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Mining the next economic frontier

Mining Cabinet Secretary Dan Kazungu was recently quoted as saying that “mining is the next economic frontier for Kenya, so get on board and be part of the mining boom”.

Following the enactment of the Mining Act 2016, Mr Kazungu has been leading a national and international charm offensive to attract investment in the mining sector, while also advocating the interests of small-scale miners.

One would expect these efforts to be reflected in positive movements of various data points.

The Fraser Institute’s annual mining survey is a good reference. It surveys mining and exploration companies to assess how mineral endowment and public policy factors, such as taxation and regulatory uncertainty affect investment.

In 2014, in what was a disappointing result, the Fraser Institute ranked Kenya 120th out of the 122 surveyed mining jurisdictions.

IMPROVED CONFIDENCE

However, since Mr Kazungu’s appointment as the CS in late 2015, Kenya has steadily climbed to the 86th position out of 104 in last year’s report.

This result shows improved confidence resulting from a more settled and predictable legislative environment.

The annual Kenya National Bureau of Statistics (KNBS) Economic Survey is another useful tool for assessing performance across various indicators.

This year’s survey recorded a slight decline in the value of Kenya’s mineral output, from Sh23.8 billion in 2015 to Sh23.3 billion last year.

This was mainly the result of international forces that saw the value of fluorspar production decline by Sh60 million as international prices dropped, forcing local production to be suspended.

But gemstone production rose by nearly 20 per cent, while the value of mineral sand products from Base Titanium’s Kwale Mine rose to Sh13.3 billion, an increase of 46 per cent since 2014.

The Kwale Mine contributed nearly 60 per cent of the value of last year’s total mineral output.

FOREIGN EXCHANGE

As an export-oriented industry, the mining sector also plays a significant role in generating foreign exchange for the country.

Exports to China last year were valued at Sh10 billion. Of this, the exports from the Kwale Mine alone to Chinese customers accounted for Sh5.7 billion.

The mining sector’s potential to drive national economic growth, create employment and improve living standards is huge.

A well-managed and sustainable sector will deliver significant multiplier benefits to other sectors through the supply of goods and services, notably in the areas of logistics, energy, consumables and a variety of services.

A further benefit derived from mining investment is the development of the infrastructure required to support mining operations that also serve the public good – such as roads, power reticulation and water supply. These wider economic and social benefits spur further job creation and economic activity and additional contributions to the GDP and government tax revenues.

ECONOMIC OUTPUT

In 2016, Ernst and Young (E&Y) undertook an independent assessment of Kwale Mine’s total economic output, which clearly demonstrates the wider economic benefits generated by a large-scale mining operation.

Base Titanium last year directly generated 642 jobs. E&Y found that nearly 1,400 jobs were supported in its supply chain through the purchase of goods and services, referred to as indirect jobs.

Additionally, consumer spending (induced benefits) from those filling direct and indirect jobs supported an additional 1,400 jobs.

Base’s operations, therefore, supported a total of nearly 3,450 jobs, or to think of it another way, for every direct job on the mine, a further 4.4 jobs are supported in the wider economy.

Base contributed Sh1.4 billion in direct taxes and royalties while at the same time, E&Y calculated that indirect and induced taxes contributed an additional Sh500 million to government revenue.

GEOLOGICAL DATA

The Mining ministry envisages a growth target for the mining sector to contribute 10 per cent to the GDP by 2030.

With a modernised regulatory framework and updated geological data, Kenya has some of the ingredients to attract further large-scale investment in the mining sector to meet its targets.

A stable, predictable and competitive regulatory framework is the way to attract investment.

The formulation of a harmonised fiscal regime for the extractives sector will soon see Kenya climb further up the Fraser Institute rankings. Kenya is heading in the right direction.

 

Mr Ngumi is a Director at Base Titanium Limited. [email protected]

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