29 Aug 2013

Rare Earths, Mining: Malawi’s Next Economic Frontier?

by Jimmy Kainja.

Going up in smoke - Malawi's chief agricultural product is tobacco, but drops in demand have seen the country looking to the extractives sector to boost the economy.

Malawi is a heavy donor dependent country. Up to 40% of its annual budget is donor supported, 49 years after its independence from Britain.

Tobacco remains the country’s major export commodity. It earns Malawi an estimated 80% of total agricultural produce, this also includes tea, cotton, coffee and sugar. The entire agriculture industry brings in 80% of the countries export earnings. The story here is that Malawi is a agriculture dependent economy, with tobacco as its chief product.

Consequently, a bad harvest and drop in demanding for tobacco on the international market spells disaster for Malawi; especially for the estimated 84% of the country’s 14 million rural-based people whose livelihoods solely depend on agriculture. Owing to irregular weather patterns due to climate change, and tobacco becoming less competitive on the market due to an increasing anti-smoking lobby, these problems are now becoming a constant feature. The country has realised these problems and it is seriously exploring alternative ways of beefing up the industry and alternative income generating commodities.

Apart from efforts to start greenbelt agriculture initiatives, to utilise the country’s vast water resources and abundant irrigable land, currently lying idle, the government is also venturing into the mining and extractive industry. Oil exploration licence on Lake Malawi has been issued to a British company, Surestream. In 2009 the country licenced Australian and Canadian registered mining company, Paladin Africa to open Malawi’s first uranium mine in Karonga, northern Malawi. At least 26 licenses have since been issued on uranium across the country.

Recent reports indicate that rare earths exploration could indeed be a next economic frontier for Malawi. The UK’s Financial Times (FT) recently reported that Malawi’s rare earths are thought to be promising and the country could become Africa’s largest rare earth’s producer. “Malawi ticks the boxes in terms of resource potential, a stable environment, infrastructure and government support,” FT quoted Mkango Resources’ Chief Executive, Will Dawes.

The report further observed that the government is aware of the “new development opportunity, which – if managed efficiently – could result in significant socioeconomic benefits for countries like Malawi”. Lack of local specialist knowledge however remains a major challenge. The report notes that currently specialists in the area are in short supply outside of China. This is a crucial issue for Malawi insofar as ensuring that the country benefits from these none-renewable resources with minimal environmental damages, which the report acknowledges is a real concern with the industry.

Lessons form Paladin Africa’s Keyelekera Uranium Mine have shown that the country is currently conceding a lot to mining companies through areas such as ‘tax incentives’, mainly for the lack of knowledge. A recent joint study by Norwegian Church Aid (NCA) and Catholic Commission for Justice and Peace (CCJP) has shown that the industry currently cost Malawi government 17.28 billion Malawi Kwacha (MK) annually through ‘tax incentives’. To put this figure into context, the sum is over 60% of Malawi’s 2013/14 Ministry of Health Budget; the sum is nearly half the MK40.9 billion of Farm Input Subsidy programme; and it is more than enough to finance the country’s entire 2012/13 public universities, its bill is pegged at MK13.8 billion.

Importantly, Malawi government has acknowledged these shortfalls and it is seemingly taking necessary steps rectify the problem. At a launch of NCA/CCJP report on 21st June, 2013, Malawi’s Minister of Mining, John Bande warned investors that his ministry would ensure that Malawians are not “ripped off” in their deals with mining companies. 

Such strong worded warning is a reflection of a perception that Malawians have towards the mining industry, especially Paladin Africa whose mine, Kayelekera, was a main case study of the report. Bande assured participants at the report launch that his ministry was engaging experts from Scotland’s University of Dundee to train Malawians at universities of Mzuzu and Malawi in mining law and mining engineering among other areas.

The minister later told Malawi’s The Nation newspaper:

“… We are not going to take shortcuts because we know that the mining sector can be a curse or an opportunity for the poor through its contribution to economic development. We have asked University of Dundee to help us so that Malawi does not continue to be robbed of its mineral. We don’t want the theft of our minerals to continue. We want to learn from those who have done it before. We don’t want to repeat mistakes that have been made in the past.”

This shows the seriousness with which Malawi government is taking the issue, and righty so. Lessons from elsewhere have shown that mineral resources can be a blessing as well as curse. It is crucial that Malawi government learn from its mistake and gets the whole thing right, and perhaps overturn its economic ‘misfortunes’ towards sustainable growth that uplifts the welfare of its people. According to 2012 UNDP report, Malawi is 171 out of 187 countries on 2011 Human Development index report.

European Union (EU) has budgeted €605 million – between 2008 and 2013 through European Development Fund. €196 million of this money is general budget support and €188 million is for agriculture and food security among other sectors. In the light of the mining and extractive industry that has shown a lot of potential so far, perhaps it is time the EU and the entire donor community consider spending some these grants into this area with the view that the industry to help Malawi wean itself of heavy aid dependency. EU has opportunity give the term ‘development partners’ its noteworthy meaning by helping with projects and programmes that would help its partners stand on its own. As the adage goes, EU has a chance to teach Malawi how to fish, instead of doing the fishing on its behalf.


Reposted from Africa on the blog.

Jimmy is an Academic, writer, news media & communications scholar. Interested in political and social changes in Sub Saharan Africa and Malawi in particular. Jimmy can be contacted through his email: j.kainja@gmail.com


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