How Can Investors Navigate the Regulatory Landscape Across Jurisdictions in Africa?

Q&A with Aimé Emmanuel Yoka, Managing Partner, Marys Capital Investments

How Can Investors Navigate the Regulatory Landscape Across Jurisdictions in Africa?

The uptrend in resource nationalism should definitely be at the top of their agenda. Some of this is prompted by rising commodity prices, upcoming elections, local content requirements, and the desire by local authorities to capture a bigger share of the profits. When entering this space, investors should carefully review the Maplecroft Resource Nationalism Index for each country and cater for potential changes to the existing legislations and, in particular, mining codes. Having said that, they also need to understand the great variety in jurisdictions across the continent and the fact that some countries are quite stable. Botswana is a case in point.

How can newcomers navigate this type of regulatory landscape?

From experience, we tend to see that projects which fail or run into trouble are those that have neglected putting in the proper due diligence from project inception, not least of which pertains to the choice of local partners. The regulatory environment tends to be highly unpredictable – as was demonstrated by the recent drive by the central banks to revamp their monetary policies with measures such as the mandatory repatriation of funds or the restrictions to hold offshore accounts. Newcomers also tend to appoint expats with good industry or management knowledge but with little experience operating in the local environment, especially when it comes to government interactions. In this type of landscape, one must ensure rock solid agreements with stabilization clauses and the ability to raise disputes at an international level through investment treaties or mining conventions so that any breaches will not be dealt with by the local courts.

What are some of the most interesting investment opportunities you’ve seen over the past few years?

Gold immediately comes to mind given the current bull run, with prices breaking the US$2,000 level in 2020 and with its resilience during times of uncertainty. In recent years, good investments in West Africa have contributed to gold production rising by 60%, with Ghana, Mali, and Burkina Faso combining for a total of 6.7 million ounces per year. In the long run, cobalt, lithium, and copper should present excellent opportunities, especially as countries continue to place a higher focus on energy transition issues.

Where do you like to focus your investments?

We like investments that do not require large infrastructure spending on either rail or port. Precious metals are especially attractive, although they tend to be available in jurisdictions that require a higher level of due diligence or with stiffer competition.

What sort of impacts did you see from COVID-19 on the mining and investment industry across Africa in 2020?

The ongoing pandemic is still having a negative effect on mining projects, despite the sector being known for its safety discipline. We do note, however, that impacts vary by company size and project development stages. For those projects still in the exploration phase or financing, the impact has been relatively muted, but projects in production have been hit by government curfews and restrictions on movements amid rising numbers of cases. Nowhere is this more evident than in South Africa where more than 5,000 mineworkers have tested positive for the virus. This has reduced production by nearly 30% year on year.

With respect to investment, it has dried out in line with other industries as most investors implement cash conservation strategies due to the ongoing uncertainty.

Where do you see recovery coming from as we move forward into 2021?

Recovery started in late 2020, with some commodities rallying to record or decade highs, most notably copper and iron ore. This was due in part to demand from China, despite the supply constraints we saw on a global scale. Going forward, hopes of the new vaccines will renew investors’ appetites, especially as some assets are relatively cheap under the current environment. The drive from various governments to impose stiffer screening measures around mining sites should also boost sentiment and confidence that it is safe to return to operations.

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