Africa Chris Edwards Cyber Security and Emerging Threats Expanding Community

Canadian Mining in Africa: Risks and Rewards

While foreign corporations tapping into Africa’s natural resources is not a new phenomenon, in the case of the continent’s mining sector in the 21st century, Canada has become the largest player. Since 2005, investment by Canadian mining companies has more than quadrupled to over $32 billion, making Canada Africa’s largest foreign mine operator, surpassing China and the United States. Canadian assets span across Sub Saharan Africa, with a quarter of the investment in South Africa, while the DR Congo, Madagascar, Zambia, Tanzania and Ghana have all seen hundreds of millions of dollars brought into their mining sectors.

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This high level of investment is a reflection of both the large increase in demand for African minerals in recent years and the preeminence of Canada in the international mining industry. Almost half of the world’s largest mining companies are based in Canada, taking advantage of the long legacy of mining expertise as well as tax exemptions and trade agreements that cater to the mining industry. At the same time, the TSX is the world’s leading mining stock exchange, which allows Canadian based firms to finance projects more easily then foreign competitors.

It is these factors that have allowed Canadian based companies to expand so rapidly in foreign markets, and while the percentage of Canadian mining assets have decreased in the United States and Latin America, they have increased in Africa to 20% of total foreign investment. The mining sector is an indisputable pillar of the Canadian economy, and the industry relies heavily on foreign operations for much of its wealth. In 2011, Canadian mining assets surpassed $215 billion, 70% of which were based in foreign countries. This highlights the importance of the recent growth in holdings in Africa, as they come to take up a larger and larger share of the mining industry.

The way Canadian firms conduct business in Africa will have an effect on the way future investment applications are received in other countries. If Canadian based companies are seen as irresponsible in their business practices then they will be less likely to be allowed to mine in other countries, and the Canadian mining industry will be damaged as a result.

Resource Nationalism

As Canadian investment is continuing to grow at a large pace, challenges to further expansion are beginning to emerge. Increasingly, African governments are moving to protect their natural resources from foreign companies through increased taxes or local ownership requirements. This  practice of resource nationalism has spread across Africa to many of the countries Canadian companies operate in.

South Africa has introduced laws mandating that mining companies be partially owned by disadvantaged South Africans by 2015, while Ghana increased its corporate tax rate to 35% and the DR Congo is considering a large tax increase on mining “super profits”.

It is not simply that profits have gone up and the local communities are not seeing the benefits of that, it is that foreign companies, including Canadian ones, are being accused of violating environmental and human rights laws in the countries they were operating in. As was seen when protests erupted in the wake of Barrick Gold’s dealings in Tanzania, governments have grown wary of foreign mining companies operating under their jurisdiction. Measures such as social development programs for communities near mining sites on the part of mining companies are crucial for offsetting this viewpoint.

Canadian Government Efforts

The Canadian government has taken steps to help Canadian mining companies build a positive image of their commitment to corporate social responsibility in Africa. In January of this year Prime Minister Harper pledged to the African Union that Canada would assist in establishing the African Mineral Development Centre, which would help further integrate the mining sector into local African economies. The Canadian government has also shifted the mandate of the Canadian International Development Agency to include partnering with mining companies in its development projects.

On the one hand, partnering with mining companies that have already established ties with local communities enables CIDA to work towards its mandate of poverty reduction with some of the resources of those companies at its disposal, while mining companies are able to improve their image in the eyes of local governments with CIDA’s help. On the other hand, this partnership will lead to Canadian mining companies becoming increasingly associated with the Canadian government as a whole. Their actions will appear as a representation of officially sanctioned Canadian involvement in African development, not just those of a private company.

The benefits of Canadian mining operations in African countries remains substantial. Thousands of jobs have been provided, as well as millions of dollars in tax revenue for local governments and a vast array of social welfare projects launched by the mining companies. Far more attention is brought to the violators in the industry then the larger majority that play by the rules. The problem is that as Canada takes the forefront in the African mining industry, all major transgressions, even those not perpetrated by Canadian companies, will be associated with Canada as the industry’s leader. It is up to Canadian companies and the Canadian government to set a high standard for the mining industry in Africa. While every mining company has stated a commitment to corporate social responsibility, and the Canadian government in the past has attempted to introduce laws that legislated the foreign operations of Canadian mining companies, these efforts have seen little success, and there remains little meaningful legislation that regulates the actions of Canadian mining companies abroad.

Ensuring Canadian mining companies remain competitive in Africa and maintaining a sound international reputation free of foreign corporate malpractice should not be viewed as a balancing act. In light of the newfound interconnectedness of mining operations and the Canadian government, poor business practices would damage both the industry and the country, while setting a positive example will enable further growth for Canadian companies and enhance Canada’s reputation as a country committed to development and human rights in Africa.

Chris Edwards
Chris Edwards is a Research Analyst at the NATO Association of Canada. He recently completed his undergraduate studies in International Relations and English at the University of Toronto. In light of his studies concerning the history of the United Nations and NATO, his current research interests include topics related to Canada-US relations and diplomacy, the politics of intervention and human security in Africa, and energy security and cyber warfare in the global context. In the future Chris hopes to continue his studies in International Relations at the graduate level.