At the 2023 African Mining Indaba conference in Cape Town, the largest of its kind in the world, political leaders and top executives described a rapidly changing global environment that has made mining operations increasingly difficult, with no jurisdiction, particularly on the African continent, devoid of risk. Miners discussed how they are expanding into new or unfamiliar geographies, driven by the need to sate growing appetites for raw materials necessary for the green energy transition.
Three years ago, prior to the global pandemic, the discussion at Indaba primarily centered on growth prospects and cost efficiencies. In 2023, by contrast, business leaders at the conference said they are experiencing a much more difficult reality: given geopolitical shifts, global companies are now focused on how national interests intersect or collide, as well as how these dynamics will have implications for their businesses.
There are two main drivers that have brought us to this place. First, the war in Ukraine and sanctions on Russia that continue to disrupt supply chains and trade flows, prompting conversations about whether national leaders and businesses should be forced to take a side. Second, competition with China has brought attention to the pace and severity of protectionism and “decoupling” from the West, both of which would be gravely accelerated by any military escalation in the Indo-Pacific. Consequently, African leaders and individual companies operating on the continent are worried about being “caught in the middle.”
After twelve months of fighting, the Russia-Ukraine war has resulted in more than 200,000 casualties and devastated countless more lives, and it will not come to a meaningful end any time soon. Neither side has mustered the strength to push forward militarily, nor is Russia or Ukraine in a strategic position to negotiate. Each maintains a position that the other considers maximalist – Russia seeks to dismantle the government in Kyiv, and Ukraine seeks to regain its full sovereignty and territorial integrity. We are witnessing an early waypoint of a much longer war that, at the moment, has the characteristics of a protracted stalemate.
At least nine G20 governments (the so-called “Global West”) intend to maintain pressure on Moscow for its illegal actions by upholding or expanding sanctions. At the same time, another nine of the G20 governments are maintaining an interests-based approach, keeping diplomatic and trade relationships with Russia intact, as well as refusing to condemn Moscow’s invasion or refraining from sanctions entirely.
Given this stark divide within the G20, reflected more broadly at the United Nations and other global institutions, the Russia-Ukraine war has complicated decision making for resource extraction companies. It has constrained where companies can source, process, and sell their goods. It has increased costs for shipping and ground transportation, and it has caused price fluctuations for minerals and adjacent industries, adding to the pressure caused by other inflationary forces. This has contributed to several major mining companies, including Newmont, Rio Tinto, and BHP, to project increased operating costs in 2023.
The war has further increased risk exposure for non-Russian extractive companies that operate in states where Russia has significant concessions and an active diplomatic or security presence, such as Angola, Burkina Faso, Central African Republic, Guinea, Mali, Sudan, and Zimbabwe. Russian mining operating licenses in these jurisdictions are held both by legitimate Russian mining outfits, like Rusal and Nordgold, as well as the Wagner Group, a Russian paramilitary outfit that reportedly obtains licenses in exchange for training or military support. All Russian operators have links to, and could be characterized as an extension of, the interests of the Kremlin.
Just as G20 countries and African governments have been forced to reckon with their policy positions on Russia, global mining companies have been asked whether and how they will take a stand. Should they affiliate more directly with likeminded democratic countries – from which capital, shareholders, and many executives hail – or find common cause with a so-called “non-aligned” group, which includes most African states? How companies navigate this fault line is being watched and judged by governments and publics alike.
This brings us to the next trend shaping mining companies in Africa.
CHINA AND THE GLOBAL WEST
China is vital for the African mining sector. It is the largest global consumer of green energy transition minerals and metals; in 2022, for example, China held a nearly 76 percent share of the global refined copper market and controlled 60 percent of the global raw lithium supply.
Conventional wisdom about the inexorable China-driven growth of the mining industry was questioned during a series of shocks from bilateral and multilateral trade wars, the global pandemic (and national Covid policies), supply chain disruptions for critical inputs such as semiconductors, protectionist industrial policies, and insecurity in the Taiwan Strait and broader Indo-Pacific.
However, those interruptions now appear to have been a blip, with Chinese-driven consumption of extractives in 2023 set to exceed pre-Covid levels. At the same time, Beijing’s desire to gain greater access to global supplies has prompted competitor states (and individual companies) to seek their own supply of critical mineral reserves. This, in turn, has led to substantial interest in investment in resource-rich countries.
As a result, African countries – and the mining companies that operate on the continent – are experiencing deep competitive pressure. With China and the Global West pursing policies that are causing a deterioration of trust, countries and companies alike are considering whether and how they can straddle the divide and maintain productive relations with each. Certain market actors have sought to play this dynamic to their advantage by fostering relations with both China and the United States through discrete commercial partnerships or pointed negotiations. For example, Zambia is leveraging improved relations with the United States in its debt talks with Chinese lenders. Similarly, the Democratic Republic of Congo is forging stronger ties with Western states while reviewing Chinese-held mining contracts signed under the previous administrations.
African countries reasonably believe they can “have it both ways,” now that there is greater competition for African mineral resources and broader Western interest in the continent’s development. The hope among many African governments is that they will no longer need to trade strategic access to resources for major infrastructure initiatives, especially important given the backlash faced across Africa by “debt-trap” projects and jobs programs favoring expatriates.
Mining companies are directly implicated in this positioning. They are seen – fairly or not – as extensions of the interests of the countries where they are headquartered and, therefore, as de facto players in the geopolitical space. In this context, mining executives should understand that being either too aggressive or too cautious can create new risk exposure in the event of a political or economic crisis. As decisions are made about whether and how China-related decoupling might accelerate, those at critical, early stages of the supply chain are especially vulnerable.
Given that the Russia-Ukraine war could last many more months if not years, and competition between China and the Global West will only increase, how each of these dynamics evolves and intersects will be vital for mining companies. Businesses have long been buffeted by rapidly changing events on a global scale, but the mindset in the past was that businesses were limited in their ability to control exogenous events or shape critical relationships to forestall worst-case scenarios. With business models now directly affected by the actions of individual nation-states, C-suites can take matters into their own hands by asking four questions:
1) What countries or sub-regions are we most concerned about? This includes the policies / regulations / key stakeholders in those jurisdictions that might affect the company the most.
2) How might key current situations evolve? This entails scenario planning and mapping of likely courses of action.
3) What should we do about it, in terms of strategy and risk management?
4) Are we actively monitoring these circumstances, feeding relevant intelligence that can be used for business decisions?
Mining companies with exposure in Africa can best position themselves in this interests-based world by understanding the implications of taking a stand, and what it means for their businesses if relations between the major global powers become more fraught. The pressure to do so is only increasing, given that these geopolitical drivers are sure to intensify in 2023 and beyond.
Veracity Worldwide CEO Jay Truesdale gave keynote remarks on this topic at Mining Indaba on February 7, 2023. Olivia Johnson, Nandita Balakrishnan, and David Alm contributed to this article.