By Grain W. P. Malunga FIMMM
Minerals, Geology, Environment and Corporate Affairs Expert
The mining sector has a tremendous potential to create wealth for the country and create economic linkages that will boost urbanization and the development of commercial agriculture. There is need to introduce effective economic infrastructure and governance systems that resonate with all stakeholders. Quick wins are in the development of uranium, niobium, rare earths, rutile and graphite.
Malawi Vision 2063 states that “Mining has tremendous potential to develop and support the inclusive wealth creation agenda”. This is through three pillars that are in this paper. These are Agriculture Productivity and Commercialisation, Industrialisation including Mining, and Urbanisation including Tourism.
The author believes that under Pillar 1, Agriculture Productivity and Commercialisation, mining can provide a market for agriculture products to feed the mines through technical and financial support to cooperative farming in food crops, livestock, and fisheries production. Rock phosphate is available for extraction and for the production of phosphoric acid.
Pillar 2, Industrialisation through Mining, offers an opportunity for mineral value addition, research, science, and innovation. There is an opportunity to export high-value mineral products such as uranium, niobium, rare earths, graphite, and titanium (rutile/ilmenite). There will be massive direct and indirect job creation and foreign reserve generation (wealth creation).
Pillar 3, Urbanisation including Tourism, will benefit from the creation of mine towns and cities with improved health, education, and reticulated water facilities. The towns and cities will also trigger high consumption of agricultural products. Urbanization will increase demand for industrial minerals such as cement, sand and aggregate, iron and steel, and ceramic clays.
2.0 ENABLERS OF THIS TRANSFORMATIONAL AGENDA
The above scenario can be achieved in the medium to long term if the following enablers are prioritized and given special attention.
2.1 Economic Infrastructure
Provision of modern transportation links such as tarred roads and rail lines, electricity, and financing mechanisms through development finance will go a long way towards speeding up the development of the mining sector.
Mineral resource endowment is spread throughout the whole country. There is a need to develop cheaper transport modes such as lake services and rail linkage to Monkey Bay Port. Chilumba and Nkhata Bay ports need to be rehabilitated. Migowi –Nambazo, Migowi – Songwe, Mangochi – Makanjira, Likuni – Malingunde, Makawa – Njereza, Chitipa Junction – Kayelekera, Kasungu – Chikowa, and Chamono – Kanyika roads need to be upgraded to provide easy transportation of mineral products.
Provision of electricity for mine development is a backbone for mineral development. EGENCO has a total installed generation capacity of 441.95MW, with 390.55MW from hydro power plants and 51.4MW from thermal power plants. The mining sector requires about 500MW in the medium term, and this is posing a big challenge for mine development. This energy demand is required by 2025. Efforts for regional power interconnection, thermal power development and green energy production are recommended.
The realization of wealth creation from mining requires long term financing instruments. On average projects earmarked to kickstart the wealth creation agenda for the country require a capital of US$ 200 million per project. This will need long term financing instruments of loan payback period of between 3 and 6 years. There is need to establish a Development Finance Institution (DFI) with credible lines of credit and State-Owned Enterprise (SOE) to manage state equity and diversification of mature projects to Malawians.
Key players that should finance the sector include Malawi Agriculture and Industrial Investment Corporation (MAIIC), Standard Bank, FDH Bank, National Bank and yet to be recommissioned Malawi Development Bank.
We need to understand that apart from monetary gains from mining, there are also other benefits such as urbanization, job creation and economic infrastructure and social services.
2.2 Effective Governance Systems
The mineral sector in Malawi faces a negative public perception on how it is governed and how government has arranged its fiscal regime. There is need to relook at the mining legal framework to be relevant with private sector growth and bring about institutional transformation and restructuring that brings efficiency and transparency in the management of revenue from the mining sector.
Public perception shows that government has no capacity and human resources to govern and monitor what is happening in the minerals sector. As a result, it is losing revenue through smuggling of minerals and illicit financial flows. This needs to be corrected. There is a formal sector and informal sector. The formal sector is made up of exploration companies and industrial minerals mining companies. Exploration companies have been sending samples for analysis to accredited laboratories. This has been viewed as exporting mined minerals in the name of samples. Companies mining industrial minerals such as coal, limestone and aggregate are doing it in a formal setting and reporting their production and revenue to Ministry of Mining and Malawi Revenue Authority. We now need civic education to prove to the nation that these samples are necessary and have put Malawi on the map in discovering high value minerals such as uranium, niobium, rare earths, graphite and rutile.
The informal mining sector is made up of artisanal and small-scale miners (ASM). These are mining gemstones and gold. These are characterized by smuggling and social decay and illicit financial flows. Unfortunately, their activities are denting the whole mineral sector. Government needs to come out to explain what is happening and how it is going to deal with this sector in terms of formalization, support to training, financing, and marketing.
We need to protect our exploration companies from undue criticisms and apathy. The hold the key to wealth creation for the country.
The fiscal regime determines how the revenues from mining projects are shared between the government and companies. Fiscal tools are used to create a fiscal regime to govern mining projects. These tools include fees and taxes are in form of royalties, income tax, resource rent tax, withholding tax on dividend and interest, import duty, VAT and state equity. In order to foster equitable benefit to government and the resource company, there is a need to come up with an exclusive taxation act that should also be backed up by a customs procedure code that is exclusive to mining. Any fiscal item capping needs to be removed from the Mines and Minerals Act in order to be flexible in coming up with equitable benefit sharing.
In totality, the total government revenue should not exceed total investor revenue as this will attract the investor to invest in mining as he bears the risks associated with mining.
This is a serious issue in Malawi. The public thinks resource companies are rich and smugglers. These are a group of risk taker businessmen who mobilise capital from syndicated banks and stock exchanges. They create jobs, stimulate economic linkages and bring skills development and technology. Let’s engage them on evidence-based issues not speculation. There are laws and regulations that spell out offences and penalties.
Let’s promote positive thinking to develop the mining industry. Figure 1 summarizes the systems that can promote wealth creation though mining.
3.0 PRIORITY PROJECTS
Recent and current exploration activities place two groups of mineral projects that can take off within the next three years. These are for export and import substitution. Export and valuable projects include Kayelekera uranium, Kanyika niobium, Kasiya rutile and graphite while those for import substitution include cement, coal, iron and steel, glass sand and ceramic clays. Import substation minerals will play a big role in promoting growth of towns and cities.
4.0 STIMULANTS FOR FAST TRACKING MINING CONTRIBUTION TO WEALTH CREATION
The following interventions need to be undertaken with speed and patriotism to get out of the current economic mess:
- Mineral Development Agreements require a short consultative process not exceeding six months. This helps to take advantage commodity price increase.
- Special consideration is required to speed up mine development agreements (MDA) through cabinet and parliament. There is need to fast-track the of Niobium, Rare Earths, Uranium, Graphite, Rutile and Heavy to boost wealth creation.
- Community engagement through social contracts (community development agreements) is key to building trust between resource companies and beneficiary communities. Periodic consultation with the community is key to foster good coexistence.
- Initial exploration programs do not significantly impact on the environment. These are restricted to pitting and trenching, therefore need to be exempted from rigorous environmental and social impact assessments (ESIA) as they delay mineral deposit discovery and increase risk capital that would be used in future from pre-feasibility study level.
5.0 KEYS PLAYERS IN THE IMPLEMENTATION OF THIS INITIATIVE
Ministries, Departments and Agencies
For the mining sector to contribute to wealth creation in the shortest time possible there is need to respond positively in terms of building positive relationship between government, the public and resource companies. The key players are the Ministry of Mining, the Ministry of Finance and Economic Planning, Ministry of Trade and Industry and Malawi Revenue Authority. These need to come up with a fiscal regime that offers equitable economic and financial benefit sharing.
The keys players for making this vison to be realized and effective are resource companies, formalized ASMs in form of Cooperatives and Development Finance Institutions. Offshore financing can be leveraged though local banks through management of lines of credit. This is possible with Standard Bank, National Bank, First Capital bank and New Building Society bank.
The role of academia and research institutions is crucial in providing relevant skills and technology necessary to sustain the development of the minerals sector. Academic and research institutions should build partnership with the private sector through internship and opportunities for collaboration with academic institutions in solving the industry’s problem using undergraduate and postgraduate students during their research assignments. Possible collaboration partners in this area are Malawi University of Business Applied Sciences, Malawi University of Science and Technology, and University of Malawi. Research Institutions involved soil science and geotechnical studies are key to provide solutions in various stages of mineral development.
Development of high value mines is possible through building Public Private Partnerships (PPP) and building trust between stakeholders in mining. These include government, resource companies and the public.
Promoting value addition in partnership with private sector and academia will build strong economic linkages for job creation.
Mining offers great opportunity to industrialize the country and promote urbanization. Through mining, countries create wealth and skills necessary to bring technological innovations. Job creation and improvement of goods and services in the agriculture sector get boosted.
Collective effort to support this sector will promote good governance, economic growth, economic linkages, development of economic infrastructure and favourable macroeconomic conditions that will bring confidence to the private sector and the country’s citizens.
The country needs to unite for a purpose of graduating from poverty to prosperity. Let us all bring the change that all we need to be in.