Gulf focuses on African minerals

22 April 2013

The sector has grown more appealing due to the high commodities prices

It is little surprise to see a variety of Gulf interests looking towards sub-Saharan Africa (SSA) as investors worldwide seek above-average rates of return, and natural resources attract firms looking to secure vital energy and minerals inputs, and benefit from historically high commodities prices.

As a whole, SSA’s gross domestic product (GDP) grew at nearly 5 per cent in 2011/12, but one-third of its countries produced much higher GDP numbers. The Washington-based World Bank says, “a number of the fastest-growing economies in the region are buoyed by new mineral exports – [for example] iron ore in Sierra Leone, and uranium and oil in Niger”.

Commodity prices are notoriously volatile, but economies have become more resilient to downturns, says Shantayanan Devarajan, World Bank chief economist for Africa. Foreign direct investment (FDI) “is showing signs of becoming more long-term”, he says. “It is now more than aid, and this is despite expectations that commodities prices will go down” from their recent peaks.

Increasing competition

This is helped by competition for resources, led by China’s voracious market but including many other players. Ras al-Khaimah’s RAK Minerals & Metals Investments has registered a local venture, Premiere Miniere du Katanga, in Democratic Republic of Congo (DRC) to explore more than 2,770 square kilometres in Katanga province, a copper and cobalt hub.

A few Gulf conglomerates are in multiple jurisdictions. Kuwait’s Kharafi Group is in Sudan, having purchased a small stake in the Chinese-led Petrodar Operating Company from Dubai-based Al-Thani Investments. It has done construction work in Tanzania, owns hotels in Gambia, and has offices in countries as diverse as Botswana, Lesotho, Mozambique, Kenya, Eritrea, Senegal and Niger. More are looking, with plans to include minerals projects in their portfolios.

We are now looking at the African energy and minerals frontiers to place our money in a new investment fund”

Representative of Saudi-owned private office

“We are now looking actively at the African energy and minerals frontiers as [an area] to place our money in a new investment fund,” says the representative of a Saudi-owned, Dubai-based private office. He has been prospecting potential deals in Johannesburg, which has long been a hub of the African mining industry and is now actively promoting itself as “the capital of African business”.

Resource prospecting and exploration remains particularly active in East and West Africa, providing a significant part of the $63bn-plus FDI flows that came into the region in 2011-12, according to World Bank figures. The bank has calculated that economic rents from minerals (including oil, gas and mining) in SSA exceeded $169bn in 2010. However, this was out of a world total of $2.4 trillion and, given the region’s world-scale reserves of most known minerals, much more revenue could be generated.

The continent’s growth owes much to an improvement in its geopolitics and security since the blood-soaked, coup-prone 1980s and 1990s. Among its fastest-growing economies are Sierra Leone and other mineral-rich, post-conflict economies. But SSA still contains some of the world’s toughest jurisdictions, with big minerals deposits found in conflict zones, which include eastern DRC, Mali and Central African Republic, fragile states such as Sierra Leone, Guinea and Liberia, and controversial countries such as President Robert Mugabe’s Zimbabwe.

Difficulties working with South Africa’s fractious labour unions and political class, amid an ongoing nationalisation debate, have discouraged investment in SSA’s biggest economy, which held about $2.5 trillion-worth of non-energy mineral wealth, according to an estimate by global consultancy firm Deloitte in 2010. 

Wealth of resources

All the countries mentioned above have abundant precious metals resources. According to the World Bank, as of 2010, Guinea represented more than 8 per cent of total world bauxite production, Zambia and DRC had a combined 6.7 per cent share of world copper production, and Ghana and Mali together accounted for 5.8 per cent of gold output. 

In tapping these resources, Gulf-based companies are small-scale players compared with SSA’s traditional European partners and China, which received some 19.3 per cent of SSA’s exports in 2010 – mainly minerals and hydrocarbons – up from 5 per cent a decade ago. Following Xi Jinping’s extensive first visit to the continent as China’s new president in March 2013, which yielded another 20 economic and trade co-operation agreements, Zhong Manying, a senior Chinese Commerce Ministry official, said Chinese FDI in Africa rose by 70 per cent in 2012 to reach $2.9bn.

A major complaint voiced by African politicians, business leaders and advocacy groups is that resources are often secured by foreign investors and leave the continent as quickly as is feasible. Cynics observe this may not be very fast, given the continent’s lack of adequate transport infrastructure. Some big Gulf players, such as Qatar Steel Company, which examined an iron ore project in Mauritania, have expressed interest but have stepped back.

According to Zhong, China is investing more to process minerals within Africa and raise levels of local content. Western resources companies also say they are sensitive to these demands, which increasingly are written into law. But extraction, with some token local content, is likely to remain most attractive to investors who do not want big upfront spending commitments for long-term projects.

Local processing

This is despite efforts to increase the proportion of natural resources that are processed in the continent. Deloitte has said that while South Africa was one of the world’s wealthiest mining jurisdictions, it “continues to export most of its minerals as ores or semi-processed minerals rather than high-value intermediate-to-finished products”. The country’s president, Jacob Zuma, has been pushing a beneficiation strategy. “We can start reaping the full benefits of our commodities,” he told parliament.

“We are looking for investors who can provide more beneficiation of natural resources,” said Amar Sooklal, deputy director at the South African Department of Trade & Industry, in April.

The situation is more dramatic in the continent’s less-developed, but most extravagantly endowed mining jurisdictions. DRC is estimated to hold deposits of a majority of known minerals. These resources have been fought over by rival groups, while deals involving local warlords – but also President Joseph Kabila Kabange and business associates led by Israeli magnate Dan Gertler – have been investigated by a special UN panel and advocacy groups, including London-based Global Witness, that specialise in conflict diamonds, sales of illegal coltan (essential for mobile phones and mainly found in the Kivu regions) and other abuses.

Low levels of beneficiation mean minerals-rich countries fail to create jobs and maximise their earnings. Devarajan bemoans the fact that in a majority of Africa’s resource-rich countries, the decline in poverty has been slower than in economies that lack natural resources. The percentage of the population living in extreme poverty actually increased during the commodity price boom in Angola, Republic of Congo and Gabon.

Dubai has understood the potential offered by African minerals industries. An increasing number of South African firms are establishing a presence there, “because we have seen that it is a hub that can tie us into our growing and future market, Asia”, says a banker based in Johannesburg.

While raw diamonds traditionally went to Antwerp for processing and sale, Dubai has emerged as an important hub for that business. Botswana’s Minerals, Energy and Water Resources Minister Kitso Mokaila recently asked whether the major southern African diamonds producer should use the Dubai Diamond Exchange (DDE) as a model for its own development.

The DDE was founded in 2005 “to provide precious stones firms a platform from which to trade, network and grow their businesses”. The DDE says it provides services to more than 500 companies, including Luxembourg-based diamond giant DeBeers, from the Almas Tower, which also houses the region’s only office managing the Kimberley Process Certification Scheme (KPCS). 

The Kimberly Process was introduced to control the sale of conflict diamonds; Dubai strenuously argues that it follows best practice, countering claims that minerals of dubious provenance are marketed through the emirate. The Dubai Multi Commodities Centre Authority is the only official entry and exit point for rough diamonds in the UAE.

Controversial industry

But dealing in diamonds is a volatile business. Reports about growing sales of Zimbabwean rough diamonds through Dubai to the alleged benefit of Mugabe’s inner circle have implied sanctions-busting, even though the sales are not illegal. Minerals Marketing Corporation of Zimbabwe chairman Christopher Mutsvanga told the Financial Times in early April that “Dubai was our saviour”, after the firm came under US and EU sanctions. Dubai Multi Commodities Centre executive chairman Ahmed bin Sulayem was quoted by Zimbabwean media in April as saying the West was mistaken in maintaining sanctions on the precious metals industries, denying Zimbabwe its “lifeblood”.

African minerals offer big profits, but controversy is never far away.

Jon Marks is editorial director of London-based analyst African Energy ( and Eleanor Gillespie is research director of parent company Cross-border Information (

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