gE Blog Series: Global Mining Industry Part 2 - African Mining Crisis

“We are the basket which holds all the proverbial eggs.” This quote by the Zambian Chamber of Mines President about their national mining industry can be extrapolated to more widely represent the economy of Africa. Many African nations are heavily reliant, if not entirely dependent, on the mining industry to drive economic growth. However, due to a multitude of causes, the once booming mining industry that once drove national annual growth rates into double digits is now faltering and bringing the rest of the economy down with it.

On the surface level, the event that sent mining dependent African nations into a crisis was the slowdown of the Chinese economy. For years, China has been the largest importer of minerals and has accounted for a bulk of Africa’s mineral trade. A specific instance of this is the copper trade. In 2011, China consumed 45% of the world’s copper production. This figure has been sliding ever since, and the current economic conditions in China do not lend themselves to an optimistic outlook for the future of China’s consumption.

Below the surface, there are many underlying issues that are hurting the African mining industry. Chief among these issues is political instability and production challenges such as low productivity, old mines, and poor infrastructure. The extensive tenure of conflict and instability in Africa, coupled with the aforementioned production challenges, is causing both investment to decrease and prices to rise. Investment in African mineral exploration is down to around 50% of what it was in 2012. On top of this, the added production costs have caused African minerals to become relatively expensive and subsequently be undercut by cheaper minerals from outside the continent.

Going forward, unless African mines can solve these major underlying problems, the future outlook is bleak for the industry, even if there were to be a resurgence of Chinese demand.