Is new dawn beckoning for local mining sector?
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There is growing confidence that Rwanda’s mining sector holds a lot of potential.
And, in the wake of a new set of ambitious development goals for the country, the government has set its sights on the sector to help finance the growth agenda.
But to really unleash the sector’s potential there has to be a new way of doing things, stakeholders say.
The sector raked in about $200 million (Rwf168 billion) in exports in 2016 and is expected to bring in over $300 (Rwf252 billion) million in export receipts in 2017.
In the first quarter of 2017, the sector brought $48 million (Rwf40 billion) into the national coffers.
Those conversant with the sector say the industry could have fetched more in recent years had it not been for certain challenges, particularly reduced prices on the international markets.
However, some challenges can be addressed locally and help turn the sector around, they say.
Over the years, Rwanda’s mining sector has largely been artisanal heavily characterised by old methods, tools and devoid of technology.
This, experts say, has limited mining operations to small scale.
This has come with losses along the value chain.
Frank Butera, the executive secretary of Rwanda Mining Association, said estimates show that the country recovers only 30 per cent of value from the extraction process, losing about 70 per cent due to rudimental practices.
Butera said miners have not been able to improve their production methods or adopt technology largely due to financial constraints.
Mining has been one of the sectors that have been least attractive to financial institutions.
According to statistics from the central bank, up to 96 per cent of loan applications from the sector were rejected in 2015, up from 68 per cent in 2014.
In the first half of this year, only 0.1 per cent of loan applications from the sector were approved, highlighting the extent to which the industry is starved of funding.
Butera said this has largely been due to lack of understanding of the sector and its operations.
“We have been urging banks to take mining concessions as collateral but they seem to prefer security in form of houses that can be mortgaged which few applicants can afford,” Butera said.
As a result of shortage of financing, miners often turn to traders for capital which is often on informal terms.
The traders and miners enter pre-financing agreements which are rarely in the interest of miners.
However, bankers argue that the low lending to the sector is not down to bias on their part, but a result of issues pertaining to profitability and governance issues, such us proper company structures and book-keeping.
Equity Bank Rwanda chief executive Hannington Namara said that among the factors that have led to the high rejection rates include lack of scientific evidence to confirm viability and estimated productivity of concessions for them to be considered as collateral.
“If you look at the demand side, there are quite some issues that need to be sorted. It has to do with information, how these companies keep their books…some of them come looking for loans when they are making losses,” he said.
“There were also governance issues in some cases. Most of them were small, scattered and informal projects. It would make it difficult for anyone to understand that there is potential without quantifying the perceived potential.”
He said that having evidence-based information on deposits in concessions would attract banks to extend credit to the sector.
“No one could quantify the value of mining concessions, building a database for us to look at and attach a risk factor to it is quite important. Banks will always be willing to finance viable projects once such issues have been addressed,” added said.
Others put the blame on the casualness by which the sector has generally been handled over the years, which has resulted in such situations as lack of clear regulations and policies.
An investor in the sector, speaking on condition of anonymity, told The New Times that, for long, there have not been policies and directives to guide operations in the sector, while even those that were in place were rarely observed.
The Government has recently set an ambitious target of collecting $1.5 billion in annual revenues from mineral exports by 2024 (more than double the current earnings).
It says the target is realistic especially considering that the sector is now getting greater attention.
The chief executive of Rwanda Mines, Petroleum and Gas Board, Francis Gatare, said they have begun addressing some of the challenges through regulation and reorganisation of the sector across the value chain.
The board was established in February as part of broader efforts to streamline the sector.
Gatare said, to address the fragmentation that has for long dogged the sector, there will be reorganisation and re-aggregating to attract large players.
“A lot of them are operating on a subcontracting model whereby the concession owners are not the ones running the operations. Along the layers, value gets lost. Part of what we are re-organising is re-aggregating the sector to attract large operators, some of them cooperatives and joint ventures,” Gatare said.
The process will also see a reduction in the number of middlemen who have had little impact on the sector other than make a quick buck for themselves, he said.
“We’re going to reduce the number of middlemen. In the past, we have seen many people wanting to make quick money through trading,” he said.
“From the beginning of the year, no new trade licences have been issued, while those that came up for renewal were thoroughly scrutinised. We will ensure that those who remain can improve the sector,” he added.
The Government, Gatare said, has also invested in exploration studies to understand the extent of deposits before bringing the private sector on board.
Lake Kivu area is one of the focus areas of the ongoing exploration effort and preliminary findings seem to be encouraging.
“The Government has embarked on exploration in areas around Lake Kivu, particularly focusing on early stage geochemical and geophysics surveys. The strategy we’ve adopted is to take on investments in early stage exploration and then bring it to the attention of the private sector at the appropriate time,” Gatare said.
Experts say such studies and surveys will not only attract serious investors but also encourage the financial sector to be more cooperative.
To improve capacity in the sector, add value, increase investments and promote the industry, the Government this week, in partnership with the UK Department for International Development, launched a 4.5 million pound programme, dubbed Sustainable Development of Mining in Rwanda Programme.
Prof. Nellie Mutemeri, a mining expert, said ridding the sector of informality will make it more attractive to both investors and banks.
She said many long-standing challenges that the sector have faced over time will be tackled by the new programme.
The new programme is set to pilot test various implementation models and strategies as well as promote skills and technology transfer in the sector.