Report reveals weaknesses in governance of Malawi minerals sector
By Staff Reporter
A report reviewing the second Malawi Growth and Development Strategy implemented between 2011 and 2016 has unearthed gross weaknesses in the governance of the country’s minerals sector.
The report says that though it holds a lot of unrealized promise, Malawi’s mining sector is beset by issues of technical capacity, and governance citing the issue of the recent suspension of oil exploration licences.
Within the past four years, Malawi issued exploration licenses for all six blocks of oil and gas only to suspend them and subject them to review. While sensible and nationalistic, this runs the risk of adding uncertainty to the mining governance regime and raises political risk rating and may affect the future cost of raising funds for mining ventures in Malawi,
says the MGDS Review report.
It says although the law specifies the royalty and taxes payable, the general fiscal regime in mining in Malawi remains negotiable, leading to delays in finalizing mining development agreements and opening of opportunities for rent seeking behaviour.
The report says mining in Malawi is constrained further by lack of up to date geological information so the recently launched results from the countrywide airborne geophysical survey hold so much promise.
It says Malawi needs to invest in facilitating reality checks on the ground, including production of a detailed geological map.
The report says:
Malawi ought to establish a national mining investment company to hold interest on behalf of the people of Malawi and also incubate specialized expertise in modeling and mining agreement negotiation; develop a model Mining Development Agreement and Production Sharing Agreement and introduce efficiency in negotiations of mine development agreement by making the fiscal regimes in mining predictable, non-negotiable and binding. Ensuring the existence and implementation of strong policy and legal frameworks for the participation of both women and men in local content is key.
The Kayelekera Uranium Mine, commissioned in 2009, remains the largest investment in the country’s mining sector and temporarily demonstrated the transformative potential that mining can bring as between 2009 and 2014, mining and quarrying output grew from MK7-billion to MK 59-billion (of which MK47.75 billion was from Kayelekera mine) and the share of mining in GDP rose from 0.8 percent to 5.3 percent in 2014.
However, since dual listed Paladin mothballed the mine due to low prices of uranium on the world market, the contribution of mining to Malawi’s GDP has fallen sharply.
Malawi’s economic report for 2016 released by Ministry of Finance, Economic Planning and Development forecasts that the sector will modestly grow by 1.6% in 2017.
The country has mineral potential as demonstrated by the airborne geophysical survey carried out in 2015 and there has been talk of oil exploration in Lake Malawi. However, it will take some time for potential exploration to take place and bear fruit. In addition, resumption in production of uranium at the Kayelekera Uranium Mine is not expected to take place in the course of 2017 as international uranium prices remain low,
says the report.
Malawi, which is mining gemstones including the expansive rubies and sapphires which out-price diamonds on the World Market when well processed, has anomalies for high value minerals including gold, gemstones and platinum group metals.
The country also boosts of world class deposits of rare earths, heavy mineral sands, coal and graphite, among others.
However, the low commodity prices prevailing on the world market has restrained tenement holders from adequately investing in exploration and exploitation of the minerals.
Download the Malawi Growth and Development Strategy (MGDS) II Review and Country Situation Analysis Report here.
The article above was initially published in Malawi’s Mining & Trade Review Issue Number 46 that is circulating this February 2017.