The Road to Recovery

Southern Africa’s perseverance and battle with Covid

Covering around 6.8 million square kilometres, bordered by the Indian and the Atlantic Oceans, Southern Africa is blessed with approximately half of the world's vanadium, platinum and diamonds, in addition to 36% of gold and 20% of cobalt, inevitably making the economic narrative of Southern African states inextricably intertwined with their mining sectors. If petroleum reserves are excluded, South Africa alone is estimated to host US$2.4 trillion worth of non-energy minerals, granting it the title of the wealthiest mining jurisdiction in the world, according to the International Monetary Fund (IMF). Nonetheless, the region's geological wealth has not been translated into significant economic development and society remains plagued by inequality and poverty, which were only worsened by the outbreak of Covid with the resulting lockdowns.

Throughout 2020, investments in the region were at risk as mines were placed on care and maintenance and production was halted for a period of time. The region is still contending with this unprecedented health crisis, especially parts of Southern Africa that witnessed the emergence of more infectious variants of the disease. According to the African Development Bank (AfDB), Southern Africa was hit hardest on the continent. Even though it is projected to recover and witness an economic growth of 3.1% in 2021, it saw an economic contraction of 7% in 2020.

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“We are witnessing an average of 50 to 60 life-threatening crimes per day in South Africa. The government should be more proactive in creating a more favourable environment for foreign investment when it comes to security.”

Zhimin Li, CEO, Wesizwe

Meanwhile, the long-awaited global recovery in 2021 will be distributed unevenly across the world. As developed economies secure enough vaccines to cover their population twice, African nations with fewer options and limited purchasing power struggle to vaccinate even the minority of the population. The slow vaccination rate is partly caused by vaccine scepticism and issues concerning distribution, such as the lack of health infrastructure staff. According to the IMF, it is unlikely that many African countries achieve widespread availability of vaccines before 2023. "The vaccine roll-out has been slow as we live in a vaccine-constrained environment. Nonetheless, the industry has put forward 55 mining sites to act as vaccination facilities," commented Roger Baxter, CEO of the Minerals Council in South Africa. "These sites will at least cater for the industry's workforce of approximately 450,000 people, but the industry is committed to supporting vaccination efforts for employee dependants and mining communities, either directly or in kind, and would hope to reach at least another 2.5 million people."

On the other hand, Botswana could be the first African country to vaccinate its entire population, and in Namibia, general scepticism is slowing progress, as half of the Namibians say they are unlikely to get vaccinated even if the government provides additional reassurance regarding the vaccine's safety, according to an Afrobarometer survey published in early June 2021.

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The health crisis has also caused a surge in government financing needs, which will result in a surge in the average debt-to-GDP ratio around the region, which is expected to increase by 10 to 15% in 2021, according to the AfDB. Most countries will require fiscal consolidation policies to ensure their debt is kept at sustainable levels.

While the pandemic poses a significant risk to mining investments in Southern Africa, the region must also battle with corruption, inequality, insecurity and a lack of stability. According to data from the World Bank, there seems to be a correlation between mining's contribution to GDP and inequality around the region's main mining players, with the exception of Botswana. The worsening socioeconomic inequities and political tensions undermine confidence in Southern African economies, especially in Mozambique, where the growing insurgency in Cabo Delgado is stirring age-old social issues and ethnic rivalry, and in the region's mining giant, South Africa. Zhimin Li, CEO of Chinese-owned Wesizwe, the Bakubung platinum mine operator, explained that security is one of the group's biggest operational risks in South Africa. "We are witnessing an average of 50 – 60 life-threatening crimes per day in South Africa. The government should be more proactive in creating a more favourable environment for foreign investment when it comes to security," he said.

Mining has made a notable impact on Southern African economies due to its considerable economic multipliers that create positive spillovers such as employment, training and government revenues. Research from the World Bank published in 2019 that weighed the costs against the benefits of the industry in Southern Africa indicated that the net benefits of mining are positive in the region as it created linkages in the region's economies for the development of value chains. This report will explore the industry’s supply chain and investigate its implications for the region’s economic development.

Image courtesy of Vedanta Zinc International