Volatility and Survival of the Fittest – Adapt to the New Normal
Volatility is the new normal in the mining industry, says pan-African consulting firm africapractice founder and CEO Marcus Courage. “Ghanaian Companies must adapt. They must become agile by identifying their core competencies and where to play and manage the politics,” he states.
Courage notes that global economic output continued to affect Ghana’s mining industry in 2016. Sluggish economic growth among G7 and G20 nations led to weak demand and soft commodity prices. Companies continued to write off debts and make impairments. The capitalisation of the world’s largest mining houses remained less than half of what it was at the start of the decade. Financial discipline remained the order of the day. Companies had no choice but to cut back on new developments and reduce costs.
In addition to this, a number of political events in the country have heightened volatility and regulatory uncertainty.
“A Trump administration, Brexit, assertive Russian diplomacy, a leadership contest in South Africa and the Big African economies of Egypt and Nigeria contending with unprecedented currency woes – none of these events give me any confidence about the outlook for political stability in 2017,” says Courage.
“We are seeing small recoveries in market capitalizations and commodity prices – but there’s still a long way to go and a lot of volatility. Politics and regulation temper my confidence in a sustained recovery,” he notes.
At the helm of the consultancy, which he founded in 2003 to help African companies and global investors understand shifting political, policy, regulatory and societal trends on the continent and to equip them to identify the opportunities and manage the risks these present for their operations, Courage and his over 75 team members supply risk advisory, public affairs and stakeholder engagement solutions to many of the largest companies, investors and foundations operating in Africa today.
While Ghana’s the mining industry will continue to face significant market challenges and constraints in 2017, there’s deal-making to be done also, Courage believes. Some of the world’s biggest mining companies – Anglo American, Glencore, Freeport McMoRan and others – have been divesting to shore up their balance sheets, affording newer entrants such as Neal Froneman’s Sibanye and Kennedy Bungane’s South African based industrial holding company Pembani Group to capture value for their stakeholders.
“The onus in 2017 will be on the newly elected government to make the environments for investing more attractive, and for mining firms to identify efficiencies and to carefully manage costs. Those firms with their eyes firmly fixed on the long-term rewards and their corporate radars trained on monitoring and adapting to political risk will be the beneficiaries,” Courage notes. Rentier African economies will continue to struggle, says Courage, noting that only those nations which have forged a deliberate industrial policy to build domestic and cross-border value chains and diversify their economies to serve domestic and regional consumers, will flourish.
“Firms need to understand what is important to their customers, employees, communities and host government and build their business strategy in a way which delivers value to all. By taking a long-term view and demonstrating authentic commitment to creating what at africapractice we call Shared Advantage (for the many and not for the few), companies can navigate political risk and play a first mover role in markets that others may dismiss as the opportunity doesn’t come neatly packaged.
“Frontier waters may be choppy but if you understand the winds, you’ll move quickly,” says Courage. He advises that rather than lamenting heavy-handed regulation, firms must proactively engage the government to build understanding of their business models and the contribution that their industry and their company can make towards catalysing economic development and creating new sub-sectors of economic activity. “It’s a critical step in bridging the trust deficit that often undermines mining investments.”
Marcus Courage, africapractice Founder & CEO firstname.lastname@example.org