Increasing interest of Chinese investors in African mining projects

9 January 2025 - 10:49

Chinese investment in Africa’s mining sector is on the rise. As part of the Local Perspective blog series, Aldo Boni De Nobili, Counsel at Hogan Lovells Beijing, and Fatoumata Binta Maïga, Legal Counsel from Guinean law firm Thiam & Associés, looked at what’s driving this trend and the importance of investors considering local content requirements from the start.

The increasing Chinese investment in Africa’s mining sector is driven by strategic goals such as securing supplies of critical minerals, achieving geopolitical diversification, and strengthening diplomatic ties with host countries, particularly within the framework of the Belt and Road Initiative. These projects are often part of broader infrastructure developments that facilitate the exportation of mining products and are crucial drivers of economic development and urbanization.

The OHADA region in West and Central Africa attracts significant Chinese investment. The Simandou mining and infrastructure project in the Republic of Guinea is a prime example of substantial Chinese investment in an OHADA member state. Hogan Lovells and Thiam & Associés currently assist China Baowu Steel Group, the world’s largest steelmaker and one of the Chinese investors in the Simandou mining and infrastructure project, in connection with all aspects of its investment.

This transformational project, the largest of its kind on the African continent and reportedly worldwide, involves the development of several mines together with a complex rail and port infrastructure to connect the mines to the sea via a 600+ km rail corridor that spans the entire country. According to various sources, the estimated total investments range from US$15 billion to US$20 billion.

Trends in local content legislation in OHADA member states

1. OHADA and local laws

The Organization for the Harmonization of Business Law in Africa (OHADA) is a legal framework created to harmonize business laws across 17 member states in West and Central Africa.

In recent years, several OHADA member states have enacted local content legislation. The Republic of Guinea adopted its local content law in 2022, Mali in 2023, and Senegal in 2019 (hydrocarbons) and 2022 (mining). Guinea’s local content law is comprehensive and of general application, making no distinction between sectors, and regardless of whether they are financed by public resources or are executed under public-private partnership structures. In contrast, Senegal’s and Mali's local content laws, are sector specific.

2. Standardization of local regimes

Local content laws do not fall within OHADA’s remit, as each member state adopts its own national law. However, there is a notable trend towards harmonizing these laws regionally, possibly moving towards more unified standards. Such standardization would likely enhance transparency, reduce administrative burdens, foster cross-border business, and attract more investments into diverse sectors like agriculture and manufacturing, which are pivotal for economic diversification.

Key points to consider from the investor's perspective

1. Local content requirements

Local content regimes often require hiring a specific percentage of local workers and prescribe ambitious quotas and procedures for local procurement. These requirements pose significant challenges to foreign investors, given the general lack of local skills in certain complex professional segments (for instance, it can be difficult to find quality cement or specialized locomotive drivers) and the limited choice of local suppliers. Local content requirements might also include building or conducting feasibility studies for the construction of refineries to process crude products in the local market, and establishing training facilities to upskill the local workforce, adding complexity and costs.

However, instead of viewing these requirements as a mere compliance hurdle, the investor should embrace them with a long-term view as opportunities to build capacity on the ground for future use (resulting in potential efficiencies and cost savings), make a tangible impact on local communities and the economic development of the host country, and promote the investor's image as a responsible stakeholder.

Early investment in training programs can help fill gaps in highly specialized roles, such as geologists or machinery operators, reducing reliance on costly expatriates while building local goodwill. By investing in local talent development, investors can also lower long-term labor costs. For example, the investors in the Simandou project in Guinea have developed significant local content and training programs for the local workforce.

Mapping the supply chain early in the planning phase and partnering with local suppliers can help investors improve their capabilities to deliver goods and services for the project locally. This also helps build stronger ties with local governments and, again, enhances the investor’s reputation as a responsible stakeholder. For instance, British Petroleum (BP) investment in Senegal’s gas projects such as the Greater Tortue Ahmeyim project included training local contractors to enable their participation in the construction and operational phases, thereby fostering local supplier development while ensuring compliance with Senegalese procurement laws.

2. Negotiation of local content plans

A crucial point for investors is the negotiation of a local content plan with the government, which can be complex and time-consuming. This plan is essential as it enables exemptions from local content laws and establishes a tailored local content regime for a particular project. For example, it can include phased implementation timelines or grant exemptions for specialized resources not available locally.

Conclusion

Investors must consider local content requirements from the outset and dedicate sufficient resources to the negotiation of the local content plan.

Local content requirements might be burdensome, but they are powerful tools for creating sustainable value and forging stronger relationships with the host country and other key stakeholders. A thoughtful approach to local content can facilitate participation in more projects within the host country and across various regions, making it not only a socially positive endeavor but also a sensible long-term investment strategy.

This piece is written and contributed to Africa Legal. by;