South Africa looks north: financial institutions and mining service companies find a new home in their backyard

The South African service sector seeks new opportunities across their continent.

Ramzy Bamieh

south-africa-BLOGCredit: Flickr/Meraj Chhaya

JOHANNESBURG, SOUTH AFRICA – South Africa is, by some distance, the largest and most developed mining market in Africa. Fifty-three of the largest 100 mines on the continent lie within South Africa’s borders. Johannesburg is a hub for mining houses and hosts the continent’s largest stock exchange, the mining-friendly JSE. However, rising costs and recent labour disputes have taken the shine off the nation’s mining sector. Although South Africa will continue to be central to the mining activities of the continent’s financial and service companies, it is the relatively untapped geology of the rest of sub-Saharan Africa, which offers that greatest opportunity for growth in the future.

Although “Africa”, geo-politically and tectonically, encompasses the entire landmass from the Saharan Arab nations of the north to Mining Indaba’s host city Cape Town near the continent’s southern tip, discussions of the continent tend to focus on sub-Saharan Africa, and often exclude South Africa when looking at general trends. While the Sahara, acting much like a sea, excludes North Africa from the remainder of the continent, the roots of South Africa’s exclusion lie in its relative economic and political stability, in contrast to many countries on the continent. However, across the culturally diverse “heart” of the continent, we are seeing strong, stable emerging economies rising together for the first time, with significant ramifications for the mining industry.

“Currently in Africa we are benefitting from the dividend of democracy: having democratic governments across the majority of African countries. In order to make mining investments in any country, and particularly those with infrastructure requirements, you need to have a 10 to 15 year view. That only comes with social stability. Today, we are starting to see the benefit of that social stability across the continent. As bankers, we can give the capital markets the confidence to make these kinds of investments. The consequence of that is going to be that over time there will be a complete shift in the balance of scale between South Africa and the rest of the continent,” explains William Blackie, head of investment banking at Standard Bank, the continent’s largest bank by assets and earnings.

The Standard Bank group is involved in more mining project financing than any other bank in Africa and states its on the ground presence, now in 19 countries, and a deep understanding of many African markets as crucial to success. “The critical differentiator for Standard Bank is our presence across the continent. For example, we have country risk forums, country risk offices, and credit risk specialists positioned in Mozambique: people who have built up knowledge of the country, its politics, and the local business environment. Very few of our competitors genuinely have that type of presence and therefore do not have the flexibility to make decisions on big financings like the ones we have done over the last 18 to 24 months,” suggests Blackie.

While wary of playing “big brother” to its African neighbours, the large South African banks are fast becoming regional powers both through direct presence on the ground and through strategic partnerships. The recently established partnership between South Africa’s Nedbank and pan-African Ecobank creates an alliance consisting of 2,000 branches in 35 countries. Such networks provide a depth of experience in those markets and foster confidence from the bank’s resource sector clients, according to Brian Kennedy, managing executive for Nedbank Capital. While another of the “big four” South African Banks, FirstRand maintains a lower footprint in Africa, Henk Deist, head of resource finance at Rand Merchant Bank, part of the FirstRand Group explains “although risk maybe considered higher when the bank does not have a presence and local transactional facilities would not available, a presence in a country holds little or no advantage from a funding perspective because mines in Africa do not incur debt in local currency”.

However the large South African banks choose to flex their muscles across the continent, it is clear that “Africa” represents a huge target for all of them, now and in the future. Furthermore, it is not only South Africa’s financial sector that sees the future of its mining involvement in the geologically untapped African countries. The nation’s well-established mining service sector is also looking north for its future growth. Be it drilling, safety, recruitment or consultancy, mining service companies are establishing offices, partners and connecting with potential clients in order to expand their reach into Africa: in particular in the geologically rich southern African development community (SADC) and west Africa regions. “To date, approximately 90% of our business activity has taken place in South Africa, although we have also worked in many other African countries and internationally. However within the last three to four years we have pursued strategic expansion in SADC countries and in East and West Africa. MAC intends, within the next few years, to be conducting 30% to 40% of our work in the rest of Africa,” states Matt van Wyk, associate director at operational performance experts MAC Consulting, a great example of this trend.

Beyond being the largest mining market in Africa, South Africa is on a path to become the dominant force for mining services across the continent. We cannot suggest with any certainty that an African camaraderie, nor a south-south solidarity would offer tangible advantages to South African firms. However their proximity offers a higher degree of accessibility, and their maturity brings with it the stability and quality desired by the majority Canadian and Australian mining firms active on the continent. South African firms in Africa is by no means a new phenomenon but the current determination and focus on this progressive continent will be a key factor in the country’s continued success north of its borders.

This article was written as part of the research conducted on African mining jurisdictions by Global Business Reports (GBR) as part of our partnership with African Mining Indaba LLC. The aim of this partnership is the production of the single most comprehensive intelligence report on the continent’s mineral sector. The Official Mining in Africa Country Investment Guide, will be launched next February 2014, as the only official publication providing country-specific information at Africa’s top mining event, the 2014 Investing in Africa Mining Indaba™ held in Cape Town, South Africa.

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