons including mature banking, finance and legal institutions, investment-friendly policies and regulatory frameworks, and national development plans which demonstrate governmental support for sustainable infrastructure and development.
These positive views do not of course mean that there are no concerns regarding investment in the African mining and natural resources sector – to the contrary, many of the positive views acknowledge the primary challenges of regulatory and policy uncertainty, corruption and nepotism, inadequate infrastructure, political instability, the high costs of production (which now includes pricing the risk associated with regulatory and policy uncertainty), and community and other stakeholder activism, which results in the requirement of one of the most significant “licences” namely the social licence to mine.
Those investors that are still active in Africa or want to become active in Africa, seem to be adopting a more realistic view in relation to the potential returns, on the one hand, and the current realities of doing business in Africa, on the other. This equation still seems to be in favour of investment i.e. while super-cycle returns appear to be a thing of the past, there are still good returns to be made provided that investors and mining companies manage the expectations of the investment community, to realistic levels, and acknowledge the significant challenges facing the mining and natural resources sector in Africa, while at the same time, embracing the opportunities that Africa has to offer.
To effectively and efficiently embrace these opportunities, there are certain non-negotiable, key factors that need to be managed. Some of these key factors are often overlooked in circumstances where they should not be overlooked, because they are or can be primary disruptors. These key factors include: understanding the current and predicted political landscape in the relevant country; understanding the geographical location of the prospecting and mining sites (with particular emphasis on isolation); acknowledging that infrastructure development has both a political and commercial imperative i.e. open source and co-operative arrangements will be required for a successful infrastructure development project; acknowledgement that a mine, once established, often needs to step into the shoes of government in relation to service delivery (roads, electricity, ablutions, etc.); acknowledging the importance of key stakeholders such as the communities; understanding the criticality of obtaining the “social licence to mine”; and acknowledging the importance of a co-operative approach and development of a sound relationship with the regulators responsible for the licencing of prospecting and mining operations. A holistic, regional approach and strategy contributes to the successful development of mining projects.
The African mining and natural resources sector has contributed, significantly, to innovation which has been exported to the rest of the world. There are two potential threats to Africa’s role in this regard. Firstly, if the African mining and natural resources sector does not fully embrace the fourth industrial revolution, more commonly referred to as “Industry 4.0”, it may be left behind. Secondly, Africa’s relatively isolated historical position has forced self-reliance, and while globalisation is generally viewed in a positive light, there is a concern that globalisation is creating an automatic “culture of no” because of the structures, restraints and thinking that often comes with globalisation, and which cuts across or could cut across Africa’s “can do” approach to things.
There have been a number of drivers which have forced the African mining industry to focus on mechanisation, in the interim, and ultimately, on automation. These drivers include the high costs associated with mining operations. While there have been significant increases in the costs of employment, which has been on an expected trajectory, relatively recent costing of the risk associated with policy and regulatory uncertainty, is playing a more substantial role in high mining costs.
These factors are making the shift from digitisation, the primary feature of the third industrial revolution, to systems based on a combination of connected technologies, inevitable. This shift to the connectivity and combination of technologies, is the key feature of the fourth industrial revolution, and it is essential for the African mining and natural resources sector to fully appreciate the changing environment, and to innovate, as part of the cycle of continuous improvement.
While there is still extensive debate on what the fourth industrial revolution means and the consequences of blockchain payment platforms, innovation is likely to be substantially based on the Internet of Things (IoT). With the historical focus (third industrial revolution) on information technology and digitisation around people and IT processes communicating, the IoT focuses on equipment and machines communicating with one another on a continuous, real-time basis. This concept is unlikely to be new, to Africa’s mining industry, that has, for some time, focused on real-time monitoring of machines and equipment for production purposes. However, what will be a major disruptor, going forward, is the scale of the connectivity and levels of communication between equipment and machines. There is also likely to be a shift, particularly in relation to original equipment manufacturers, from only providing machines, to providing a fully managed solution to the mining industry. Equipment and machines that are supplied by original equipment manufacturers as products will form part of a network, allowing, not only real-time monitoring, but also management and adjustment to optimise production levels.
The IoT is also likely to have a significant impact on one of the most important elements, namely healthy and safe production. The ability to monitor, manage, and identify what has gone wrong, is likely to improve health and safety at African mines.
While there is likely to be robust debate on the fourth industrial revolution and the IoT, including fears that society will be roboticised, IoT is likely to be the single most significant disruptor of the African mining industry in the foreseeable future, and the reality is that several of the supporting platforms are already in place, such as cloud-based storage and analytics, low-energy wide area networks, and 5-G cellular.
With the advantages of IoT, there are of course, a number of challenges including the vast amount of data that will be produced, which will need careful management, not only in relation to its efficient use, but also, compliance with legal requirements on privacy and data storage protection. Perhaps however, one of the most significant impacts and challenges could be on employees. The South African mining industry is again facing large scale dismissals and perhaps fears of the IoT and its consequences, may be justified. Importantly however, the opportunities created by the IoT are widespread, with a strong emphasis on a strong skills base. The mining industry would need, in this context, to carefully review its training programmes and its skills investment.
For Africa to develop a long term sustainable mining industry, in addition to addressing key challenges that I have mentioned, Africans need to be respected for their “can do” approach, and the acknowledgement that solutions to these challenges cannot simply be implemented without taking into consideration the vast interests of the multiplicity of stakeholders that are essential ingredients to the success of the mining and natural resources sector. Within this context, we may find it easier to address challenges and break through the walls that are put up, sometimes, unnecessarily.
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