Impact of the AFCFTA agreement on mining sector trade alliances

By Tendani Rampai, mining industry advisor and Stewart Nupen, associate director – Deloitte Technical Mining Advisory

Africa has faced numerous challenges in sustainably and efficiently leveraging its vast mineral wealth to drive sustainable and inclusive economic growth. Challenges include barriers to trade, fragmented markets, limited access to capital, as well as specialised mining and downstream industrial equipment, machinery and technologies. This has hindered the growth and global competitiveness of the African mining sector.

The African Continental Free Trade Area (AfCFTA) agreement presents an opportunity to address some of these challenges and reshape the continent’s mining landscape by creating a unified African market projected to grow to 1.7 billion people and USD6.7-trillion in consumer and business spending by 2030 (World Economic Forum, 2023). The agreement is one of the key flagship initiatives of the African Union’s Agenda 2063 (Tralac, 2023), Africa’s strategy for accelerating inclusive economic growth and sustainable development.

The AfCFTA represents a significant step toward regional integration in Africa. In relation to the mining industry, it encourages co-operative agreements between mining industry stakeholders to facilitate the trade of mineral resources (mining sector trade alliances)¹ through its emphasis on intra-Africa trade and promoting integrated supply chains. Existing mining sector trade alliances may be able to take advantage of these regional value chains by co-ordinating the production and supply of mining goods across different African countries. This could foster closer regional co-operation and integration within the mining sector, and potentially even trigger significant shifts in trade patterns, making Africa less dependent on external mining partnerships.

The integration of African markets, along with the growth of intra-Africa trade, holds the potential to unlock new investment opportunities in the sector and drive industrialisation.

The AfCFTA’s potential impact on mining sector trade alliances extends beyond immediate benefits. By encouraging trade diversification, industrialisation and the development of regional value chains, the agreement aligns with Africa’s broader development agenda. As regional integration deepens, Africa’s mining sector may not only be able to compete more on a global scale but also stimulate ancillary industries and infrastructure development.

Challenges and addressing regional disparities

A total of eight Regional Economic Communities (RECs) are recognised by the African Union as building blocks of the AfCFTA agreement, namely the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), the Southern African Development Community (SADC), the Economic Community of West African States (ECOWAS), the Economic Community of Central African States (ECCAS), the Intergovernmental Authority on Development (IGAD), the Community of Sahel-Saharan States (CENSAD) and the Arab Maghreb Union (AMU) (Tralac, 2023). Despite the contribution of these RECs to the growth of trade within the African continent, current intra-Africa trade agreements are perceived as not meeting expectations (Abrego et al., 2020).

Intra-Africa trade is hampered by high import tariffs and other non-tariff barriers (NTBs) such as poor transportation and energy infrastructure, lack of harmonised regulations, and insufficient trade facilitation measures.

For mining sector trade alliances to benefit from the AfCFTA, extensive infrastructure development (including cross-border) will be necessary to facilitate the movement of goods and services across the continent (Subban, 2023). Projects such as construction of the Standard Gauge Railway (SGR) in Tanzania and the Trans-Maghreb Highway in North Africa are underway to address the gap. Investment in infrastructure will therefore facilitate the smooth movement of goods and services across borders, enabling efficient collaboration amongst mining stakeholders. Improved infrastructure will also enhance economic value addition and promote local beneficiation of minerals and metals in the continent.

The agreement calls for a unified set of rules, standards and protocols to facilitate trade and investment. For the mining sector, this harmonisation presents an opportunity to streamline regulations, licensing requirements and permitting processes, reducing bureaucracy and enhancing ease of doing business.

A standardised approach to regulatory frameworks may increase transparency, predictability and legal certainty, attracting more foreign direct investment (FDI) to the sector. Mining sector trade alliances can better navigate cross-border transactions and collaborate seamlessly, knowing that regulations are aligned and conducive to smooth operations. This harmonisation will be pivotal in reducing trade frictions, improving competitiveness and fostering a conducive environment for new and existing alliances to thrive.

Addressing import dependency

One of the notable impacts of AfCFTA would be the progressive reduction or elimination of tariffs on mining-related goods and services imported from other African countries. The World Bank (2020) noted that member countries party to the AfCFTA agreement will be obligated to progressively eliminate tariffs on a minimum of 97% of tariff lines that account for 90% of intra-Africa imports. High import tariffs and cumbersome customs procedures hamper the accessibility and affordability of crucial mining inputs.

Further, the AfCFTA has the potential to reduce African countries’ reliance on imports. For decades, African nations have imported skills, machinery, equipment and expertise from outside the continent to support their mining operations. This reliance on imports not only draws down foreign exchange reserves but also limits the industry’s potential to create jobs and foster economic development within Africa.

By fostering trade alliances within a single market, the AfCFTA encourages the development of local manufacturing and supply chains, reducing the need for imports. Domestic production of mining inputs such as machinery, equipment and chemicals can be promoted, creating job opportunities, technology transfers and local skills development. This shift towards localised production could contribute to improved economic diversification, stimulate intra-Africa investment, and strengthen the continent’s mining capabilities.

Expanding export opportunities

The African mining sector has historically relied on exports outside the continent, limiting its potential for value addition and industrialisation. Ahadjie et al. (2023) also noted that Africa is largely a price taker excessively dependent on exporting natural resources.

The World Bank (2020) estimated that AfCFTA implementation could increase the continent’s volume of total exports by about 29%, intra-African exports by over 81% and exports to non-African countries by 19% by the year 2035. The key enabler of these increases is a reduction in trade costs through tariff liberalisation on goods and services, removal of NTBs, as well as implementation of a trade facilitation agreement (TFA) among member countries.

The AfCFTA agreement offers African mining countries an opportunity to diversify their exports and leverage shared export infrastructure such as ports or transportation networks, allowing for more efficient and cost-effective export operations.

With the goal of creating a value-added supply chain within the continent, the agreement seeks to foster regional integration through increased manufacturing and processing of mined resources. This could pave the way for Africa to focus on developing downstream industries and value-addition activities, such as manufacturing of mining equipment, contributing to enhanced economic stability.

By integrating diverse markets and consumer bases, the agreement could enable the mining sector to explore new markets in neighbouring countries with less bureaucratic red tape and lower trade barriers. This could open opportunities for increased export volumes, widened market access (Morgan, Farris and Johnson, 2022) and better investment prospects for African mining companies.

The ability to trade more efficiently within Africa incentivises mining companies to invest in infrastructure, technology and human capital, resulting in improved productivity. It also promotes regional specialisation and the development of value chains across the mining sector, with countries focusing on their competitive advantages.

Role of technical expertise and knowledge transfer

The AfCFTA offers opportunities for mining companies to pool resources, share expertise and explore innovative ways to extract mineral resources. Initiatives like twinning arrangements, joint research projects and training programmes can strengthen collaboration among mining industries across the continent.

Twinning arrangements, where established mining companies partner with their counterparts in developing nations, can provide a structured platform for knowledge exchange. Twinning arrangements would enable the transfer of technical expertise through direct collaboration and mentoring, allowing emerging mining industries to benefit from the experience and knowledge of their more advanced counterparts.

Joint research projects can further facilitate knowledge transfer. Research collaboration between established and developing mining countries can address specific challenges or explore opportunities for innovation within the industry. By pooling resources, expertise and knowledge, these joint projects can generate new insights, solutions and technologies that benefit all participating countries.

Training programmes could play a crucial role in building capacity and ensuring the sustainable development of the mining industry. African countries with advanced mining sectors can establish training initiatives targeting professionals, engineers and technicians from less developed nations. These programmes can cover a wide range of topics, from technical skills to management and governance practices. By equipping individuals with the necessary expertise and knowledge, training programmes contribute to building a skilled workforce that can drive the growth and competitiveness of the mining industry across the continent.

Conclusion

The AfCFTA is expected to have a significant positive impact on intra-Africa trade alliances, as it will create new market opportunities, reduce import tariffs, ease export processes, promote value addition and encourage regional integration. New trade alliances may form to leverage the benefits of the single market and collaborate on importing or exporting mining-related goods and services, leading to more efficient and competitive mining operations in the continent.

African mining countries must actively leverage this opportunity to build strategic partnerships, enhance technical expertise and promote sustainable and responsible mining practices. Successful implementation of the AfCFTA agreement could mark a new era of self-sustainability and prosperity for the African mining sector. However, its effectiveness relies on proper enforcement of policies, harmonisation of regulations, infrastructure development, and political will and commitment of participating countries.

Notes:

Mining sector trade alliances refer to partnerships or agreements between mining companies and governments or other industry stakeholders to facilitate the import and export of minerals and resources across international borders. These alliances may take the form of intergovernmental agreements, public-private partnerships and industry associations or trade organisations.

References:
Abrego, L., Zamaroczy., M., Gursoy, T., Issoufou, S., Nocholls, G.P., Perez-Saiz, H. and Rosa, J. 2020. The African Continental Free Trade Area: Potential Economic Impact and Challenges. [online] International Monetary Fund. Available at https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2020/05/13/The-African-Continental-Free-Trade-Area-Potential-Economic-Impact-and-Challenges-46235 [Accessed 13 October 2023].

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5. The World Bank, 2020. The African Continental Free Trade Area: Economic and Distributional Effects (English). [online] Washington, DC: World Bank Group. Available at http://documents.worldbank.org/curated/en/216831595998182418/The-African-Continental-Free-Trade-Area-Economic-and-Distributional-Effects [Accessed 14 November 2023].
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About the Deloitte Technical Mining Advisory Team: The Deloitte Technical Mining Advisory team is Deloitte’s specialist team that provides techno-economic and techno-strategic services to the mining and metals sectors. The team is recognised for their technical abilities in the evaluation of acquisition and divestiture opportunities and preparation of corporate project disclosure. A combination of technical mining advisory skills with strong financial and commercial due diligence skills positions the team favourably within the industry. With significant and credible experience advising mining companies and investors on the techno-economic merits of mineral projects and extensive experience in mineral project transactions, the team is able to assist clients in accelerating their business to a better mining future with the professional expertise spanning the full mineral value chain.

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