9 May 2019

Namibia: Local Ownership Better for Sustainability of Mining Industry - Alweendo

Windhoek — Minister of Mines and Energy, Tom Alweendo, yesterday revealed that some foreign investors in the mining industry view the issue of local mine ownership as an irritant or as something that can be wished away. However, Alweendo cautioned that this is a fallacy and a mistaken view.

"There is a legitimate expectation for local ownership and the sooner we address this concern, the better it is for the future sustainability of the mining sector," said Alweendo when giving the keynote address at the annual Mining Expo and Conference which is organised by the Chamber of Mines of Namibia.

Alweendo admitted that one of the most difficult issues in terms of local ownership is that of financing, mostly due to the extreme capital-intensive undertaking that mining requires. However, he noted that it is not impossible for serious local entrepreneurs from different professions, in collaboration with foreign investors, to put together a credible funding proposal to those with capital.

"It is doable when well-aligned groups of local entrepreneurs, in collaboration with government-initiated funding programs, approach the capital markets - both local and foreign - with well-prepared funding proposals. If ever we are going to find a solution to the funding dilemma, there is a need for innovative funding ideas from not only the aspiring entrepreneurs, but also from the government and foreign investors," said Alweendo.

To date, Namibia has 16 operational mining companies and of those, five are 100 percent foreign-owned while only 11 have local ownership, except that no local ownership exceeds 20 percent (with the exception of the Namdeb arrangement). This, Alweendo emphasised, is despite the fact that, over the years, a huge majority of the issued mineral exploration licenses have been granted to Namibians. And by the end of 2018, more than 60 percent of all Exploration and Prospecting Licences granted were issued to Namibians.

"It is also the case that in most cases the local ownership is not beneficial ownership because it is financed with loans provided by the majority shareholder. In such instances the agreement is that the dividend, if any that would have accrued to the local shareholder, will be utilised to service the loan and no dividend will be paid to the local owners until the loan is fully repaid. This is certainly not an economic-beneficial arrangement," Alweendo stated.

The mines minister also warned local entrepreneurs who wish to venture into mining that it is not a walk in the park that everyone can do.

"The allure of success in the mining sector is at times misleading; the seemingly glamour of the sector can at times be more than real. It takes real hard work and dedication," Alweendo said.

He also addressed the issue of government ownership in mining companies, saying there is a growing call that it must be mandatory for the state to have shareholding in mining companies.

"Again this call is from those who hold the view that the economic benefit from the mining sector is not being shared equitably. We do not currently believe that government direct ownership in mining companies is the best solution to cure the problem of the lack of local ownership. However, to be fair to those who believe this to be the best cause of action and not to dismiss their view out of hand, we are undertaking public consultations to fully understand the origin of this view and how best it can be addressed," Alweendo said.

At the expo opening, which was attended by mining industry executives, members of the diplomatic corps and high-ranking government officials, Alweendo also spoke about value addition as it relates to the equitable sharing of economic benefits derived from the mining sector.

"Of concern here is that we are exporting most, if not all, of our minerals in raw form instead of adding value to them. This means that we are exporting local jobs while we have a problem of growing unemployment, especially youth unemployment. This is not new and we have all agreed that more efforts need to be made by both the government and mining sector to add value to our minerals. The Namibia University of Science and Technology (Nust) has been engaged to lead the process of developing a value addition strategy and an implementation plan. The strategy is to be completed in August this year. I encourage the Chamber to continue to be an active participant in this process," said Alweendo.

He continued that another concern is that of the mining sector relying heavily on external economies for its input. Here, said Alweendo, the issue is that the mining sector is not being leveraged sufficiently to strengthen the productive capacity of the economy. The desire, he added, is for the mining companies to source their mining operation input from the local economy.

In 2018 the local mining sector procured goods and services from local suppliers worth N$13.3 billion, compared to the total procurement of N$22.95 billion. However, Alweendo noted that while this figure of local expenditure seems to be sizeable, it needs to be unpacked further.

Said Alweendo: "For example, how much of what was procured was made in the local economy and not imported by Namibian companies? Or how much of what was procured was procured from Namibian companies owned by Namibians as opposed to Namibian-registered companies owned by non-Namibians? These are important questions for the figure to be meaningful to economic development."

The mining sector contributed 14 percent to Namibia's GDP in 2018. During the same period, the sector employed more than 16 000 employees directly and 6 681 as contractors. The sector also contributed N$2.1 billion in royalty payments and N$1.7 billion for tax on profit. In 2018, the total tax on profit collected from the whole private sector was N$6.9 billion. When comparing the two figures as mentioned above, the mining sector alone contributed about 24 percent to the total tax on profit in 2018.

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