Mining for certainty

Policy uncertainty has axed Namibia’s image as an investment destination on a leading global mining index at a time when the country is banking on billions pouring into the sector and fuelling the economy.

The country scored 68 out of a possible 100 on the Policy Perception Index of the 2023 Fraser Institute Survey of Mining Companies - a slump of nearly 20 points from the 87.22 in 2019.

“The proposed ‘Investment Promotion Bill’ is heightening uncertainty and risk,” the latest Fraser report quotes the manager of an exploration company in Namibia.

“Exploration companies are mandated to incorporate local ownership,” the document also cites a company president.

The Fraser Institute refers to its Policy Perception Index (PPI) as a “‘report card’ to governments on the attractiveness of their mining policies”.

In 2019, Namibia was ranked 14th out of 76 jurisdictions worldwide on Fraser’s PPI. In the latest report, the country tumbled to 33rd out of 86.

The president of the Chamber of Mines of Namibia, Zebra Kasete, reacted to the latest score-card, saying the country can do “better with regards to mining policy and regulatory matters”.



Overall performance

The PPI, together with the Best Practices Mineral Potential Index, is used to compile Fraser’s Investment Attractiveness Index (IAI).

In the latest survey - which was conducted from August last year to January this year - Namibia scored 56.43 points out of a possible 100 on the IAI, down from 59.88 in 2022.

Except for 52.59 in 2021, this is the worst performance since 2009/10, when Namibia scored 49.2 on the IAI.

A decade ago, Namibia’s score on the IAI was at a high of 76.37.

Namibia’s latest score ranked the country 42nd out of 86 jurisdictions worldwide, compared to 38th out of 62 in 2022.

Namibia ranked 4th out of 22 African jurisdictions surveyed on overall investment attractiveness, compared to 6th out of 16 jurisdictions surveyed in 2022.

“While we can be proud that Namibia is still one of Africa’s more favourable destinations, ranking 4th, it is concerning to note that our score has deteriorated by three points on the absolute score and also on our global rankings,” Kasete said.

The top jurisdiction in the world for investment based on the latest IAI is Utah in the USA, while Niger was ranked at the bottom, followed by China.

Namibia’s score on the Best Practices Minerals Potential Index - a measure of a country’s mineral attractiveness which is rated assuming a perfect regulatory and policy environment - fell by five points from 54 in 2022 to 49 last year.

“The index is based on the perceptions of respondents and the decline in Namibia’s Minerals Potential Index can be attributed to competing jurisdictions being ranked more favourably,” the Chamber said.



Policy

While geologic and economic considerations are important factors in mineral exploration, a region’s policy climate is also an important investment consideration, Fraser says.

Respondents consistently indicate that 40% of their investment decision is determined by policy factors, while 60% is based on their assessment of a jurisdiction’s mineral potential.

Policy factors Fraser examined include uncertainty concerning the administration of current regulations, environmental regulations, regulatory duplication, the legal system and taxation regime, uncertainty concerning protected areas and disputed land claims, infrastructure, socioeconomic and community development conditions, trade barriers, political stability, labour regulations, quality of the geological database, security, as well as labour and skills availability.

Commenting on Namibia’s performance on the latest PPI, the Chamber of Mines of Namibia said “slow progress was made on finalising the Draft Minerals Bill, while government made high-level pronouncements to introduce a state owned free-carry in Namibian mining companies”.

“Although slow progress may have characterised some of these key policy items, Namibia was ranked as the 4th highest on PPI in Africa. This shows that Namibia remains to be perceived as a relatively stable country with an attractive policy environment compared to other African countries,” the Chamber added.



Draft Minerals Bill

According to the Chamber’s recently released Annual Review, the most contentious aspects of the Draft Mineral Bill include proposals to raise the upper royalty rate limit from 5% to 10% for base and precious metals, nuclear fuel minerals, dimension stone, industrial minerals, the introduction of a windfall corporate tax, and the incorporation of mining charter provisions into the legislation.

“Regarding the royalty and tax proposals, after more than 20 years of review of the Bill, Namibia’s mining industry currently has one of the highest effective tax rates globally, and research indicates that further tax increases could render projects and mines in Namibia economically unfeasible,” the Chamber’s chief executive officer, Veston Malango, said.

“Additionally, the Mining Charter is slated to come into effect upon the finalisation of the New Equitable Economic Empowerment Framework (NEEEF), to be enforced by the ministry of mines and energy as regulations under suggestions and concerns. It would not be practical to implement the Mining Charter in both NEEEF and the new Minerals Act,” Malango added in his report in the Annual Review.



State shareholding

Government’s intention to introduce a free carry shareholding, to be held by the state in Namibian mines, was introduced by mines and energy minister Tom Alweendo in parliament in March last year. This policy position was reiterated by Alweendo during a workshop organised by the Parliamentary Standing Committee on Natural Resources last June in Swakopmund.

“The minister’s announcement during the workshop drew significant attention from both local and

international media, causing substantial turmoil in Namibia’s investment sentiment,” Malango said in the Annual Review.

“Companies with projects in Namibia listed on the Australian and Canadian stock exchanges saw a sharp decline in their share prices, which was fuelled by widespread panic that a government free carry would be introduced imminently,” he added.

Malango cautioned: “The proposed mandatory government shareholding, if not properly handled,threatens to undermine the economic viability of existing mines and future projects.”

To allay these fears, the Chamber’s executive committee clarified that the free carry policy is still a high-level position and is being deliberated by government.

“It will not be implemented without further clarity, consultation and adherence to the necessary legislative procedures,” Malango stressed.

The Chamber has crafted a strategy to guide its engagement with the mines ministry on free carry, which it intends to pursue once it has obtained clarity and details with regards to its implementation.



Crucial

“While optimism abounds in Namibia’s mining industry, it is imperative that we continue to take stock of the current legislative and policy landscape and advocate to conclude outstanding policy matters. This will be crucial to ensure that investment into mining continues and exploration grows, particularly amid this positive environment for Namibia’s mining sector,” Kasete said in the Annual Review.

“In this vein, the Chamber remains committed to advocating for the finalisation of the draft Minerals Bill and participating in discussions regarding the government’s proposal to introduce mandatory state free shareholding in mines. We have developed clear strategies on how the Chamber will advance these matters and mitigate risks without compromising the overall cost or effective tax rate on mining in Namibia,” he continued.

Malango reiterated this stance in the Chamber’s statement on the Fraser survey this week, saying: “The Chamber will be engaging government to de-risk the introduction of the proposed free-carry, and will continue to advocate for the fast-tracking and finalisation of the Minerals Bill along with other pending policy matters such as the Namibia Investment Promotion and Facilitation Bill.”



Economic driver

Investors injected nearly N$60 billion into the Namibian economy last year, most of it into mining and exploration industries.

Figures released by the Namibia Statistics Agency (NSA) indicate that the country's Gross Fixed Capital Formation (GFCF) last year was nearly N$59.8 billion. Of this, almost N$34.2 billion flowed into mining and exploration.

Statistician-General Alex Shimuafeni attributed the increase in GFCF to accelerated investment spending in exploration industries in the oil and gas sector. Namibia is increasingly seen as one of the prime candidates for new oil and gas sources.

The latest GFCF figures are reminiscent of 2015 when construction on several new mines, including Husab, also fuelled investment in Namibia. It's the first time since 2015 that GFCF has exceeded the N$40 billion mark.

Namibia's Gross Domestic Product (GDP) last year was approximately N$151.4 billion in real terms – about N$6 billion more than in 2022. This figure was used to determine the economic growth rate of 4.2% for 2023.

Mining accounted for about N$19.1 billion of Namibia's real GDP last year.

While diamonds still dominate mining with a contribution of nearly N$10.7 billion, the sector's year-on-year (y/y) growth was not nearly as impressive as that of uranium, metal ores, and "other mining."

Diamonds' GDP contribution grew y/y by 10.9%. Uranium and metal ores, on the other hand, saw growth rates of 24.5% and 28.9% respectively. Uranium contributed approximately N$3.1 billion to the real GDP pot, while metal ores' contribution was about N$1.6 billion.

"Other mining and quarrying," which includes activities in the oil and gas sector, surged y/y by 37.2% and contributed more than N$3.7 billion to the real GDP.



Outlook

Cirrus Capital chief economist Robert McGregor says Namibia is placed in “an incredible position”.

“Her current natural resource exposure appears opportune, given the rally in global uranium prices and growing adoption of nuclear energy.

“Existing mines are ramping up production to take advantage of prices that are at their highest in over a decade, while Langer Heinrich has just restarted, and several prospective mines are chomping at the bit to begin construction.”

However, this again requires that the country remains “sensible and pragmatic” on policy, McGregor urges.

“This relates not only to taxation and local participation, but also on matters such as water provision (for instance, allowing private entities to construct desalination plants for their own needs and providing the excess to local authorities).”

Namibia’s hydrocarbon prospects are “beyond incredible”, according to McGregor.

“Quite simply, the potential scale of these developments dwarf anything Namibia has ever seen, and the country is – quite frankly – likely not ready for what precisely this may mean.”

The country awaits official communications around the commercial viability of the already discovered resources, along with decisions on whether these will be developed.

This will again likely be driven down to domestic policy, McGregor says.

“While the fiscal regime appears very favourable, certainty over decades is required. Given the policy missteps of recent years and policy announcements seemingly on a whim, investors at such a scale would understandably be hesitant.”