What is the future of the mining sector in Namibia? Will the mining sector continue to be an important contributor to the economy?
These are important questions to be asked, especially when we all know that mining deals with finite resources.
In Namibia, the history of mining dates back to 1851 when people from northern Namibia started to smelt surface copper deposits to make agricultural implements. Diamond mining started in Luderitz way back in 1908. Thus mining in Namibia is not recent; it has a long history. It is therefore important to speak about the future sustainability of mining.
For any mining operation to take place, a mineral deposit must be found. Not only must one find a mineral deposit but such deposit must also be of a certain quantity and quality to make economic sense. It is therefore important for us to have a good understanding of what minerals do exist and in what quantity and quality.
It is for this reason that government will continue to invest in the necessary skills to ensure that we have current geological maps that will make it possible to identify potential mineralisation. I encourage all those involved in the geo-science community – in and outside the government – to continue to champion further investment in geo-science; to discover new technologies that will make mineral resource assessment more effective. In this respect, I challenge all the mining companies operating in the country and the Chamber of Mines to invest directly with our institutions of higher learning in building the necessary skills. It is in the best interest of the future sustainability of the mining industry.
Without current maps, it will be difficult to attract the necessary investment in mineral exploration. It could also mean that we will allow mineral exploration in area 6 where there is no potential for mining and the result will be environmental degradation. Inherently mining exploration is a risky investment.
Looking for minerals is like the proverbial needle in a haystack; it is extremely difficult. It therefore makes sense that investment in mining exploration is more likely in countries were good and current geological maps do exist. Another factor that is important for the future sustainability of the mining sector is the mining legal framework under which mining activities take place.
You cannot sustainably manage an important sector such as mining without an effective mining legislation that regulates the conduct between the State and the investors; between the citizens and the investors. As we all know, there are good laws and there are bad laws. We also know that at times a law is characterised as bad or good depending on whose interest is affected.
A good law is that which is able to strike a balance between the varied interests of all the stakeholders; a good law is that which does not unfairly and unreasonably favor a particular stakeholder because of a perceived strength of such a stakeholder.
A good law is that which is flexible enough to recognise the ever-changing mining environment brought about by technology and by the international market nature of minerals.
Speaking of legislation, when one talks to investors in the mining sector, one of their concerns is policy uncertainty. They fear countries that change their policies and legislations such that the new changes threaten the financial viability of the already concluded mining investment.
They thus insist on signing mining investment and operation agreements that prevent future changes in policy and legislation. I fully understand and appreciate that change in policy and legislation can have debilitating effect on the profitability of any investment, especially those to do with taxation.
It is, however, unrealistic for investors to expect no change in policy or legislation during the duration of their mining investment – some investment in the mining sector can be as long as 30 years.
We do have mining companies, the likes of Namdeb, that date back 100 years ago; or Rossing Uranium that exist for more than 40 years. It is also true that the global mining environment is an ever-changing one such that archaic policy and legislation become a hindrance rather than an enabler.
What is important – and it is what we have been doing – is that when a change in policy or legislation becomes inevitable and such change will have an impact on existing investment agreements, such change must be negotiated with the existing investors.
As you are aware, the ministry of mines is currently accelerating the review of the mining legislation and the Chamber of Mines has been a participant in this process. It is our intention to finalise the review before the end of the year.
There is no doubt that over the centuries, mining became a backbone of many economies – both in developing and developed economies.
Many industries that we know of today - from information communication technology to agriculture - cannot exist without minerals and the products made from such minerals. Many African economies have fairly well developed mining sectors.
Here at home, mining is an important sector of the economy, contributing 14 percent to our GDP in 2018. During the same period, the sector employed 16 221 employees directly and 6 681 as contractors. The sector also contributed N$2.1 billion in royalty payment and N$1.7 billion for tax on profit. In 2018, the total tax on profit collected from the whole private sector was N$6.9 billion.
When comparing the two figures as mentioned above, the mining sector alone contributed about 24 percent to the total tax on profit in 2018. It is therefore no wonder that the citizens are interested in knowing to what extent are they benefiting from their natural resources.
To date, we have about 16 operational mining companies. Of those, five are 100 percent foreign-owned, and only 11 have local ownership, except that no local ownership exceeds 20 percent, with the Namdeb arrangement being an exception.
This is despite the fact that over the years, a huge majority of the issued mineral exploration licenses have been granted to Namibians. And by the end of 2018, more than 60 percent of all EPLs granted were issued to Namibians. It is also the case that in most cases the local ownership is not beneficial ownership because it is financed with loans provided by the majority shareholder.
In such instances the agreement is that the dividend, if any, that would have accrued to the local shareholder will be utilised to service the loan and no dividend will be paid to the local owners until the loan is fully repaid.
This is certainly not an economic beneficial arrangement. One of the most difficult issue that we need to address when it comes to local ownership is that of financing. We know that mining is a highly capital intensive undertaking. However, it is not impossible for serious local entrepreneurs from different professions, in collaboration with the foreign investors, to put together a credible funding proposal to those with capital.
In my conversation with some foreign investors, the issue of local ownership is at times viewed as an irritant, as something that can be wished away. This is a fallacy and a mistaken view. There is a legitimate expectation for local ownership and the sooner we address this concern, the better it is for the future sustainability of the mining sector. I would also like to tell local entrepreneurs who wish to venture into mining that it is not a walk in the park that everyone can do. The allure of success in the mining sector is at times misleading; the seemingly glamour of the sector can at times be more than real. It takes real hard work and dedication.
A related issue to local ownership is the question of government ownership in mining companies. There is a growing call that it must be mandatory for the government to have shareholding in mining companies.
Again, this call is from those who hold the view that the economic benefit from the mining sector is not being shared equitably. We do not currently believe that government direct ownership in mining companies is the best solution to cure the problem of the lack of local ownership.
However, to be fair to those who believe this to be the best cause of action and not to dismiss their view out of hand, we are undertaking public consultations to fully understand the origin of this view and how best it can be addressed.
* Tom Alweendo is Namibia’s Minister of Mines and Energy. He made the remarks (abridged in this piece) at the Mining Expo held in Windhoek this week.