Reduction in sovereign risk linked to mining in Africa

The political environment in Africa has stabilized, meaning that sovereign risk linked to mining investment in the continent has reduced.

This was the view of PwC Partner, Ben Gargett, one of Australia’s leading experts on African resources sector taxation laws. Speaking at the Paydirt 2017 Africa Down Under mining conference in Perth, Gargett said the timing of this improvement was ideal – coinciding with the resurgence of the mining sector, which has been a key driver of economic growth on the continent. “Africa is changing. The political environment has stabilised,” Gargett said.

PwC“Despite the challenges the mining industry has faced in recent years, increasing commodity prices, the levels of global investment pouring back into resource projects, and the market rebound for mining services companies, shows positivity has clearly returned to the sector,” he added.

Gargett used the conference to unveil PwC’s latest report, ‘Two steps forward, one step back – the African tax landscape’ - an economic analysis of a standard gold mine operating under the same conditions, with the same assumed capital and operating costs, across four different African countries - Tanzania, Namibia, Ghana and Egypt.

He said the question remains – how do African countries capitalise on the positive market conditions to strike the right balance between tax and revenue measures, while still allowing sufficient return on the capital invested by miners to allow these investments to occur in the first place?

He also added that analysis by PwC showed that Namibia continues to be the only country that generated a sufficient Internal Rate of Return (IRR) to allow a clear decision for the mine to go ahead. The same analysis shows no mining project would be viable in Tanzania given its recent changes to its tax laws.

“Despite the introduction of a 1% export levy in Namibia since 2015, it continues to be the only country which generates a sufficient IRR to allow a clear decision for a mine to proceed,” Gargett said. He added that while the Namibian tax take may at first glance appear lower than the other countries, it is the only country that is highly likely to receive any taxation revenue at all.

Gargett pointed out that while the mineral resources in the ground are not mobile, the capital that funds the development of those resources is. “So, the race is on between nations to attract the investment dollar,” he said.

 

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