An extensive continent comprising 54 countries, Africa is becoming increasingly important in a global context. Savvy investors have their eyes on Africa as an investment location — and with good reason. Africa has some of the fastest-growing economies worldwide, with investment potential in sectors like telecommunications, oil and gas, agriculture, and mining. The continent holds over 2 billion tonnes of iron ore and has 90% of the world’s chromium and platinum. It also has rare-earth minerals in quantities that are unrivaled elsewhere.
This article will focus on four African countries of interest within the commodity markets — Zimbabwe, South Africa, Zambia, and Mozambique. It will review mining and commodities trends throughout 2022, with a particular focus on gold, platinum, diamonds, lithium, and copper. This review will also examine which sectors in Southern Africa are attracting potential investors.
With large gold, chrome, lithium, and platinum group metal reserves, the mining sector accounts for around 11% of Zimbabwe’s total Gross Domestic Product (GDP) and 60% of its export income. The World Bank reported it is home to over 4,000 gold deposits, 90% in greenstone belts, making them some of the richest deposits in the world and the second-largest platinum group metals deposits in the world. The Zimbabwean mining sector has a significant competitive advantage thanks to its diverse reserves of over 40 exportable minerals. Mining sector growth was set to reach 8% in 2022, with mining projects for gold, lithium, and platinum reaching over US $10 billion commissioned for early this year.
In a country full of diverse mineral and precious metal reserves, mining is at the core of the South African economy. Coal is a significant contributor to the South African economy and accounted for 24% of its overall mining production in 2022. Although South Africa exports most of its coal to East Asia and Europe, coal powers almost all of the country’s electricity. Platinum group metals are a close second and accounted for 23% of South African mining production in 2022.
After South African mining production volumes hit record highs of 119.6% in 2021, they experienced a wave of fluctuations in 2022, with a 10.4% year-on-year drop in October 2022. Although this slump was significantly more than the 4.9% initially projected, mining production is expected to pick up and linger around the 1.8% mark in 2023. On a wider scale, South Africa’s overall GDP rose by 1.6% on quarter in the three months to September of 2022, which surpassed initial forecasts of a 0.6% increase.
Located in central southern Africa, Zambia is a vast, landlocked country that is rich in resources. Although around 60% of Zambia’s population lives below the poverty line, its economy has experienced significant growth in recent years. Zambia is the second-largest copper producer in Africa, and copper mining has substantially boosted its overall economic performance since the opening of its first copper mine in 1928. In fact, copper production is so influential that it closely links to the country’s overall GDP performance.
Zambia’s mining sector contributed around 12% of its total GDP in 2022. After taking a blow during the Covid-19 pandemic, the country's overall GDP rose by 3.5% in 2022. GDP is expected to jump around 3.8% by 2024, due in part to a positive macroeconomic environment and promising copper prices.
Mozambique is located next to four landlocked countries that rely on it to access global markets. Mozambique has large deposits of minerals like coal and marble, and mining accounts for about 11% of the country’s total GDP. Mining production in Mozambique had an 11.7% year-on-year jump in June 2022, with coal accounting for around 18% of total export earnings. It is home to the world’s largest untapped coal reserves and has a price advantage over other African countries like South Africa.
Mozambique’s economy grew by 3.6% year-on-year in Q3 2022, a sluggish result compared to the 4.59% rise in the previous quarter. However, the country’s amicable relationship with neighbouring nations like South Africa shows its importance to the advancement of the overall African economy, giving hope for further domestic economic growth in the future.
Africa is the world’s third-largest gold-producing continent and accounts for around 40% of global gold reserves. But talks of a worldwide economic downturn may cause potential investors to wonder whether gold is a good investment in a recession. While it’s true that geopolitical factors have impacted gold prices in recent times, gold mining activities continue to take place in over 21 African countries to date.
Gold mines in South Africa cater to 4.2% of global gold production, and gold currently accounts for around 16% of the country’s total mining production. However, its annual gold output is expected to jump by 30% in the near future. In 2022, China imported US $573 million of gold from South Africa, demonstrating the potential for foreign investment in the nation.
Platinum is one of the world’s rarest metals. In fact, it’s found deep in the Earth’s crust at such low levels it is 30 times rarer than gold. Platinum mines are few and far between, and around 70% of the precious metal’s supply comes from a small area of South Africa. But platinum mining is not exclusive to South Africa, as Zimbabwe is the third-largest platinum-producing country in the world.
As worldwide levels are in such short supply, platinum is a valuable investment option for investors. It is heavily used in the automotive industry as a material to make catalytic convertors that can reduce emissions and cap their environmental impact. In fact, nearly all vehicles produced within the past 30 years use platinum.
Diamond mining in Africa is renowned worldwide. The South African diamond sector accounted for 4% of South Africa’s total mining production in 2022. The Venetia mine in South Africa is among the top diamond producers in the world and accounts for about 40% of South Africa’s annual diamond production. The mine has a value of around US $425 million and has been a prime source of diamond production in South Africa since 1995, producing 5.5 million tonnes per annum in 2022.
The Venetian mine will undergo extensive expansion work in 2023, with owners De Beer set to open a new underground mine. This investment will significantly expand the mining potential in the area, and is estimated to reap an additional 4.5 to 5.5 million carats of diamonds per year, a significant increase from its Q1 2022 yield of 1.7 million carats.
Around 74% of lithium mining contributes to battery production, and demand has surged in recent years thanks to the prominence of rechargeable lithium batteries in various electronic devices. With the increased focus on environmental sustainability and the influx of eco-friendly cars, it is no surprise that lithium is in high demand. More and more investors are choosing to invest in lithium as part of their commodity strategies.
Zimbabwe houses some of the world’s largest lithium deposits. In January 2022, China’s Sinomine Resource Group acquired Zimbabwe’s largest lithium mining facility, the Bikita mine. The Group will inject a cash investment of US $200 million into the mine and plans to build a production line capable of producing two million tonnes of ore annually. The investment is set to bring Zimbabwe to the forefront of lithium battery production, and there are hopes the mine’s output value will reach US $12 billion in 2023.
As the world’s seventh-largest producer of copper, Zambia presents a spot of untapped potential for foreign investors. Copper accounts for over 70% of the country’s foreign export earnings, thanks to enhanced demand for copper in recent years. This means copper investments from foreign companies are becoming more common.
In Q2 2022, Toronto-listed company First Quantum Minerals announced a US $1.25 billion cash injection into its existing Kansanshi copper mine, the biggest foreign investment in over a decade.
High inflation rates of around 13% and other domestic issues mean Zambian copper production has little hope of increasing without significant foreign investments. Therein lies a huge opportunity, as the country’s mining sector presents a win-win possibility for the Zambian economy and potential foreign investors.
Africa is a land of great opportunity. With a fast-growing economy and young population, we can expect to hear more about Africa’s economic growth in years to come. Economic trends and an increased demand for electric vehicles in 2022 and beyond will drive the need for lithium and copper, reflected in Sinomine Resource Group’s 2022 acquisition of Zimbabwe’s Bikita mine and First Quantum Minerals’ capital boost into its existing Zambian copper mine. This, along with other foreign investments into commodity sectors like diamonds and gold, will continue to set Southern Africa apart as a resource-laden commodity hotspot.
*Price references are taken from Trading Economics and intended to provide a reference only. These should not be used for making trading decisions.