A new era for mining in Kenya

By Warren Beech

Africa is home to about 30 per cent of the world’s mineral reserves, 10 per cent of the world’s oil, and eight per cent of the world’s natural gas. Extractives form a critical part of mineral rich economies in Africa and contribute directly to the GDP.

Understanding the present, securing the future, and yet extracting the continent’s vast natural wealth remains a high-risk gamble for many investors. This is especially due to a seemingly insatiable thirst from Western consumers. So what is the current state of the mining industry in Kenya and across the continent?

Kenya’s nascent mining industry is bolstered by the production of cement and soda ash, in addition to oil, which is being explored by companies like Tullow Oil, among others. In February 2017, UK firm Acacia Mining discovered an estimated 1.31 million ounces of gold in Kakamega, one of the highest deposits in Africa. The newly elected Cabinet Secretary for Mining, John Munyes, has expressed optimism in the sector’s growth, especially following the ongoing mapping exercise of minerals in the country.

Boosting the infrastructural framework is a key priority, given the Ministry of Mining’s long-term plans to pipe oil from Lokichar to Lamu. Communities will need to be engaged to support the extractive sector, especially by highlighting long-term benefits.

To maintain this trajectory, a balanced regulatory framework is important to eliminate the risk of slowing development and to deploy favourable and progressive policies. The importance of such a protective policy framework is evident in what has been happening in neighbouring Tanzania. The Tanzanian mining ministry in January passed regulations that will now make it compulsory for foreign-owned mining groups to offer shares to the government and local companies.

The Kenyan Government thus finds itself in an interesting conundrum – trying to create a conducive environment for foreign participation and investment, while also protecting the interests of the communities where exploration is to take place.

Opportunity to create lasting benefits for Kenya

Kenya has real potential to become a regional hub for mining, as it is for financial services. Currently, the country exports most of its mineral wealth in raw form rather than processing it locally. This is because of a lack of sufficient technical expertise and industries to process the minerals. It would therefore be of great benefit if policy makers visualized and moved towards a future that will create an enabling environment for mineral processing.

Kenya could benefit from mining firms setting up in the country if the draft Mining Local Equity Participation Regulations is signed into law. According to the draft regulations published by the Ministry of Mining in December 2017, firms investing at least $100 million (Sh1billion) in Kenya’s mining sector must have 24 per cent local shareholding through the stock exchange within three years of operations.

The regulations are set to strengthen the Mining Act 2016, which advocates for the protection of local companies with provisions for equity participation in large mining operations. The Act also provides for the prioritization of local procurement of goods, services and workforce.

Yet even with Africa’s huge mineral wealth, unemployment levels are among the highest around the globe, especially among the youth. In Kenya, the unemployment rate is at 40%. There is an opportunity for Kenya’s youth to derive value from the active mining and extractives industry. This requires reflection on why current levels of participation are where they are – could it be a lack of skills and knowledge on the extractives value chain?

Kenya is among five African countries bidding for the hosting of the African Minerals Development Centre (AMDC), currently hosted at the African Union Headquarters in Addis Ababa. Winning the bid to host the Centre will further boost the sector and consequently create more jobs in the country.^

The writer is a Partner at Hogan Lovells