The continent’s mineral-rich territories offer immense potential, yet the complex socio-political landscape poses substantial threats to investments.
The ongoing geopolitical shifts, economic uncertainties, and the impact of events like pandemics have increased the awareness of potential risks faced by businesses operating across borders. Seemingly peaceful countries and regions can now erupt in an instant.
Increasing Resource Nationalism
Governments around the world are increasingly focused on
maximising their natural resources’ value while ensuring
sustainable development and local community benefits.
Nonetheless, resource nationalism across Africa, South America and Southeast Asia where in governments seek greater control over mining operations, is on the rise.
Military coups in Africa over the years have had significant implications for both political and economic stability, particularly in the mining industry.
The Niger Crisis
As of July 28 2023, Niger’s military takeover marks the seventh coup in West and Central Africa since 2020 – preserving the moniker of Africa’s infamous “Coup Belt”. The events in Niger follow two coups each in neighbouring Mali and Burkina Faso and another in nearby Guinea. The leader of Sudan in the eastern Sahel was overthrown in 2021, the same year Chad’s military replaced its late president with his son, an army general.
These coups are often driven by an array of factors such as political dissatisfaction, economic instability, and institutional weaknesses. Political upheavals caused by coups can disrupt mining operations, leading to production halts, supply chain disruptions, and uncertainty in the investment climate whereby these new military-led administrations may implement policies that affect mining operations, renegotiation of contracts, or even expropriation of assets altogether.
It is also this region, the Sahel, amongst other African nations that faces the ongoing presence of Islamic fundamentalist groups who create an environment of insecurity and uncertainty. Attacks on mining sites and infrastructure lead to production disruption, asset damage, and loss of investment. Both the Islamic State group and its rivals in al-Qaeda have taken a strategic decision to make Africa their new priority after suffering setbacks in the Middle East. The Sahel, an area that spans Mauritania, Mali, Niger, Chad and Burkina Faso, is vast – nearly three million sq km (1.16m sq miles) and is the transit route for huge numbers of migrants making their way north towards Europe.
It is also a major transit route for illegal drugs, weapons and jihadists. Coups, corruption and disunity among allies are all gifts to insurgent groups. They take the focus off counterterrorist operations, allowing the insurgents to regroup, rearm and plot future attacks.
Russia and Africa
The presence of superpowers such as Russia, and perhaps more significantly, the Wagner group of mercenaries fresh from their failed coup of Moscow in 2023, combine military force with commercial interests as they have sought to further Russia’s ambitions within Africa.
Wagner is notably present within Mali, Sudan, Mozambique and Niger among other African nations. As summarised in a recent article by TIME, “Wagner mercenaries have frequently targeted civilians, including miners, as part of their own efforts to maintain access to gold, diamond, and other natural resource sites.” (Bergengruen, V., 2023. Despite Rift with Putin, the Wagner Group’s Global Reach is Growing. TIME).
In the case of leader Yevgeny Prigozhin’s demise, whether accidental or even accurately reported, few live to tell the tale once they humiliate the Kremlin so publicly. What is for certain is that Prigozhin’s death and the likely demise of the Wagner Group will have far-reaching effects in Africa and other regions. Within Niger in particular, the Economic Community of West African States (ECOWAS) has rejected the coup’s 3-year plan for a transition back to democratically elected rule, the military junta’s biggest ally may have perhaps disappeared overnight.
Appealing to Financiers and Shareholders
However, it is not all doom and gloom. The industry is increasingly relying on Political Risk Insurance (PRI) which is designed to cover financial loss due to political events. An additional benefit of PRI (alongside the protection of assets and investments) is the confidence and reassurance provided to financiers and shareholders.
Collaboration between insurance providers, governments, and mining companies is pivotal in crafting effective solutions. As Africa’s mining landscape continues to transform, PRI can be a safety net for mining projects and is key in fostering stability, attracting investment, and balancing the interests of all stakeholders involved.
Alongside the insurance and asset protection aspect, Lockton’s additional value-add sits within the provision of regular risk reporting and regional updates of emerging risks that pose a threat to our clients’ assets and investments on site or their ability to work in a particular country.
"An effective insurance policy in place has not only assisted us in retaining investor capital (and thus share price) in the event of a loss of assets, but has also been used as collateral with the bank in reducing overall risk premium.”
- Lockton client
Contact the Lockton team if you have exposure or are seeking to deploy into similarly geopolitically adverse regions.