Home > EFIC World Risk Developments September 2010: Spotlight on African Sovereign Risk

EFIC World Risk Developments September 2010: Spotlight on African Sovereign Risk

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The September issue of EFIC’s newsletter, World Risk Developments examines sovereign risk in three African countries of interest to Australian mining companies: South Africa, Mozambique and Ghana.  

South Africa

In South Africa, a series of controversial decisions by the Department of Mineral Resources during 2009-10 altering mining companies’ exploration and development rights is causing concern about the security of such rights.  

In response to the mining industry’s anxiety, the government has pledged to resolve all cases of overlapping rights and publish the status of all applications for prospecting rights. The mining industry is awaiting the outcome with interest.  

Mozambique

In Mozambique, there have been recent protests against rising food and electricity prices. EFIC senior economist Ben Ford observes that rising prices have been merely the trigger for the protests. The underlying problem is a lack of 'trickle-down' benefits from capital-intensive economic development.  

Mozambique has been recording compound annual growth of 8% in recent years, but the growth has been driven by a series of so-called mega-investments in aluminium, gas, coal and electricity including two Australian projects: Riversdale Mining’s recent Benga coal mine and power station as well as BHP Billiton's Mozal aluminium smelter.  

Ford comments that the non-inclusive nature of Mozambique's development raises the risk that the mega-investments may at some point be blamed wrongly for the country's growing economic disparities and targeted for protest or discriminatory policy.

Ghana

Ratings agency Standard & Poor’s has downgraded Ghana to a lowly single-B last month. Though the country is experiencing strong expansion of its gold industry and is also expected to start oil production next year, S&P has concerns about a large fiscal deficit and lack of regulation to deal with forthcoming oil revenues.  

EFIC senior economist Dougal Crawford says that in addition to the high fiscal deficit, there are concerns about domestic payment and wage arrears. In response, the government is making efforts to bring the deficit down and there are moves in parliament to institutionalise prudent revenue management.  

He believes S&P should have given Ghana the benefit of the doubt.

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