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Ways to realise Kenya’s mining potential

Saturday May 23 2015

The gloves are off in Kenya’s mining industry. After the Mining Cabinet Secretary Najib Balala accused Kenya’s “Big Three” miners of tax and royalty underpayment, Base Titanium hit back with a full page newspaper advert response.

A day later, parliament’s budget office reportedly claimed that it was unable to measure the Mining ministry’s work. It has advised the House Budget Committee not to approve the ministry’s budget until a breakdown of its achievements in the current year was provided. This chain of events should come as no surprise.

The ministry’s website states that it was formed “to look into mining activities in the country.” Clearly, the ministry sees its primary mandate as investigation and heightened regulation of an opaque industry that has allegedly been fleecing Kenya.

However, the ministry is also tasked with mining and minerals development. It was widely expected that it would also focus on industry growth by attracting new investment and expanding existing mining activities through a conducive policy environment.

Since 2013, there has been no announcement of new and significant mining investments and the jury is still out on whether artisanal and small scale miners are better off. Reportedly, mining revenue figures have increased but there is no clear breakdown of the figures. The long running Mining Bill saga continues.

So what is ailing the sector?

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First, the global mining industry is in the doldrums. Not since the global financial crisis has the industry been so hard hit. China, the world’s largest consumer of most minerals, is struggling.

The decade long commodity boom decisively ended in 2013. Mining investor sentiment has soured and very little new capital is available, especially for exploration.

Miners are focused on capital preservation, cost cutting and expansion of current long life operations to benefit from economies of scale. This is beyond Kenya’s control.

Second, mining takes time. The production timeframe can be up to 20 years long. Kenya is witnessing this in the oil industry. Tullow struck oil at its Ngamia-1 well in 2012 but initial production is slated anywhere between 2017 and 2020. Again, this is beyond Kenya’s control.

Third, and most important, is the perception factor. The respected Fraser Institute’s annual survey ranked Kenya third last in its overall Investment Attractiveness Index.

This survey is based on mining companies’ perception of a country’s investment climate. Obviously, the survey is not the final word, but it is widely read. The abrupt suspension of various mining licences, delays to the Mining Bill, tough talk from all sides, court battles, community disenchantment and newspaper slugfests between the ministry and miners are also not helping. This is fully within the government’s control.

The government, through the Mining ministry, has an unchallenged constitutional right to manage minerals for the benefit of all Kenyans. We expect this right to be exercised prudently, ensuring that we are not bedevilled by the resource curse nor are we exploited by investors.

On the other hand, the government also has an obligation to ensure that mining investors are treated fairly and transparently and allowed to make an honest return as long as they operate within the law.

The ministry needs to carefully but urgently reassess how it will strike a balance between regulation, revenue growth and most importantly, sustainable industry growth.

All players need to tone down the rhetoric. The Cabinet Secretary should convene a Mining Industry Roundtable, similar to the Kenya Private Sector Alliance’s (Kepsa) Presidential Roundtable Series, to chart the industry’s strategic course with policy at the top of the agenda.

Competition for investment is fierce. Government, communities and miners must co-exist if we are ever to fully realise Kenya’s mining potential.

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