AMN - African companies fall behind due to lower productivity - comment by Yolanda Torrisi

Declining productivity in what was one of the world’s greatest mining continents, Africa, has meant it has now fallen behind its global peers.

A recent report produced by McKinsey, titled Creating Global Mining Winners in Africa, stated that return on investment can be turned around.

Africa currently supplies 83% of the world’s platinum, 73% of global cobalt and more than half of the world’s manganese, chromium and diamonds.

The report outlines that resources have underperformed in terms of value creation. It says: “Some African mining companies have access to a range of levers to triple or quadruple their chances of becoming world-class performers.

“African mining companies can boost their odds of moving up the power curve by a multiple of three or four.”

The report says that mining companies can complement these moves by facilitating access to infrastructure, collaborating on regulatory frameworks, investing in local labour and community development and cultivating a local supplier base.

McKinsey’s Global Energy and Materails Practice Africa Leader Lorenz Jungling says these changes can improve companies’ prospectiveness from operating in the mid quintile to the top quintile on the power curve by up to 31%.

Despite a decline in commodity prices, the report co-author Michael Kloss urges investors to still spend money in this important sector.  “A downturn is a good time to buy, and at least half of all African companies have the headroom to fund this growth based on their debt to equity ratio to do it.

“Our analysis shows there are also plenty of targets as 77% of mining companies account for just 30% of the industry’s market capitalisation in Africa.

 “It is imperative to explore the possibilities of big, bold strategic moves that offer the best odds of moving companies from good to great.

“The industry will have to go beyond the traditional means of collaboration. As such, mining companies should do everything to create a better business environment, they should support regulators to create the right conditions, collaborate with labour to create a mutually beneficial environment for capability building and labour, work with governments to create a more favourable business climate and with communities to build an environment that creates shared value and productivity enhancements.

“The time for action is now, and by taking action now, we believe that the odds for the future of African mining companies will be on track as one of the most attractive regions for mining globally,” he says.

- Yolanda Torrisi is Chairperson of The African Mining Network and comments on African mining issues and the growing global interest in the African continent. Contact:yolanda@yolandatorrisi.com