The global increase in demand for battery metals and gold has resulted in the West African mining industry flourishing financially, with UK-based insurance company Africa Specialty Risks (ASR) senior political and credit underwriter Amir Hussain describing the industry as being “on the cusp of a commodity supercycle”.

He says the boom in West African mining has been sparked by the global energy transition and more gold being bought as investment security to avoid economic downturns.

However, Hussain highlights global fears that countries in the region may not be able to take advantage of the increased demand, noting that the so-called “resource curse” could plague the industry that already faces increasing corruption, debt and political risk.

Hence, he notes that the emerging supercycle needs to be understood within a context of world power politics, primarily in relation to competition between the US and China in securing supplies from West Africa, and Africa.

This underlying competition places African countries in the precarious position of being expected to either choose sides or risk having the competition impact on individual mining sectors.

Moreover, Russia’s invasion of Ukraine has also impacted on the West African mining industry through rising inflation, consequently causing Western countries to increase their interest rates.

As a result, global investors have re-evaluated the attractiveness of investments in Africa, which Hussain says has weakened African countries economically, owing to increasing costs and debt.

“The West African mining industry is financially strong on the one hand, while on the other, there are concerns at continental and national level about how Africa is going to manage this balancing act.”

The biggest challenge facing the industry from a political risk point of view, however, is resource nationalism, according to ASR.

Resource nationalism is based on the belief that host countries should exert greater control over mining activities to ensure that they receive a larger share of the resultant economic value.

States’ efforts in this regard range from the renegotiation of mining-related contracts, increases in taxes or royalties to demands for local beneficiation, which Hussain warns can manifest in the form of export bans.

For example, Guinea’s military junta expects multinationals to follow certain local-content requirements, and local governments are expected to determine the mines’ output values, which can conflict with the companies’ guidance or reported figures.

Hussain notes, however, that while West African countries, such as Guinea, have attempted to nationalise their mining industries, attempts have been unsuccessful, owing to a strong dependence on exporting minerals to secure US dollars.

Moreover, local mineral refining capacities are reduced, owing to a lack of adequate infrastructure and power supply.

“Nevertheless, African countries have made it clear that they do not only want to be exporting minerals, but rather benefit from as much of the value chain as possible.”

Another political risk among West African countries is mercenary groups posing security challenges for companies operating in the region.

Addressing Political Risk

Through greater democracy, stability and rule of law, Hussain assures that political risks can be resolved.

Where this is not possible, he says international mining companies should make every effort to adopt sustainable operations that provide socioeconomic benefits for the surrounding communities.

These benefits can include, for example, protecting local communities from disease and providing education as well as creating opportunities for the local refining of minerals.

“The holy grail of all this is the creation of local value chains in Africa,” says Hussain, adding that this entails not only refining minerals but also creating batteries and power storage solutions for the continent.

For such local value chains to be established, however, local demand for batteries would have to develop, such as for two- and three-wheel vehicles, and West African countries would have to cooperate to help foster this demand.

Having noted these emerging opportunities, ASR notes that, to assist in addressing political risk, it insures companies to provide cover against political risks, such as expropriation or nationalisation.

“ASR sees mining as a growth industry in Africa and we want to support this. We aim to see African mining obtain better benefits from the entire value chain and, therefore, to support the growth of refining and manufacturing capabilities in Africa.

“We aim to help the industry overcome the political and economic risks that it faces,” concludes Hussain.