You’ve spoken before about connecting the right investors to the right investment opportunities. What sort of conversations do you see arising with investors looking to get into mining projects across Africa?
It’s very important for me to be able to identify good investors, and by that I mean those who have a passion to not only invest but to go beyond that investment and create an enabling environment for Africa’s SMEs.
Creating more SMEs in Africa is the pathway to unlocking the continent’s potential, creating jobs, and driving growth. Partnering with local companies is a fantastic way to ensure the growth of the domestic market. It’s also important to work with clients who see the value in investing for the long term. You often hear the words “patient capital” mentioned in the same breath as investing in Africa. Projects do not reach completion overnight; Africa is a continent that relies heavily on relationship-building. Projects and financial exits take time, and African opportunities are often slow burners – yet immense – so an investor who can understand that from the beginning will do well long-term.
It’s important for me to understand what projects the investors are interested in and then ensuring that I can present them with several options across the continent. Investors looking to invest in mining projects will be concerned by several issues, the key ones being:
- They need to be sure that their money is being invested in a politically stable and secure environment
- Whether there will be an adequate dividend yield
- Targeting companies with long-term reserves at an attractive extraction cost
- Finding companies that are diversified geographically
- Good local partners on the ground
- Strength of the logistics and supply chain
- My job is to facilitate their investment by meeting these requirements.
How do you assess investment opportunities? What are some criteria that you look for?
I’ve been working with investors for the last 19 years as well as supporting African governments to adequately package investment opportunities. The common mistake is that often African governments assume there is just one type of investor, whereas there are a multitude of investors who require slightly different information or opportunities. These range from venture capitalists, private equity houses, high-net-worth individuals, corporate entities, and pension funds, amongst others.
When I am working with investors, the key thing I look for on an international investor’s behalf is a good local partner on the ground. I’ve got a strong network of contacts, so drawing on those who I know are reliable, are well connected in the jurisdiction and who have worked in that specific space previously are a top priority. I will then be keen to understand whether the project in question has had any feasibility studies carried out – and if not, why? Often this is an indicator as to how much effort/emphasis the government or investment promotion agency has placed on the project’s potential. Often feasibility studies are expensive and time consuming, so this provides me with an opportunity to seek a partner to carry out this work.
Africa is a continent that relies heavily on relationship-building
It’s also important that a business environment has a sound regulatory, legislative framework (free from armed conflict, for example). The Fraser Institute provides some independent insights, but I also rely on the views of my contacts in particular operating jurisdictions. It is also illuminating if the government has created special economic zones (SEZs) and drafted a sound policy and incentive framework to assist in attracting the right type of investors. Many countries across the continent are focused on mass job creation, and industrialization is the way to do this.
With population growth in Africa expected to grow exponentially and a third of the world’s population set to reside there, job creation has never been more important. I have a personal desire to work with companies which have a commitment to leave an impact on the ground beyond investing within the sector, and want to build capacity, whether that’s through educational initiatives, building hospitals, etc.
How does ESG play into these investment considerations? How does it influence the way you work and look at opportunities in Africa?
When I first started working, the big consideration for companies working on the continent was to ensure that they were involved with Corporate Social Responsibility (CSR) initiatives. It’s immensely important in this sector as it is which will always require a social licence to operate in any judication. One company that always stood out to me as pioneer in this regard was Anglo American (LSE: AAL), who I worked with.
They had excellent CSR initiatives and sought to bridge the gap for those who couldn’t afford to pay for their own healthcare. Anglo led the way by investing in the health of local communities and tackling the HIV epidemic in the industry.
In 2000, HIV prevalence in the mining industry was growing and access to treatment was a remote possibility for many. Action was desperately needed. The Anglo American executive team took what was seen as a leap of faith at the time and committed to free anti-retro viral (ARV) treatment for all employees in 2002.
Anglo American later went on to carry similar initiatives in tackling TB in the mining industry and these initiatives were heralded as positive examples of the sorts of initiatives companies need to undertake as a way of ensuring that they are looking after their staff.
Environmental, Social and Governance (ESG) initiatives are now the focus for many companies who are seeking to make an impact with their investment and invest in areas which had previously been neglected. ESG is particularly critical to the mining sector as it seeks to transform mining practices and engagements with local communities. The global focus on climate change across industries has seen mining set ambitious net-zero pathways.
I personally want to align with businesses that see the commercial and moral benefit in supporting the communities in which they are operating, particularly when it comes to capacity building, skills transfer, technical skills and education. Anglo really created a blueprint of what success looks like in terms of ESG investing whilst building a strong, commercial business. Today’s considerations now need to look towards how to support a growing population on the continent, where we expect a third of the world’s population to reside by 2050. A combined effort from both governments and the private sector is needed to ensure that jobs are created ahead of the population explosion.
In what spaces do you see African companies and investors leading the way with regards to ESG?
There is potential for ESG-focused policies to have a very significant, real-world impact in Africa, given its substantial vulnerability to climate change and the governance issues in some parts of the region. The companies and investors who focus on ESG considerations can therefore make a huge difference when operating in the continent. Private equity in particular is very well placed to make ESG policies especially important and impactful when investing in Africa – therefore showing how effective and beneficial ESG can be, and why it should be given increasing prominence worldwide.
ESG policies are increasingly employed by private equity, and having these policies in place can enable investors to have real influence in areas that have great importance in Africa, such as building sustainable, environmentally-conscious businesses that are crucial in a continent so vulnerable to climate change. The increasing presence of ESG policies among private equity investors, together with the potential for these policies to have such a huge impact in Africa, can help to make ESG increasingly prominent by showing how it can be employed to great effect.
What is your perspective on foreign investment into African projects. How do you see different types of investors approaching investing in regional projects?
Africa presents an exciting investment opportunity to many investors with a potential high-yield return on investments.
Despite the rising inflation and insecurity, businesses are growing fast in Africa. Beyond rich resources, the continent is one of the most accessible places to do business. It offers investors a diversification play and despite some of the risk, investments are often immune to the political and financial challenges the continent faces. There are many examples in the mining sector, such as First Quantum Minerals (TSX: FM), whose operations have not been impacted in any way by the economic and financial headwinds Zambia faces.
According to UNCTAD’s World Investment Report 2022, Foreign direct investment (FDI) to African countries hit a record US$83B in 2021. This was more than double the amount reported in 2020, when the COVID-19 pandemic weighed heavily on investment flows to the continent. Despite the strong growth, investment flows to Africa accounted for only 5.2% of global FDI, up from 4.1% in 2020. The largest holders of foreign assets in Africa were led by investors in the United Kingdom (US$65B) and France (US$60B).
The trend has been for international investors to follow DFI capital flow. Traditionally, DFIs have invested in large-scale infrastructure projects, roads, rail, ports and increasingly in the renewable energy sector.
These are all important for laying the foundation for private investment to take place. Large-scale industrialization cannot happen without a strong power base – therefore investing in transmission, distribution and renewable energy supply is critical to Africa’s success story. Several donor programmes have focused their efforts in connecting Africa’s predominantly provincial population to the grid or to solar power supplies. Initiatives such as Power Africa, The Millennium Challenge
Corporation’s Compacts, and DFID’s Transforming Energy Access have paved the way and created an enabling environment for many international and regional investors to enter the market and enable increased energy access.
Another sector that has witnessed exponential growth in recent years is Africa’s financial technology sector. The continent is home to over 500 financial technology firms, most in Nigeria, South Africa and Kenya. According to the World Bank, about 66% of Sub-Saharan Africa’s population is unbanked. The unbanked population is another reason financial technology businesses thrive in the continent. In recent years, we have seen M-Pesa capture the “unbanked” market across East Africa.
The African Continental Free Trade Area (AfCFTA) has and will continue to provide opportunities for intra-Africa trade. The AfCFTA, which came into force on 1 January 2021, has established the largest free-trade area in the world. It consolidates a market of about US$1.3B in 55 AU member countries with a combined GDP of US$3.4B.
Deeper regional and continent-wide integration will boost incomes, create jobs, catalyse investments, and facilitate the development of regional supply chains. Intra-African trade remains small compared with the continent’s external trade. I’ve recently engaged with an East African entity seeking to JV with a West African operation as a means to boost regional trade with a view to the export outside of Africa.
As the energy transition continues to gain pace globally, the mining industry is focused on the growth of the battery and other critical materials industries. We’ve also seen many countries around the world putting regulations in place to maintain the security of these key resources. What do you see happening across Africa in this regard?
As the renewable energy transition drives the demand for critical minerals and rare earth metals, the world is increasingly looking to Africa as the continent represents substantial opportunities for economic development, particularly in the mining sector. However, critical minerals bring new challenges to energy security.
Demand has increased for rare earth minerals (REE), including cobalt, copper, and lithium. These are essential components in producing renewable energy technology, from electric vehicle batteries to wind turbine blades. REEs also play a key role in manufacturing semi-conductors and other electronics.
Thankfully, African countries are increasingly looking at how to strengthen local content regulations in the mining industry in a similar way to the oil and gas industry. Both the African Union’s Mining Vision (AMV) and the Southern African Development Community’s (SADC) Regional Mining Vision (RMV) emphasize the importance of realizing the mineral extraction and processing linkages, and particularly the mining supply chain linkages, by increasing local content. Zambia late last year looked at options for establishing a Local Content Regulatory Unit for its mining sector. Tanzania and Mozambique are following suit and re-drafting local content regulations and are continuing to bargain for better contracts. The goal is not just to ensure higher national revenues, but also to address long-standing community concerns about environmental pollution and compensation for people displaced by mining operations.
In contrast, Botswana is one of the few countries in Sub-Saharan Africa that has truly benefited from its mineral wealth and downstream beneficiation. Revenues from diamond mines, combined with sound economic policies, have helped build infrastructure and kept its economy stable. The challenge for Botswana now is to diversify its portfolio and create an enabling environment for industrial growth in other sectors.
In short, there are strong indicators that African nations are seeking to enhance or re-draft mining contracts to create further opportunities for job creation and economic growth. However, this is a critical time in Africa’s history, and without robust policies, Africa will not fully benefit from its mining wealth. The importance of critical minerals to the energy transition and future economic growth is undeniable.
It is crucial that access to these resources is managed in a way that will benefit communities in Africa and consider environmental, cultural, political, and social considerations.
