Political risks are always challenging to assess and mitigate – particularly in emerging markets. South Africa, the DRC and Zambia are crucial mining territories, but miners investing in these countries are increasingly having to scale back workforces in order to weather the commodities downturn.
The key now for miners operating in Africa is differentiation; demonstrating a true commitment to the social licence to operate that goes above and beyond your peers will pay dividends in mitigating political risk.
Mining companies face double jeopardy; cutting workforces attracts government criticism, while efforts to reduce production in order to stave off job cuts will also attract unwanted government scrutiny. In those markets where mining makes up a sizeable proportion of GDP, or is a large scale employer, political risks will become more acute if a mining company begins to make significant changes to its workforces or project portfolio. While country nuance is important when considering political risk, many of the drivers for an increase in political risk levels remain the same across the board; economic contraction, currency fluctuation, drops in the value of exports, civil unrest and, crucially, elections.
As governments face elections, policy-making becomes increasingly characterised by short-term goals and, particularly in emerging markets, governments are more likely to stir up nationalist sentiment in an attempt to secure votes. In 2016, three important African mining countries are holding elections. In August 2016, South African President Jacob Zuma will face municipal elections and these are anticipated to be hotly contested as the economy continues to weaken. Meanwhile, in DRC and Zambia, two essential economies for copper mining, presidential elections will be held as the economic outlook for both countries deteriorates.
The post-election outlook for these countries will be pertinent to miners of copper, gold and platinum. In addition, those focused on the opportunities for cobalt - a commodity that is growing in significance on account of its use in hi-tech manufacturing – will be closely watching the DRC election, as the country’s reserves of cobalt currently account for 40% of global supply.
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For further information, please contact Harry Floyd, Partner, Mining on +44 (0)20 7466 1305 or email email@example.com