KENYA’S new mining minister is promising to transform the country’s underperforming minerals industry, opening a new line of revenue for East Africa’s largest economy.
Dan Kazungu blames the inability of the industry to contribute significantly to the country’s economy on a lack of leadership and a poor environment for investment, and is pledging to enforce the deep reforms contained in a new mining regime that could be signed into law as early as this month.
Economies such as South Africa were built largely on the back of mines, but Kenya has relied on a more diversified revenue, with mining contributing less than 1% of its gross domestic product.
Tanzania, Africa’s fourth largest miner after South Africa, Ghana and Mali, earns at least 4% of its GDP from mining.
The minister sees the opportunity for mining to now contribute billions to the exchequer, adding to the economic tailwind in a country that has been one of the few bright growth spots in Africa in recent years. Growth is set to recover this year to 6% from 5.6% in 2015.
What investors like
“If you want to talk about growth in the mining industry you must talk about high productivity, and you then must have investors. That calls for leadership, which has been the missing link,” Kazungu told Mail & Guardian Africa on the sidelines of the Investing in African Mining Indaba.
The country is currently reliant on a mining law that dates back to the second world war, the aged provisions of which have proven a major disincentive to investors.
“Royalties are about 5% globally, and we charge 12% yet we have limited or no known resources. Just a mere glance at what we have and the investor tends to walk away,” he said.
Little is known about the country’s mineral potential—India has done geological surveys on over 98% of its territory—-Kenya has tended to fly blind, a state that the minister intends to change by pushing for funding for a complete airborne survey; admittedly not enough but a good start for investors
This would cost “a couple of billions” but the return would be worth it, he says, ticking off regional blocks in the country thought to hold gold, gemstones and coal among other high-value minerals. Kenya is the world’s third-biggest producer of soda ash, used to make glass, and ranks seventh in output of fluorspar, used in steel, according to the US Geological Survey.
The minister has already been tweaking the current regime, having signed four gazette notices in less than three months in office, simplifying areas such as the royalty structure and permit processes.
New mining law
But he identifies the new mining code, which is currently before parliament, as the game changer, terming its potential passage week as “very, very important” for east Africa’s largest economy.
He says it is big on transparency—the government will publish all revenues earned—while the licensing regime is open and will reside online. Applicants for permits will know their fate in four months, the minister says.
“You cannot talk about attracting investment if you do not have the regulatory and legal framework, the fiscal regime, the right incentives and the deliberate push to try and remove as many constraints as possible that hinder the process,” he said.
Part of the obstacles has been the lack of policy certainty. The new law is explicit on predictability, the minister says.
“Nobody will just wake up one day and say, ‘I’m increasing rates or levies’, it will all be about consultation.”
The code also tackles the issues of the equitable distribution of resources and of “local content”—ownership by citizens. “If you are not careful you can be accused of nationalisation; we’ve seen examples of that and it has had a lot of [negative] effects,” he says.
But he sees his role as being that of balancing the interests of all stakeholders. Towards this he also says he will have to manage the usually high expectations that mining attracts in a country.
The new law gives 70% of revenues to the central government, 20% to the county governments and 10% to the local communities.
There are also opportunities in local supply contracting and the provision of mining-financed amenities, Kazungu says.
The former employee of technology firms IBM and Lenovo says he will “not accept” the hoarding of licences and will keenly track progress by explorers. Three in every four of mining licences in the country are currently held by Kenyan companies, many of which have been accused of squatting on them.
His predecessor cancelled dozens of permits which were said to have been acquired irregularly.
Kazungu has no doubt he is the man to clean up the industry and make it a major pillar of the country’s growth. “I’m new and bringing new perspectives. I’m glad I can say that I know a lot about the private sector and so I can understand the issues that an Anglo American or Randgold would be bringing,” he says.
He was only three years into his first term as a parliamentarian before he was picked by president Uhuru Kenyatta to a reconstituted technocrat-heavy Cabinet.
Is it a bad time to be discussing new mining investments? “No. If you look at the biggest challenges, they have been in the mature mining economies. Kenya’s industry is still nascent, and we are putting in the structures so as to take advantage of the next phase of supercycles,” he says.