African Mining Industry

Trump’s anti-China attitude could enhance FDI in African mining industry

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While the uncertainty around geo-economic trends including Brexit, the Trump win and increasing efforts by China to dominate the global economy may not bode well for t the African mining economy could well see favourable spin-offs. Morne van der Merwe, managing partner and the head of global law firm Baker McKenzie's Corporate and M&A Practice in Johannesburg, says the conflicting views of the West and the East on economic globalisation could well present an opportunity for Africa.

“While there is continuing insecurity in the South African mining industry as a result of persistent regulatory insecurity, labour unrest and inadequate infrastructure, the different global headwinds could potentially drive foreign direct investment in the mining sector in Africa and the development of infrastructure in particular,” he says.

Janine Howard, associate at Baker McKenzie's Corporate and M&A Practice in Johannesburg, adds that China is currently one of the largest trading partners with Africa, a relationship that is largely fuelled by the China’s insatiable appetite for energy and minerals. South Africa, in particular, is China's largest trading partner in Africa and has solidified this position with significant encouragement for Chinese investment into various industries, including mining, beneficiation and manufacturing.

Changing approaches in the East and West

Developments over the last six months have seen a strong shift in the West towards greater contraction and nationalist agendas. Brexit is aimed at separating the United Kingdom from the European Union in an attempt to, among other things, regain control over trade and immigration policy. At the same time, President Trump has shocked the world by following through with many of the plans espoused during his election campaign.

In a stark and surprising contrast, China, the largest developing country in the world and the second largest economy, has opted to take a strong stance in favour of globalisation and in particular, economic globalisation. This stance is evident in China's approach to investment and was further cemented by China's President Xi during his speech at the World Economic Forum in Davos last month. President Xi acknowledged the controversy which economic globalisation is facing, but stated that "we should adapt to and guide economic globalisation, cushion its negative impact, and deliver its benefits to all countries and all nations."

President Trump's pro-America policies have included a strong stance taken against China and the import of Chinese goods into the United States. The controversial new president has even gone so far as to call China Public Enemy Number One, sparking fears of a trade war in that tariffs would be introduced for Chinese imports.

However, despite President Trump's strongly expressed anti-China sentiments, his actions since taking office have actually benefitted the Asian economic powerhouse. One of the first things President Trump did was to ensure that the United States formally withdrew from the Trans-Pacific Partnership (TPP) with immediate effect. The TPP was intended to be a trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States. This agreement purposely excludes China and is aimed at, among other things, promoting economic growth, good governance and labour and environmental protections in the member states. The United States pulling out of the TPP is a major blow to the agreement and creates a trade lacuna in Asia that China will no doubt move to fill.

Conclusion

While it is still early days in the Trump regime and a tumultuous period in global economic activity, China's strong supportive stance on economic globalisation and it’s clearly articulated and executed intentions to invest in Africa and, in particular, South Africa bode well for the future of the local mining industry. Increased investment into the mining sector, beneficiation and manufacturing industries will only improve South Africa's economy in the years to come, provided South Africa is able to create an environment agreeable to such investment. We are on the brink of the next commodity boom and if timed right there are huge benefits to gain, however, we must first fix the current state of affairs within the industry. In fact, it may be the fruits won from international instability that aid South Africa to fix certain domestic factors and ensure prosperity and longevity of the mining industry.

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