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Global uncertainties to drive FDI in Africa’s mining sector

9th February 2017

By: Ilan Solomons

Creamer Media Staff Writer

     

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CAPE TOWN (miningweekly.com) – The uncertainties surrounding geo-economic trends, including Brexit, Donald Trump’s election as US President and increasing efforts by China to dominate the global economy, may not bode well for global political stability but could present opportunities for Africa, says global law firm Baker McKenzie managing partner Morne van der Merwe.

Speaking on the sidelines of the Investing in African Mining Indaba, in Cape Town, this week, he said conflicting views by the west and the east on economic globalisation could well present an opportunity for Africa.

“While there is continuing insecurity in the South African mining industry as a result of persistent regulatory [uncertainty], labour unrest and inadequate infrastructure, the different global headwinds could potentially drive foreign direct investment (FDI) in the African mining sector and the development of [mining] infrastructure, in particular,” Van der Merwe suggested.

Baker McKenzie associate Janine Howard noted that China was one of Africa’s largest trading partners, a relationship that was largely fuelled by China’s “insatiable appetite” for energy and minerals.

She added that South Africa, in particular, was China's largest trading partner in Africa and had solidified this position with significant encouragement for Chinese investment into various industries, including mining, beneficiation and manufacturing.

CHANGES: EAST TO WEST
Howard noted that developments over the past six months had contributed to a strong shift towards greater contraction and nationalist agendas in the west. “Brexit is aimed at separating the UK from the European Union in an attempt to, among other things, regain control over trade and immigration policy. At the same time, Trump has shocked the world by following through with many of the plans espoused during his election campaign,” she explained.

Conversely, Howard said, in “stark and surprising contrast”, China – the largest developing country worldwide and the second-largest economy after the US – had opted to take a strong stance in favour of globalisation and, in particular, economic globalisation.

She pointed out that this was evident in China’s approach to investment and was further cemented by China’s President Xi Jinping during his speech at the World Economic Forum, in Davos, last month. Xi acknowledged the controversies inherent in economic globalisation, but stated that “we should adapt to and guide economic globalisation, cushion its negative impact and deliver its benefits to all countries and all nations.”

Howard noted that Trump’s “pro-America policies” had included a strong stance against China and imports of Chinese goods into the US. “The controversial new President has even gone so far as to call China ‘public enemy number one’, thereby sparking fears of a trade war, including speculation that tariffs would be introduced for Chinese imports.”

However, averred that, despite Trump's strongly expressed anti-China sentiments, his actions since taking office have actually benefited the Asian economic powerhouse.

She highlighted that one of the first things Trump did was to ensure that the US formally withdrew from the Trans-Pacific Partnership (TPP) with immediate effect. The TPP was intended to be a trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the US.

She pointed out that this agreement purposely excluded China and was aimed at, besides other things, promoting economic growth, good governance and labour and environmental protections and practices among member States. However, the US’s withdrawal from TPP was a “major blow” to the agreement and has created a trade lacuna in Asia that China will no doubt move to fill.

Howard said that while it was still only the early days of the Trump administration, which was resulting in a “tumultuous” period for the global economy, China’s strong supportive stance on economic globalisation and its clearly articulated and executed intentions to invest in Africa and, in particular, South Africa boded well for the future of the local mining industry.

Moreover, Van der Merwe emphasised that greater investment into the mining sector, as well as the beneficiation and manufacturing industries would only improve South Africa's economy in the years to come, provided South Africa was able to create an environment agreeable to such investment.

“We are on the brink of the next commodity boom and, if timed right, there are huge benefits to gain. However, we must first fix the current state of affairs within the industry.

In fact, it may be the fruits won from international instability that aid South Africa in fixing certain domestic factors and ensure prosperity and longevity of the mining industry,” he concluded.

Edited by Creamer Media Reporter

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