Funders and clients must be able to measure the impact of lending activities
While its contribution to GDP may have declined, South Africa’s mining and resources sector is an important part of its domestic economy. As such, continued innovation from operators, explorers and financiers will be key to driving the next phase of our economic recovery.
A lot of economy South Africa’s recovery and fiscal boost in 2021/2022 can be attributed to the fortunes of the minerals and resources sector, considering the following:
- Mining contributes approximately R220 billion to GDP annually
- In the 2021/22 tax year, mining contributed R127 billion of the R318 billion tax collection.
- 24.1% of South Africa’s export revenue is attributed to primary mineral exports.
Numbers don’t lie. When the mining sector works, the wider South African economy will be higher.
The theme for Mining Indaba 2023 focuses on three pillars: Stability, Security and Supply. In order to exist, a closer relationship between funders and operators is of utmost importance.
Absa has been a key supporter of domestic mining projects and as the industry embarks on a new era focused on sustainability, we expect a range of innovative transactions to take place in 2023 and beyond.
With good commodity prices, increased investor confidence, strong balance sheets and many resource businesses looking to diversify their operations, we expect corporate finance activity to be strong over the next 12 months.
Cost-effective capital solutions will be a key talking point for mining executives, and here we see an interesting dynamic starting to unfold.
Historically, mining organizations have been guided by legislation to manage licenses to operate. In the last few years, we have seen the rise of Environmental, Social and Governance (ESG) frameworks starting to take shape and inform how stakeholders – including investors, regulators and finance houses – analyze and consider transactions.
Industry insiders talk about the curve where organizations will move from liability (what they want) to operational efficiency (what they need to do) before moving to industry leadership, where they focus on improving business through innovation and newness. business model. In South Africa, an example of the final phase is where mining and resource businesses are now tasked not only with ensuring that they have enough power to operate, but to be able to supply it back to the network or surrounding communities as part of a wider sustainability mandate.
As financial products related to sustainability come to market, the focus on standardized reporting frameworks, monitoring and evaluation of compliance will increase. It is not enough to just borrow for capital projects, or to finance transactions – funders and clients must be able to measure the impact of lending activities. This is one area where Absa has invested a lot of resources to improve skills and capabilities, both in South Africa and across the continent.
We are entering an exciting new era for the resources sector, an era that will give Absa the opportunity to deliver sustainable and innovative solutions to our clients.
Chetan Jeeva is Head of SA Corporate Lending, Absa CIB
