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Yahoo
21 hours ago
- Business
- Yahoo
Could Africa establish a critical minerals-backed currency?
Africa holds approximately 30% of the world's critical mineral reserves, making the continent indispensable to green industrialisation and the global energy transition. However, beyond being a major supplier, Africa has yet to establish a strong value chain to reap the benefits of this mineral wealth for itself. Less than 5% of its critical minerals are domestically processed as most value addition occurs abroad, especially in China, which dominates the refining industry. To address this disparity, there are growing calls for collaboration between African countries and their respective mining industries. A report by the African Development Bank (AfDB) and KPMG South Africa proposes a currency convertibility mechanism that would see participating countries pool a pre-agreed percentage of critical minerals to raise investment in energy and other developmental infrastructure. However, persistent and significant barriers stand in the way of a harmonised critical minerals value chain in Africa – including infrastructural deficits, skilled labour shortages, and environmental, social and governance (ESG) concerns. Considering these challenges, Mining Technology examines the currency mechanism and Africa's potential as a self-governing critical minerals powerhouse. Critical minerals are an active market across the continent as global competitors vie to secure ownership over valuable deposits. The main resources are cobalt, copper, graphite, lithium, manganese and nickel. "Africa's critical minerals mining sector is predominantly Chinese-owned as Western ownership tends to concentrate on traditional commodities, creating a dependency that often leads to exploitation,' says Olimpia Pilch, chief strategy officer at the Critical Minerals Africa Group. China has invested billions into African mining operations, with Mining Technology's parent company GlobalData pointing out that such investments have contributed to the 'construction of vital infrastructure and the transfer of essential knowledge to African communities'. Meanwhile, as China's main adversary, the US has been ramping up its interest in the continent's critical minerals. Since March, the US has been in discussions with the Democratic Republic of Congo (DRC) for an exclusive minerals-for-security deal in a bid to counter China's influence and diversify supply. On the European investment front, ESG is top of mind through initiatives such as the €300bn ($341.08bn) Global Gateway programme. However, the European Council on Foreign Relations recently urged the EU to deprioritise its 'strict ESG-first approach' lest it fall behind its competitors in Africa. Despite these moves by global superpowers, Africa has yet to benefit from its own critical minerals on a macroeconomic scale. KPMG South Africa lead economist Frank Blackmore tells Mining Technology that the continent 'is behind on a lot of metrics, mainly with infrastructure', adding that electrification for both public and industrial use is a key area of underdevelopment. 'Infrastructure deficits exist primarily in the form of poor roads, ports and energy supply, which limit access to mineral-rich areas in rural and isolated locations,' says Joshua Charles, CEO of Frontier Dominion, an investment research company focused on Africa. Exacerbating issues is the continent's skilled labour shortage. Research by the Organisation for Economic Co-operation and Development highlights southern and central Africa as regions where deficits in skilled workers have held back mining development and job creation. The majority of respondents to a recent GlobalData survey identified improving infrastructure and securing financing as the most vital challenges for African critical minerals to overcome. This embedded content is not available in your region. A revolution has emerged in recent years as African countries take steps to secure greater control of their critical mineral resources and prioritise local expertise and suppliers. At the EIT RawMaterials Summit in Brussels on 13–15 May, Mining Technology spoke to Aleksandra Cholewa, director of investment and development at Luma Holding and supervisor of the Malta-based investment firm's Rwandan assets. This includes a major tin and tantalum smelter that delivers to European and US markets. 'Africa has always been treated as backup storage for minerals to be shipped elsewhere,' she confirmed. 'We know we need more minerals – and that Africa can be a sustainable source [given] the right tools – but we must also be aware of what kind of value proposition we have for them. Partnerships should be equal.' The AfDB and KPMG South Africa have put forward a mechanism for participating African countries to 'pool together their mineral resources into a commodity basket [which will] serve their interests much better', while also funding long-term energy transition projects. World Resources Institute Africa governance and civil society support lead Patrick James Njakani Okoko explains that in current currency flows critical minerals 'help reduce currency risks by bringing in foreign exchange, as governments in exporting countries such as the DRC often intervene in foreign exchange markets to stabilise local currencies, in turn strengthening their ability to import essential goods'. However, he points out that this model creates a dependency on raw mineral exports and limits local benefits and value addition as a large share of the profits are captured by foreign operators. Indeed, the DRC has been grappling with an oversupply of cobalt and is considering extending its export bans, which began in February. Under the proposed critical minerals basket, also known as African Units of Account, participating countries would pledge a pre-agreed proportion of proven commodity reserves to 'promote regional financial integration, co-operation and cross-border trade'. The report suggests the S&P500 in the US as a point of comparison and the Gold Standard System as a precedent for the basket. However, Pilch contends that 'the model fails to recognise that many critical minerals are not commodities as they lack fungibility'. 'While gold-backed currencies offer stability, critical minerals offer the polar opposite," she adds. The critical minerals selected for inclusion in the mechanism are based on 'future expectation of value', with the report spotlighting copper, cobalt, nickel and lithium. KPMG partner and southern Africa financial services sector head Auguste Claude-Nguetsop adds that 'this is based on the demand, location, size and availability of critical minerals that can then be used as collateral for long-term funding towards Africa's Strategic Development Goals'. As well as mitigating currency risk and facilitating long-term borrowing for clean energy projects powered by critical minerals, another potential outcome of the basket would be the incentivisation of domestic natural resource exploration and extraction. According to Blackmore, the model 'would stimulate mining in Africa. The snowball effect of this would be the harmonisation of mining processes and regulation." Blackmore and Claude-Nguetsop believe that the mechanism and the AfDB's role as a settlement agent would improve transparency around mining investment deals between nations, establishing a more stable business environment. However, there are significant challenges made harder by the continental scale of the mechanism. 'The plan is viable so long as a periodic review takes place by an independent Africa minerals board, coordinated by the AfDB, to ensure that the mineral basket stabilises financing for access to fair financing rates,' asserts Charles. Meanwhile, Cholewa is positive about the plan. 'It is very ambitious and needs more discussion between all stakeholders – governments, the upstream, midstream and downstream, and financial institutions. There is some industry scepticism, but we would be happy to see how we can implement it in the tin and tantalum sector.' Claude-Nguetsop acknowledges that buy-in from political and business leaders will be critical to the success of the mechanism. Meanwhile, Blackmore says that depending on the jurisdiction "there could be operational challenges" related to moving products in and out of some countries, 'but as the mechanism enters economies, there will be operational liberalisation". He confirms to Mining Technology that the AfDB is currently working on piloting the basket, with careful consideration as to which nation will be selected for the study before an attempted expansion across Africa. It is impossible to regard such a change in Africa's critical minerals landscape without also considering the position of China. 'Any critical mineral currency would be left at the mercy of China's whims and could be easily weaponised to ensure African leaders fall in line with Beijing's agenda,' argues Pilch. Increasing action is being taken to reform Africa's mining and resource sectors with the interests of the continent front of mind. If implemented, a critical minerals basket could work alongside established initiatives such as the African Union (AU)'s Africa Mining Vision, which was created in 2009 and advocates for equitable and sustainable mineral resource management. This is in addition to newer frameworks like the AU and AfDB's recently announced Green Minerals Strategy. This highlights four main priorities: advancing mineral development; developing people and technological capability; building mineral value-chains; and promoting mineral stewardship. 'As time goes on, we could see the mechanism open for broader commodities as well, such as precious metals, but the current close ties between critical minerals and Africa's development are what is urgent,' states Blackmore. Looking ahead, Charles believes that 'there will be an increase in investments in Africa's critical minerals due to geopolitical interest, and thus growth in regional collaboration with institutions such as the AfDB, the World Bank, and multilateral partnerships between the US and EU and other regional blocs likely to materialise in the future'. The vast majority (82%) of those polled on the Mining Technology website in April/May stated that Africa would have an "extremely significant" (57%) or "very significant" (25%) role in the global critical minerals race, versus just 7% who said the continent's role would be "not at all significant". Cholewa hopes that there will be more value addition, particularly in the downstream sector. 'Africa is almost ready and there is no reason for it not to be done – but it needs financing, capacity building and education.' 'Africa holds immense potential to maintain and expand its role as a major player in global natural resource markets,' concurs Okoko. 'Through strategic policies, infrastructure development and balanced partnerships, the continent can transform its natural wealth into a driver of inclusive and sustainable development." "Could Africa establish a critical minerals-backed currency? " was originally created and published by Mining Technology, a GlobalData owned brand. The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site. Sign in to access your portfolio
The Citizen
22-05-2025
- Business
- The Citizen
Budget 3.0: Fuel levy replaced VAT hike but is it the better option?
Finance minister made up the revenue lost in scrapping the VAT hike by increasing the fuel levy. When the VAT increase of 0.5% was scrapped, South Africans breathed a little easier, although they likely knew that they would pay for it in other ways. One of those ways is the fuel levy that Minister of Finance Enoch Godongwana announced in Budget 3.0 on Wednesday. Now South Africans are wondering if the fuel levy will not be worse than the VAT increase of 0.5% as everybody who sells you something will now add to the price, saying it is due to increasing fuel prices. However, two economists The Citizen spoke to said the fuel levy is still the better option. ALSO READ: Sensible or underwhelming? Economists react to Godongwana's Budget 3.0 Fuel levy increase larger than VAT increase Frank Blackmore, lead economist at KPMG South Africa, says the proposed fuel tax hike represents an inflationary increase of 4% in the fuel price, which is larger than the proposed VAT increases, but is limited to 16 cents on the current 385c for a litre of petrol and 15c on 370c for diesel, but it is broad based in terms of all transport of people and goods being subject to this increase. 'In 2024/25 a total of R85.88 billion was collected form fuel taxes and if we assume demand stays approximately the same for this year, the additional fuel taxes should generate an extra R85.88 billion x 0.04, which equals R3.5 billion, which is far less than the estimated R13.5 billion raised by increasing VAT by 0.5%.' On the other hand, he says, VAT would be imposed on all goods and services and would depend on the value of those goods. 'Therefore, it would be expected to have a larger impact on consumers' purchases given that the actual amount paid can be relatively large in comparison.' ALSO READ: Budget 3.0: not austerity budget, but a redistributive budget Fuel levy increase in line with inflation Sanisha Packirisamy, chief economist at Momentum Investment, agrees that the fuel levy increase is the better option. She points out that Treasury previously estimated that no inflationary adjustment to the fuel levy would amount to R4 billion in foregone revenue in the current financial year. 'Allowing for the fuel levy to increase in line with expected inflation for the first time in three years, means consumers will now pay an additional 15c/l for diesel and 16c/l for petrol (Gauteng 93) which will result in additional revenue of R3.5 billion, less than R4 billion due to lower inflation.' Taxes as a share of the pump price are expected to increase to 29.9% in the next financial year. 'The South African Reserve Bank (Sarb) calculated that a VAT increase of 0.5% would have increased headline inflation by just under 0.2%. The fuel levy is part of the 'private transport' category, weighing a total of 6% of the consumer basket. 'However, a big chunk of this is new and used vehicles, with the remainder being petrol prices. If we base an average petrol car on 45l capacity, the price to fill up was R963 in May. It will now be R970.2 with the 16c/l increase in the fuel levy, all else being equal.' Packirisamy says in the current environment of low oil prices and a well-behaved rand, the Central Energy Fund's estimate for the next fuel increase month-to-date is at 21c/l (over-recovery, indicating a cut in the price), which means this implies that some of the pressure could be offset. ALSO READ: Godongwana cuts zero-rated food basket in Budget 3.0 Consumers will pay for scrapping the VAT increase in other ways While consumers do not have to worry about the VAT hike anymore, the fuel levy and bracket creep and fuel levy adjustments will still be a drag on household income, she says. Medical aid credits unaligned with inflation will cost consumers R1.2 billion in the current financial year that will increase to R3.8 billion in the Medium-Term Expenditure Framework (MTEF). 'With Treasury lowering its inflation forecasts, it is now expecting to collect R15.5 billion, while it was R18 billion in Budget 2.0. Due to bracket creep in the current financial year, consumers will pay R16.5 billion in personal income tax, where it was R19.1 billion previously and R17.5 billion in the next financial year instead of R20.3 billion 'The minister did not offer any relief across the earnings spectrum.' While the minister made no adjustment to excise duties, government is expected to collect R200 million more in the current financial year owing to lower anticipated inflation. Packirisamy also points out that government has removed the cushioning built into the above-inflation increases in social grants for the current and next financial years, in alignment with the scrapping of the VAT increase. These grants are now expected to increase in line with expected inflation, further reducing the financial buffer for lower-income earners.
IOL News
16-05-2025
- Business
- IOL News
South Africa's budget 3. 0 predictions: tough choices lie ahead
Frank Blackmore, Lead Economist at KPMG South Africa, has highlighted a key takeaway: the anticipated increase in Value Added Tax (VAT) will no longer materialise, forcing the government to recalibrate its revenue expectations. Image: GCIS As South Africa braces for the upcoming budget 3.0, industry experts are closely examining the fiscal landscape, drawing attention to the critical decisions poised to impact the nation's economic future. Frank Blackmore, Lead Economist at KPMG South Africa, has highlighted a key takeaway: the anticipated increase in Value Added Tax (VAT) will no longer materialise, forcing the government to recalibrate its revenue expectations. Previously outlined in budget 2.0, the revenue anticipated from a VAT hike has now vanished. This development poses significant implications for the government's fiscal targets, particularly its commitment to achieving fiscal consolidation. Without the ability to increase public debt through borrowing to meet expenditure needs, the government finds itself cornered, necessitating cuts across various sectors. The pressing question, as noted by Blackmore, is: 'Where will these expenditure cuts occur?' With growth remaining a paramount objective for the budget—central to enhancing employment rates and boosting GDP—the government must tread cautiously. The infrastructure spending, fundamental to fostering long-term economic growth, cannot be sacrificed. Likewise, with a strong focus on the social wage, cuts to public services and grants are also off the table. This leaves limited avenues for budget slashing, underlining the complexity of the government's predicament. 'As we look forward, there are numerous opinions regarding potential cuts,' Blackmore stated. 'We anticipate scrutiny around the size and costs of the state, provoking essential debates on where reductions should take place.' In the interim, the potential for policy adjustments remains in play. The proposals unveiled in budget 2.0 aimed at mitigating the impact of the now-derailed VAT hike, especially for lower-income households, are still on the table. This included considerations for tax adjustments on fuel, increases in zero-rated items, and only partial adjustments to personal income tax brackets. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ However, without the VAT increase, it's uncertain whether these provisions will proceed as planned. Blackmore predicts a rise in fuel prices and potential reductions in zero-rated items, as well as little to no change in tax brackets. This scenario presents a subtle yet impactful pathway for the government to bolster personal income tax revenues, thereby compensating for revenue shortfalls stemming from expenditure cuts. As the nation awaits the unveiling of budget 3.0, the discussions surrounding these predictions highlight the intricate balance of maintaining economic growth while adhering to fiscal discipline. With various stakeholders eagerly watching, the pressure mounts on the government to deliver a budget that meets both its financial commitments and its societal responsibilities. Frank Blackmore, Lead Economist at KPMG. Image: Supplied. BUSINESS REPORT Visit:
