Overthrow of Madagascan authorities complicates mining outlook

In October, Madagascar’s armed forces overthrew the federal government led by President Andry Rajoelina after weeks of common protests centred on low requirements of dwelling, allegations of corruption and lack of financial alternatives.

Upon taking management of the presidential palace in Antananarivo, the authorities found 300 kg of emerald rock which they alleged had been hidden by the earlier authorities. The federal government introduced shortly afterwards that the emeralds could be bought on worldwide markets, the place at present costs they promote for round $80 a gram.

Newly put in President Michael Randrianirina, a senior army chief, mentioned: “we found this nationwide treasure… we don’t know why it was hidden right here, however we’re merely glad to indicate that we’re able to reside with transparency.”

The symbolic gesture was meant to indicate that the federal government is making a decisive break from the earlier administration – notably in relation to the administration of extractive assets – however it’s unclear whether or not issues will change substantively.

Madagascar’s mining business has come beneath elevated consideration from worldwide buyers lately, given the nation’s wealthy reserves of commercial minerals corresponding to graphite, copper and nickel, in addition to gem stones like sapphire and ruby.

The nation has not less than 26m tonnes of graphite reserves, produces round 7,000 tonnes of uncommon earths yearly – making it an more and more essential international participant on this strategically essential sector – and is one among Africa’s largest graphite exporters. The East African nation can also be house to profitable gold reserves, though most exports of the valuable steel at present cross by means of casual channels.

Looking for to capitalise on these alternatives, worldwide miners are already energetic. The Ambatovy nickel-cobalt mine, collectively owned by Japan’s Sumitomo Company and South Korea’s Mine Rehabilitation and Mineral Sources Company (KOMIR), and the Soalala iron ore mine, owned by China’s Wuhan Iron and Metal Company, are simply two of the largest foreign-led tasks.

Different multinationals have additionally invested appreciable quantities into Madagascar’s mining business: Rio Tinto has put over $1bn into its QIT Madagascar Minerals undertaking to develop a mineral sand mine and associated infrastructure, for instance.

Longstanding business issues

However working in Madagascar and exploiting the complete financial potential of the nation’s assets, has typically proved troublesome, notably for smaller gamers. Michael Randrianavony, co-founder of the GEMVVS mining group based mostly in Antananarivo, tells African Enterprise that “lots of the mining concessions are owned by overseas firms however they don’t seem to be working as a result of there are a number of legal guidelines that also make it troublesome for them to leap in.”

Mining firms have reported going through a gradual and sophisticated course of for acquiring licences, with regulators additionally vulnerable to unpredictable strikes corresponding to imposing periodic embargoes on new mining permits. Points affecting all companies – corresponding to poor infrastructure and very low electrical energy entry – additional complicate the image. Transparency Worldwide, an anti-corruption NGO based mostly in Berlin, has famous that “the procedures for granting mining titles grew to become arbitrary and discretionary, elevating suspicions of corruption and discouraging buyers.”

The Extractive Industries Transparency Initiative (EITI) has equally famous that “useful resource constraints” have made it tougher for Madagascar to implement anti-corruption measures, corresponding to “transparency of contracts and useful house owners”.

Additionally they argue that this, together with the regulator’s unpredictable licencing course of, has dented the expansion of Madagascar’s mining business. “Regardless of internet hosting priceless mineral assets, together with one of many world’s largest nickel mines, Madagascar’s extractive exports and actions have been in decline, partly attributable to moratoriums on mining licences and oil and fuel exploration.”

Will reform efforts endure?

Previous to the army coup, the earlier administration had introduced in new legal guidelines that sought to standardise procedures and assist entice extra overseas funding into Madagascar’s mining business. The 2023 Mining Code sought to reassure buyers on the security of their funding by offering “stability ensures” for mining allow holders. The legislation additionally provided extra readability on how permits are granted, renewed and managed, lowering ambiguity and, not less than in principle, making the method much less arbitrary.

The Code was accompanied by fiscal incentives aimed toward facilitating funding, with companies committing greater than $50m in Madagascar benefiting from exemptions on revenue tax, customized duties and value-added tax on regionally bought gear.

The transfer was largely welcomed as a step in the suitable course by worldwide organisations such because the World Financial institution – which predicted that mining tasks investments would “ramp up” following the passing of the Code – however it’s too early to inform whether or not the brand new authorities intends to proceed with these efforts.

Useful resource nationalism or technocracy?

October’s army coup initially raised fears that mining operations may very well be considerably disrupted on account of the political instability, with the American Enterprise Institute Essential Threats undertaking even drawing parallels with the coups within the Sahel, which have led to important issues for overseas extractive companies.

Essential Threats  argued that “political or army instability might have an effect on important mineral mining on the island… the pro-sovereigntist juntas that rose to energy in former French colonies in West Africa have aggressively focused overseas mining firms to renegotiate lopsided offers.” To this point, such motion has not come to cross. Subsequent Supply Supplies, a Canadian battery supplies improvement firm, mentioned in a press launch that their operations within the Molo graphite mine had continued beneath regular circumstances and their exports from the Tulear port had equally proceeded as normal.

Navy coups hardly ever, if ever, result in political and financial transparency. However some mining executives hope that the brand new administration might construct on the ideas behind the 2023 Mining Code. Ivan Murphy, Madagascar nation supervisor at uncommon earths firm Harena Sources, has argued that the latest protests which introduced the army authorities to energy had centered on financial pressures. Murphy posited that this could doubtlessly result in a authorities centered on financial stability and overseas direct funding.

The brand new prime minister, Herintsalama Rajaonarivelo, is a businessman and economist who has beforehand labored for worldwide organisations together with the World Financial institution, European Union and the African Growth Financial institution. The credit score insurance coverage group Credendo has argued that the army’s transfer in appointing Rajaonarivelo might “point out that the junta needs to prioritise tackling the socioeconomic grievances that fed the protests within the first place, realising that with out improved circumstances Gen Z protests might simply rekindle.

“This may also point out a extra technocratic and business-friendly method, in comparison with the extremely authoritarian juntas of the Sahel, the place nationalisation measures are frequent.”

However most mining buyers will likely be retaining their powder dry pending extra certainty from the brand new administration. “Worldwide firms are able to get entangled however they want some extra mature laws to open up the business earlier than they put down any additional main investments,” Randrianavony says.