Mining: Kenya’s next frontier for economic growth?
A recent Reuters article reported that Kenya’s first ever large-scale mine – operated by Australia’s Base Resources – is on track to start output in the third quarter of next year, potentially spurring further investment into the country’s underdeveloped mining sector.
Output from the Kwale mineral sands mine at the coast is expected to triple the country’s mining export revenues and overtake coffee, which brings in about US$200m per year, as Kenya’s fourth-largest source of hard currency. “Kwale really represents that flagship mining project that Kenya’s government needed to kick start the mining industry,” said Tim Carstens, managing director of Base Resources.
The mine will produce 80,000 tonnes of rutile per year, or 14% of the world’s supply, 330,000 tonnes of ilmenite and 40,000 tonnes of zircon, when it is fully operational. Rutile, which is composed of titanium dioxide, is an important pigment for industrial, domestic and artistic applications. Zircon is mainly used in the ceramics industry, while ilmenite is related to titanium. If the Kwale project is successful, the mining industry and Kenya’s government hope it could prove to be a catalyst for further investment by foreign and local companies.
In the 1970s authorities had concluded that the country did not have any mineral endowments, following the governments’ geological surveys, opting to focus on farming, tourism, industries and financial services. Recently, investors have started to pay attention to the country’s mining potential, driven by a global surge in commodities prices, which has sent miners into new frontiers.
The government has advertised for bidders to develop coal mines in the Eastern Province, where there are proven deposits, while African Barrick Gold in July said it was acquiring a licence to prospect for gold in western Kenya. Carstens said there were opportunities to prospect for iron ore in the country. Interest in the country’s resources was enhanced in March this year when British oil explorer Tullow Oil announced significant oil finds in the northern county of Turkana.
We believe that the development of Kenya’s mining sector could be the next frontier for its economic growth. It currently stands as one of the most successful economies in sub-Saharan Africa without any significant contribution from mining. As much as additional growth should be pursued in the country’s non-commodity sectors, mining could just be the catalyst that East Africa’s largest economy needs to go to the next level.
Imara is an investment banking and asset management group renowned for its knowledge of African markets.