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October 6, 2022by EOS Intelligence EOS Intelligence No Comments

Africa’s Mining Industry Gaining Momentum

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Africa is home to 30% of the world’s mineral reserves, 8% of the world’s natural gas, and 12% of the world’s oil reserves. Despite being endowed with abundant resources, the continent accounts for only 5% of the global mining production. Mining in Africa was often overlooked because of the unstable political environment, opaque regulations, and poor enforcement capacity. Despite these challenges, investments in Africa’s mineral wealth have been steadily increasing in recent years. The massive swings in mineral demand due to the accelerated clean energy transition along with the rising geopolitical tensions have made countries across the globe diversify their sources of minerals and venture into highly challenged regions such as Africa.

Clean energy – A major force driving mineral extraction in Africa

The globally accelerating clean energy transition is set to unleash unprecedented mineral demand in the coming decades. Demand for minerals such as lithium, copper, cobalt, nickel, and zinc is expected to increase exponentially since they are required in the production of batteries, electric vehicles, wind turbines, and solar photovoltaic plants, all of which are the cornerstone of clean energy development. Among all clean energy technologies, electric vehicle manufacturing and energy storage are likely to account for about half of the global mineral demand over the next two decades.

Lithium

The African continent hosts many of the global mineral reserves required for manufacturing electric vehicles and batteries. Zimbabwe and the Democratic Republic of the Congo are among the top ten countries with the largest lithium reserves in the world. Lithium is a crucial component of lithium-ion batteries, which are used in smartphones and electric vehicles. In Zimbabwe, a mine named Bikita holds more than 11 million tons of lithium ore. Despite being bestowed with massive lithium reserves, the region is largely unexplored due to the lack of investment. However, as the lithium demand is on the rise, the government of Zimbabwe has been actively promoting the development of lithium mines to attract foreign investments. At the same time, an increasing interest in electric vehicles and lithium-ion batteries is driving the lithium demand, pushing many global economies to invest in lithium mining. One such example is an investment from December 2021, when a Chinese-owned mineral production and processing company, Zhejiang Huayou Cobalt, acquired a 100% stake in the Zimbabwean Arcadia lithium mine.

Cobalt

Cobalt is another important metal, used in energy storage technologies and electric vehicle production. Most lithium-ion batteries depend on cobalt, which is a by-product of copper and nickel production. The Democratic Republic of the Congo supplies almost 70% of global cobalt, while Australia and the Philippines supply 4.2% and 3.3% of global cobalt, respectively. The growth of the electric vehicle industry has driven major cobalt producers to ramp up the output at multiple mine sites in the Democratic Republic of the Congo.

Graphite

Like lithium and cobalt, graphite is another significant mineral used in electric vehicle manufacturing. A lithium-ion battery needs 10 times more graphite than lithium. China produces around 82% of the global graphite, followed by Brazil at 7%. Due to the increasing demand, many countries with graphite reserves are launching their graphite mining projects. Mozambique is expected to increase its flake graphite 2021 production levels fivefold by 2030. The country has around 20% to 40% of total global graphite reserves.

Copper

Copper also holds a significant position in a range of minerals used in renewable energy technologies. It plays a vital role in grid infrastructure due to its efficiency, reliability, and conductivity. Around 60% of copper demand is driven by wind turbines, solar panels, and electric vehicle manufacturing. Increasing copper demand along with the rising global copper shortage has made many global producers expand their production and venture into new regions for mining. Consequently, Africa’s Zambia, one of the largest copper producers in the world, has attracted a significant number of investments recently. The country aims to take its annual copper production levels from 830,000 metric tons in 2020 to 3 million metric tons in the next ten years.

Africa also hosts many other mineral reserves such as platinum, manganese, nickel, and chromium, which are used in a variety of clean energy technologies. The continent is poised to take advantage of the growing demand for these minerals and has already started to attract significant foreign investments.

Africa’s Mining Industry Gaining Momentum by EOS Intelligence

High commodity prices and rising geopolitical tensions favor Africa’s mining

Africa has experienced a boom in mining since 2000 when the commodities super cycle (a phenomenon where commodities trade for higher prices for a long period) began. Along with the commodity boom, the African mining industry has grown substantially, attracting investments in exploration, acquiring new concessions, and opening new mines. The recently spiking prices of commodities such as aluminum, zinc, nickel, copper, gold, and coal are further fueling investments across the continent.

The Russian war on Ukraine further benefits Africa as many countries started to diversify their supply chains away from Russia. In March 2022, the USA and the UK imposed a ban on Russian oil imports. Europe also has plans to cut its Russian gas imports by two-thirds before the end of 2022. These could lead to supply shortages of oil and gas in many countries. Russia also supplies 7% of the world’s nickel, 10% of the world’s platinum, and 25-30% of the world’s palladium, which are critical to the globally accelerating clean energy transition. The US and European governments are looking closely at further sanctions against Russia which could disrupt these critical minerals supply. The situation has made many developed countries diversify and secure their sources of minerals. This will be a huge opportunity for Africa to promote its resources.

Massive African gold reserves attract global gold producers

Gold is often perceived as a safe haven asset and its demand is constantly rising, pushing major global gold producers to ramp up their production. Additionally, as many of the global gold reserves are depleting, mining companies find it imperative to explore new gold deposits across the world. Interestingly, the Birimian greenstone belt of West Africa hosts huge deposits of gold but remains highly underexplored. Many leading global gold producers started exploring the region due to the favorable mining regulations and mining codes implemented recently. Between 2009 and 2019, approximately 1,400 metric tons of gold reserves were discovered in West Africa, while about 1,000 metric tons and 680 metric tons were found in Canada and Ecuador, respectively. A total of US$470 million was invested in West Africa’s gold resource exploration in 2020. This was the third-largest global gold exploration expenditure in 2020, behind that of Australia and Canada.

Investments in Africa’s mining

Countries such as Australia, China, Canada, the UK, and the USA have invested heavily in Africa’s mineral extraction over the years. Emerging economies such as India, Russia, and Brazil also have sizeable investments in Africa’s mining, creating more competition for resources. Among all the countries that have invested, China has demonstrated a significant presence across the continent. The rise of industrialization in China has driven increased demand for mineral exploration and extraction in Africa over the past decades. China’s investment in exploring African mineral resources multiplied to a remarkable extent between 2005 and 2015. In 2021, China’s total outbound foreign direct investment (FDI) was US$145.2 billion, of which a quarter was dedicated to African mining.

Many of the mining projects in Africa are funded by international stock exchanges. For instance, in 2015, Deloitte analyzed the funds of 29 major mining projects which were in development across the continent. The Toronto Stock Exchange funded 28% of these projects, followed by the Hong Kong Stock Exchange funding 17%, and the National Stock Exchange of India funding 10% of the projects.

A 2019 report published by PricewaterhouseCoopers states that, in 2018, total mining deals in Africa amounted to US$48 billion. Out of this, West Africa received the largest share of investment worth US$16.2 billion for its oil, gas, and gold reserves, followed by Southern Africa, which received US$14.7 billion worth of investment for its gold, platinum, nickel, and cobalt. East Africa and Central Africa received the least amount of mining investment.

Challenges

Asia constitutes approximately 60% of the world’s total mining production, followed by North America (14%). Africa, despite being endowed with abundant mineral reserves, constitutes only 5% of the global mining production. The continent has failed to achieve real mining expansion due to many challenges prevailing in the continent. One of the prime challenges is the poor infrastructure (rail and port) that causes trade blockages. High levels of political instability, unstable regulations, and corruption are other significant challenges hindering mining across Africa. Other challenges impacting the African mining industry include poor geological data management, illegal mining, lack of mineral processing facilities, unreliable power supply, and weak local markets.

EOS Perspective

With the world’s increasing appetite for clean energy, Africa has a chance to establish itself as a key player in the mining industry. Significant investments in extraction and exploration are required to get the most out of the continent’s resources, and this is happening to a certain extent. Most significantly, the countries involved must build a robust value chain to promote industrialization and boost their economies, instead of just supplying raw materials. Governments should consider fostering joint ventures and partnerships with foreign companies to bridge the technical skill gaps that prevail in the continent. The industry itself must ensure that it shares the mining benefits with the people, thereby improving their welfare.

The African countries must also address challenges such as poor infrastructure to participate effectively in the value chain. Many projects are already underway to boost the transport infrastructure. China has built significant inroads in Africa under its Belt and Road Initiative. Deloitte estimates approximately US$50 billion would be invested in over 830 infrastructure projects between 2003 and 2030.

Along with infrastructure development, strong governance, and a stable and reliable regulatory environment are critical to attracting foreign investments. Several governments across Africa are revising mining codes and regulations and providing tax incentives to stimulate manufacturing. The mining industry is at a critical stage where it needs to satisfy an increased demand for minerals while also curbing the environmental impact of mining operations. This process seems to be complex, but it also provides many opportunities. For instance, mining companies can utilize the adoption of renewable, energy-efficient systems for power generation. Technologies such as artificial intelligence, automation, and big data could be adopted to mitigate rising costs.

There is still a long way for the region to achieve the desired mining growth and economic development, with multiple challenges across the entire value chain. However, with stronger governance, more stable regulations, and considerable foreign investments, Africa could position itself as one of the largest mining economies in the world. The opportunity for Africa is huge, but it needs to be utilized properly.

December 9, 2015by EOS Intelligence EOS Intelligence No Comments

Botswana Diamonds – A Mixed Blessing?

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While Botswana has been an important player in the global precious stones industry for years, it has once again received global attention in November 2015, when the second-largest diamond ever unearthed was found in Botswana’s Karowe mine. Diamonds-derived revenues have been the key pillar to the country’s development over years, on the back of Botswana’s considerable deposits and well-performing global precious stones market. However, the outlook for Botswana might not be so bright anymore, as industry experts expect the global diamond production to decline after 2025 when majority of the mines are likely to be exhausted. Botswana, still one of the largest producers and exporters of diamonds, is already facing challenges in this industry. Being a diamond-dependent economy, will Botswana be able to maintain a sustained growth in the future as its shining precious gems industry weakens?

Diamond-fueled economic growth

Botswana, a small African country with a population of around two million people, has witnessed huge success since its independence in 1966. From being one of the poorest countries in the continent, Botswana has grown to be now considered one of the fastest developing countries in the world (with average annual GDP growth rate of 4.45% from 1995 until 2015). The success of the nation is largely attributed to the diamond deposits and the associated extraction industry. The discovery of the gems in 1967 led the way to the country becoming the poster child of the continent’s success. As of 2015, the diamond industry contributed 80% to the country’s export revenues and 30% to public revenues. In 2013, it accounted for around 25% of the country’s GDP. The success of the industry paved the way for the development of several roads, schools, and clinics in the country. Gaborone, the capital of Botswana, has transformed from a village to a city of malls and office buildings, all largely thanks to the diamond industry. Further, the sector has created job opportunities in the country and greatly contributed to raising standard of living of the country’s citizens.

“For our people, every diamond purchase represents food on the table, better living conditions, better healthcare, potable and safe drinking water, more roads to connect our remote communities, and much.” – Festus Mogae, Botswana’s President, 2006

As of 2014, Botswana was the largest producer of diamonds in terms of value and the second largest, after Russia, in terms of volume. The country’s production increased from 17.73 million carats in 2009 to 24.67 million carats in 2014. This represented a hike of almost 40% in the span of only five years.

Diamond mining operations in Botswana are controlled by Debswana Diamond Company, a joint venture between De Beers, world’s leading diamond company engaged in exploration, mining, and marketing of rough diamonds, and the Botswana government.

In the past years, the government has undertaken various initiatives to make the country a global diamond hub. In 2013, Dee Beers and the Botswana government formed the Diamond Trading Company Botswana (DTCB) to encourage the practice of sorting and marketing rough diamonds in the country itself, rather than sending them to De Beer’s Diamond Company based in London. This move facilitated job creation and upliftment of the local businesses in Botswana. Further, a state-owned company called Okavango Diamond Company was set up in order to sell 15% of the diamond production of Debswana independent of De Beers.

Grim future for Botswana

Despite being amongst the leaders in the global diamond industry, a grim future lies ahead for Botswana, driven by a range of reasons.

A weakened global demand: The global jewellery industry has been observing a sluggish demand, which has led to the global prices of diamonds witnessing a 12% decline from 2010 until 2015. To compensate for the stagnant sales, Botswana had been relying on opulent Chinese and Indian customers. However, the strengthening of the dollar and the decreasing price attractiveness of Chinese exports have weakened the Chinese economy. This was followed by a 2% devaluation of the Chinese currency, Yuan, which in turn has adversely affected the spending and demand for Botswana diamond by Chinese consumers.
Difficulty in diamond extraction: Botswana mines have reached a plateau as most of the diamond volume has already been extracted from the surface. Deeper extraction has now become a costly and time-consuming affair, showing an early sign that diamonds are likely to gradually become inaccessible in the country.
Competition from India: It is becoming increasingly difficult for Botswana to compete with a low-cost country such as India where majority of diamond cutting takes place. Although the wages in both countries are almost the same, India has levelled up its game by increasing its productivity by two to three times higher than that of Botswana’s. The cutting and polishing costs in 2013 ranged between US$ 60 and US$ 120 per carat in Botswana, whereas, in India it was between US$ 10 and US$ 50 per carat.

The above challenges have had an adverse impact on the country’s economy, particularly the employment sector. Teemane Manufacturing Company, a 20 year old diamond cutting and polishing firm in Botswana, shut down in January, 2015, leaving around 350 workers jobless. In the same period, MotiGanz and Leo Schachter, diamond cutting companies, also released almost 150 employees, and Debswana shut down two of its mines. These companies are offering retrenchment packages to their employees and ending their contracts with third parties which is likely to be affecting over 10 thousand jobs in the country. Shutting down of companies has also led to a decline in the various CSR programmes. The villages near the mines will no longer benefit from initiatives such as electrification of schools and development of roads.

The weakening demand also meant that early this year, De Beers failed to dispose off 30% of its diamonds stock. The company had to reduce its 2015 production target from 23 million carats to 20 million carats. And the impact of the sluggish demand goes beyond the industry as well. In the first half of 2015, the country witnessed a year-on-year decline of 16.8% in the export of rough diamonds. Further, since the production of diamonds is a critical element in Botswana’s GDP composition, a fall in the diamond output has reduced the country’s GDP growth forecast for 2015 from 4.9% to a mere 2.6%. Botswana’s government has decided to use its foreign reserves amounting to around US$ 8.3 billion to fuel growth in the country.

EOS Perspective

The Botswana economy has relied heavily on its diamond industry for survival for a long time. Since the revenues from diamonds are now becoming uncertain, the country is in a dilemma of how to keep its economy moving. Encouraging economic diversification could be one of the ways to help the country reduce its dependency on diamonds. Apart from diamonds, Botswana also produces other minerals such as coal, copper, iron ore, and nickel. The country should focus on developing a suitable industrial policy to promote the production and export of these minerals. However, whatever the alternative growth-fuelling path is chosen by Botswana, the country has a long way to go in order to shift away from over-dependence on diamonds, its largest structural weakness, to make its economy sparkle even when diamonds run out.

January 21, 2015by EOS Intelligence EOS Intelligence No Comments

China’s Green Energy Revolution

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China is widely criticized as the world’s largest emitter of carbon dioxide and other greenhouse gases. Less noticed, however, has been the fact that the country is also building the world’s largest renewable energy system. China plays a significant role in the development of green energy technologies and has over the years become the world’s biggest generator and investor of renewable energy. As China heads towards becoming the global leader in renewable energy systems, we pause to take a look at the major drivers behind this development and its implications on China as well as on the rest of the world.

Reducing CO2 emissions has become one of the top priorities and the Chinese government has set its eyes on developing sustainable energy solutions for its growing energy needs. To support this objective, China has set forth aggressive policies and targets by rolling out pilot projects to support the country’s pollution reduction initiatives and those which reflect the strategic importance of renewable energy in country’s future growth.

Why has China suddenly become so environmental conscious and investing billions on renewable energy?

Air and water pollution levels have become critical, causing tangible human and environmental damage, which lead Chinese authorities to rethink on the excessive use of fossil fuels. Considering current and potential future environmental hazards of burning fossil fuels, China decided to decrease the use of coal and is actively seeking for greener energy solutions. While serious concerns about climate change and global warming are key drivers towards expanding the use of renewable energy for any country, for China, the motives are well beyond abating climate change; they are creating energy self-sufficiency and fostering industrial development.
China is witnessing a dramatic depletion of its natural gas and coal resources and has become a net importer of these resources. China’s increased dependency on imported natural gas, coal and oil to meet its growing energy demands bring along some major energy security concerns. The current political volatility in Russia, the Middle-East and Africa pose serious challenges not only for China, but, for other countries as well to secure their energy supplies for the future. Not to mention the risks associated with energy transport routes.

Taking into account these geo-political risks and in order to achieve a secure, efficient and greener energy system, China started its journey towards developing an alternative energy system. A new system that reduces pollution, limits its dependency on foreign coal, natural gas and oil was envisioned.

China’s Ambitious Renewable Energy Plans

According to RENI21’s 2014 Global report, in 2013, China had 378 gigawatts (GW) of electric power generation capacity based on renewable sources, far ahead of USA (172 GW). The nation generated over 1,000 terawatt hours of electricity from water, wind and solar sources in 2013, which is nearly the combined power generation of France and Germany.

The country has now set its eyes on leading the global renewable energy revolution with very ambitious 2020 renewable energy development targets.

In May 2015, we published an article on the solar power boom in China, in which we presented the revised, higher solar power generation targets.

To achieve the 2020 renewable energy targets, China has adopted a two-fold strategy.

Rapidly expand renewable energy capabilities to generate greener and sustainable energy.

It has significantly expanded its manufacturing capabilities in wind turbines and solar panels to produce renewable electricity. As per data from The Asia-Pacific Journal, China spent a total of US$56.3 billion on water, wind, solar and other renewable projects in 2013. Further, China added 94 GW of new capacity, of which 55.3 GW came from renewable sources (59%), and just 36.5 GW (or 39%) from thermal sources. This highlights a major shift in energy generation mix as well as China’s commitment towards cleaner energy technologies.
Reduce carbon footprint.

The government has banned sale and import of coal with more than 40% ash and 3% sulphur. Government’s Five year plans have stringent targets on reducing coal consumption as well as CO2 emissions. It is expected that environmental and import reforms will become more stringent along with greater restrictions, which would help accelerate China’s migration to a green economy.

The government has also announced a range of financial support services, subsidies, incentives and procurement programs for green energy production and consumption. Solar PV and automotive industries are good examples.

By supporting domestic production and providing export incentives, China has become the global leader in solar panels. Over the last few years, the government has also financed small-scale decentralized energy projects, deployed and used by households and small businesses, in order to make them self-sufficient in their energy needs
China has also positioned itself as the leading manufacturer of electric vehicles globally. According to Bloomberg, China is mandating that electric cars make up at least 30% of government vehicle purchases by 2016. To achieve this target, the government has started investing on essential infrastructure and providing tax incentives for purchasing of electric vehicles.

China has laid the foundations for a future where renewable energy will play a vital role. The advancements in technology and changes in policies will further enhance the country’s renewable energy landscape and will drive affordable, secure and greener energy. How the Asian giant achieves to balance between its economic, industrial, regulatory and environmental goals with sustainable renewable energy investments will, however, only become clear in the next few years.

January 27, 2014by EOS Intelligence EOS Intelligence No Comments

Mongolia – Mining in China’s Backyard

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Mongolia, uninteresting and perhaps almost forgotten to the rest of the world until just recently, has turned out to become of the world’s largest untapped mining centers. The country houses minerals worth over US$ 1 trillion, thanks to which it has the potential to become one of the most prosperous economies in the East. We take a closer look at Mongolia’s potential, its background, most relevant advantages, and challenges that continue to put a brake on the country’s development. Read Our Detailed Report.

May 15, 2013by EOS Intelligence EOS Intelligence No Comments

As Myanmar Works Towards Stability, Communal Violence Holds The Nation Back.

In mid-2012, we published a report on Myanmar, looking into its potential as a new emerging market with considerable investment and trade opportunities for foreign investors (see: Myanmar – The Next Big Emerging Market Story?). Almost a year later, we are returning to Myanmar, to check and evaluate whether the political, social, and economic changes envisioned and proposed by the quasi-civilian government have really translated into actions to push the country forward on the path to becoming the next big emerging market story.

Being plagued by uninspiring and inefficient governance for more than six decades, Myanmar for long has been proclaimed as Asia’s black sheep. The Chinese named it ‘the beggar with a golden bowl’, asking for aid despite its rich natural and human resources. However, having embarked on a momentous yet challenging political revolution, the nation is said to be on its way to open a new chapter in the Asian development story.

Contrary to what was believed to be just hollow promises and sham, the reforms initiated by the Thein Sein government have gathered much steam in quite a few cases. Bold moves over the last year have also immensely helped the country in gaining goodwill internationally. We are looking at some of the game-changing reforms enacted over the past present year in Myanmar.

Media Censorship

In August 2012, the government put in actions their proposed end to media censorship. As per the new system, journalists are no more required to submit their reports to state censors prior to publication. To further strengthen the power of media, in April 2013, the government abolished the ban on privately run daily newspapers – ban remaining in force for over 50 years.

Foreign Investment Law

In January 2013, the Thein Sein government passed a foreign investment law that was initially drafted in March 2012. The law allows foreign companies to own up to 80% of ventures across several industries (apart from activities mentioned on the restricted list –including small and medium size mining projects, importing disposed products from other countries for use in manufacturing, and printing and broadcasting activities). This acts as an important milestone in opening up the Burmese economy to heaps of foreign investment.

Opening Up Of Telecom Sector

Myanmar, one of the least connected countries in the world, has embarked on the deregulation of its much neglected telecom sector by initiating the sale of 350,000 SIM cards on a public lottery basis. It plans to offer additional batches on a monthly basis. As a more tangible effort to revolutionize the sector, the government is auctioning two new 15-year telecom network licenses to international companies. These companies are to be announced in June 2013 from a list 12 pre-qualified applicants, namely, Axiata Group, Bharti Airtel, China Mobile along with Vodafone, Digicel Group, France Telecom/Orange, Japan’s KDDI Corp along with Sumitomo Group, Millicom International Cellular, MTN Dubai, Qatar Telecom, Singtel, Telnor, and Viettel. Despite the current 9% mobile penetration claimed by the government, an ambitious goal has been set to reach 80% penetration by 2015.

The World Responding To Myanmar’s Progress

As Myanmar works towards attaining political stability, introducing economic reforms and easing social tensions, the world is also opening up its arms to increasingly embrace the otherwise banished land. In April 2013, the EU permanently lifted all economic sanctions against Myanmar, while maintaining the arms embargo for one more year. The USA, on the other hand, has not permanently removed the sanctions, but has had them suspended since May 2012. This allows US companies to invest in Myanmar through the route of obtaining licenses. The definite abolishment of these sanctions by the EU puts pressure on the USA to act soon and lift them as well, to avert the risk lagging behind in the race to tap this resource-rich market. The USA has already begun working on a framework agreement to boost trade and investment in Myanmar. Japan has also been improving its relations with Myanmar to gain a foothold in this market.

With the EU, the USA and Japan encouraging investments in Myanmar, several international companies have directed investments to this previously neglected country.

In August 2012, a Japanese consortium of Mitsubishi Corporation, Marubeni Corporation and Sumitomo Corporation contracted with the Burmese government to jointly develop a 2,400 hectare special economic zone in Thilawa, a region south of Yangon. The Myanmar government will hold a 51% stake, while the Japanese consortium will own the remaining share in the industrial park, which will also include large gas-fired power plant. In the first phase of the project development, the companies plan to invest US$500 million by 2015 to build the necessary infrastructure on the 500 hectares area in order to start luring Japanese and global manufacturers.
In August 2012, Kerry Logistics, a Hong-Kong based Asian leader in logistics, opened an office in Myanmar. Recognizing the immense potential in the freight forwarding and logistics sector (underpinned primarily by growing international trade), European freight forwarders, Kuehne + Nagel, also began operations in this country in April 2013.
To cash upon a booming tourism market, in February 2013, Hilton Hotels & Resorts initiated the development of the first internationally branded hotel in Yangon, which is expected to open in early 2014. The hotel will be a partnership between Hilton Worldwide and LP Holding Centrepoint Development, the Thai company that owns the 25-storey mixed-use tower, called Centrepoint Towers, which will house the hotel. Hilton has signed a management agreement with LP Holdings to operate the 300-room property.
In February 2013, Carlsberg, the world’s fourth-biggest brewer, announced its plans to re-enter Myanmar, after it left the country in mid 1990’s owing to international sanctions.
Fuji Xerox, a joint American-Japanese venture, set up its office in Myanmar in April 2013. The company, which is the first player in the office equipment industry to start direct operations in Yangon, looks to revive its internationally declining business through this venture.
In April 2013, JWT, an international advertising firm, entered into an affiliation agreement with Myanmar’s Mango Marketing, in anticipation of opportunities in this country, given an increasing interest in Myanmar expressed by a number of international players who are likely to seek advertising and marketing services.

Civil Unrest Still Stands As a Major Concern

While Myanmar has made great strides in reforms over the past year, the ongoing unrest between Myanmar’s majority Buddhists and minority communities (primarily Muslims), and the lack of a concerted effort by the government to address it, poses a major threat for the nation to descend into ethnic-religious war. In October 2012, the Rakhine riots between the Buddhists and Muslims claimed 110 lives and left 120,000 displaced to government setup refugee camps around Thechaung village. A similar case followed in April 2013 in Meiktila, where the death roll of Muslims reached 30. Strong international condemnation for the growing racial and religious violence in the region has caused concerns of losing international support gathered over the past few years. Moreover, the use of military force to suppress the Meiktila riots raises fear about the army once again seizing power in the name of restoring order to the nation.

Myanmar’s attempts to transition into a democracy from a highly repressive state have yielded positive outcomes over the past year. While Myanmar seems to be on the right trajectory for future growth and stability, the government must address internal conflicts immediately before the nation stands at risk of tumbling back into chaos, with possible outcomes similar to those seen in Yugoslavia. Therefore, it is safe to say that although political and economic developments are increasingly seeing the daylight, underpinned by the government’s pro-development course, the recent spate of religious, ethnic and communal violence as well as the magnitude of reforms still to be introduced, might still question the nation’s ability to attract and sustain foreign investments and economic development in the long run.

January 30, 2013by EOS Intelligence EOS Intelligence No Comments

Australia – Stepping on to the Mine Field

While most developing countries have been negatively impacted by the significantly deteriorated economic conditions in the US and European markets, Australian economy appeared to be largely shielded from the impact of the global economic slowdown thanks to its mining industry. Following the onset of the 2008 crisis, when most developed economies slowed down, China continued on its path of infrastructure development and investment. This boosted its demand for minerals and resources, large part of which continue to be imported from mines across Australia.

Thanks to the Chinese economy growth sprint, Australian mining industry has been in a boom mode since 2006, and consequently witnessed soaring levels of capital investment in mining and related logistic infrastructure. The industry growth was significant enough to have resulted in higher dependency of Australian economy on this sector, with the mining and mining-related service industries accounting for about 20% of GDP in 2011-12, compared with only 10% a decade earlier.

The industry is still on a roll, yet the situation might change soon. With the Chinese economy showing signs of slowing down in 2011 and 2012, the Australian government and business executives can no longer be certain of the continuous inflow of Chinese orders for Australian mining output. But the decline in orders is just part of their worries, as mining companies operating across Australia are faced with other challenges as well, which question their ability to remain competitive in the global market.

The Challenges

While currently it is estimated that the strong performance of the Australian mining sector will continue till at least 2014, there are already growing challenges in the industry. Slackening demand, particularly from the Chinese infrastructure sector, has lead to a global drop in commodity prices of coal and iron. This decline in prices, coupled with higher operating costs due to rise in employee wages and energy costs, makes it less economical for Australian ore extractors to trade in global markets.

Skills shortage and union pressures further drive the operational costs upwards. A shortfall in skilled personnel is likely to result in employees being available only at a premium, leading to further increase in costs. A shortage of truck drivers in mining sector has seen employees of large companies, such as Rio Tinto and Xstrata, receive as much as three times their base salary. The insufficient talent is also witnessed in more skilled and experienced jobs, including mine planning engineers, geologists, metallurgists and mineral processing engineers. This skill shortage also gives employee unions an upper-hand when it comes to negotiating perks.

The rise in costs is further multiplied by the introduction of additional taxes, including the Carbon Tax and the Mineral Resource Rent Tax, all of which contribute to the rising cost burden of the Australian mining companies.

At the same time, mining productivity has resurfaced as an increasingly relevant issue. According to 2012 estimates by the Mineral Council of Australia, productivity in mining industry has reduced by about 30% since 2003.

These challenges are a visible sign that Australia’s mining sector is likely to have an increasingly harder job to compete with mining companies in other emerging resource-rich countries, such as Indonesia, whose proximity to important Asian customers results in lower shipping costs to the client. This could result in a considerable decline in Australian mineral exports, and thereby, have a negative impact on the Australian economy as such.

The Way Out

Both the government and mining companies are devising ways to overcome the challenges posed by these increasingly pressing issues.

Expecting that the current peak in mining investment boom will soon be followed by the sector’s decline, the Reserve Bank of Australia (RBA) announced cuts of cash and lending rates in December 2012. Concerned by the fact that the non-mining industries in Australia continue to struggle, RBA has introduced these cuts to support the underperforming non-mining sectors, such as housing, construction, and retail. While the short-term outlook for non-resources investment is likely to remain subdued, these cuts are expected to provide impetus for investment in these sectors over a long term.

Mining companies face a tougher task to remain competitive in the global market. In the short-term, several Australian mining companies are looking at temporary shelving of investment projects to deal with the deteriorating demand and decline in commodity prices. For instance, BHP Billiton, the world’s largest mining company, shelved its Olympic Dam and Bowel Basin projects after witnessing a decline in profits.

However, putting investment projects on hold is not enough and mining companies will have to continue to undertake initiatives to tackle the problem of increase in cost per ton of output.

Initiatives to raise employee productivity are being put in place. In 2012, a contracting company overseeing work on Chevron’s $52 billion Gorgon gas project banned sitting during working hours to improve operational productivity.
Companies are trying to explore alternatives to tackle skill shortage. Rio Tinto has started employing driverless trains and trucks to cart iron ore from its mines in order to tackle the premium wage demands, caused by the shortage of drivers in mining operations.
Companies are cutting employee perks to lower wage costs and offset lower returns. In 2012, Fortescue Metals Group scrapped weekly staff barbecues, and removed free coffee and ketchup from the canteens.

While these initiatives might attract negative publicity, particularly with labour unions, these steps have become increasingly necessary for mining companies to get back on the path of competitiveness and profitability over a long run. But will this be enough? Will cutting weekly employee get-togethers, and making workers stand at work take care of 30% productivity decline witnessed over the past decade? These measures definitely appear disproportionate to the problem’s weight. Or do the Australian mining executives have some more tricks up their sleeves that will actually matter in prolonging the mining sector golden years?

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