Global Policy Forum

By Denis Tougas

The time when Canada's presence on the African continent was primarily characterised by numerous missionaries and food donations is well and truly over! In countries such as Congo, Mali and Tanzania, when it is learned that you are from Canada, you are immediately asked if you work for the 'mining', a perception entirely consistent with reality. Canada is now a superpower in the African mining sector, a position the country intends to maintain and develop using all means at its disposal.

The salient presence of Canadian mining is relatively new in Africa and is rooted principally in the programmes of liberalisation of the sector from the early 1990s. These programmes have been driven by the World Bank, which from 1992(1) had begun defining the extractive sector as the main engine of development for many countries.(2) The privatisation of state enterprise - promoted as a means of encouraging the entry of foreign investment - has opened the door to foreign companies. At the head of this development, especially with regard to the smaller exploration companies known as 'juniors', are Canadian companies. These companies have an immense commercial presence in Canada: of the 1,223 mining companies listed on the Toronto Stock Exchange, the largest in the country, more than 1,000 are juniors!(3)

A huge expansion

Currently, according to the Ministry of Natural Resources Canada (NRC), only the Republic of South Africa, with over 35% of assets and investments, is just ahead of Canada in the African mining industry. But with South Africa's assets concentrated on its own territory, Canada dominates the rest of the continent.

The data compiled by the NRC demonstrates the speed with which the value of Canadian mining assets in Africa has grown over the last twenty years: at US$ 233 million in 1989, this figure grew to $635 million in 1995, and $2.8 billion in 2001, growing further to $6.08 billion in 2005, and $14.7 billion in 2007.(4) This total value is estimated to reach $21 billion by 2010. In 2001, Canadian companies had operations in 24 African countries, a figure that had risen to 35 by 2007. And 91% of Canadian investments were concentrated in eight countries, with the order of countries' importance being the following: South Africa (25.6%), DR Congo (17.8%), Madagascar (13.8%), Zambia (9.9%), Tanzania (9.5%), Ghana (6.5%), Burkina Faso (4.7%) and Mauritania (3%).

It remains to be seen whether Chinese investment projects in the region will threaten Canada's position of overall dominance.

Benefits for Canada

The development of the Canadian mining sector and its expansion has affected all continents. Africa represented 11% of Canada's US$25.8 billion in cumulative mining assets in 2001, a proportion which had risen to 17% of the total $85.9 billion in the same assets by 2007. This growth has generated substantial profits for companies in the country: in 2001 the sector accounted for 4% of Canada's Gross Domestic Product (GDP), with $64 billion in exports and $30 billion in capital expenditure, while employing a total of 400,000 people. In addition, activities related to exploration and mining led to the development of a large number of economic activities affiliated with mining and covering a wide range of goods and services: providing equipment, training, legal and financial advice, along with other types of expertise. In 2000, there were at least 2,200 Canadian companies related to the mining industry. This data helps us better understand the reasons behind the Canadian government's strong support for a sector that has become crucial for the growth in an ever globalising and competitive world economy.

Political incentives

This global increase is the result of political decisions of a government under considerable pressure from powerful mining associations, most notably the aforementioned juniors. Canada, rich in minerals, has a long tradition in the mining sector. Over the course of its history, the state has regularly passed laws to promote the development of the country and mitigate the impact of sporadic crises in the sector. And since the 1990s, under the influence of industry associations, the Canadian state has implemented a comprehensive strategy to support the expansion of investments and activities abroad, one including measures targeting businesses and investors.

On the corporate side, Canada has been quicker than other countries in its adoption of fiscal measures designed to be attractive to mining interests, some examples of which include:

. Tax deductions for expenditure incurred abroad

. Deductions for debt (and interest) accrued abroad

. Tax exemptions for profits repatriated to Canada

. Deductions of up to 100% for investments in exploration and development projects when undertaken by companies themselves

. Opportunities for companies with several projects abroad (exploration and exploitation) to deposit their respective finances in a single account when calculating taxes due in Canada, enabling larger profits accrued in more profitable ventures to be combined with less profitable exploration projects, thus reducing the overall tax paid

. Deductions for depreciation and accelerated depreciation.

All these measures mean that in Canada 'the average tax rate on large corporations, including on capital, is below the US rate and will be so by more than 6% in 2008.'(5) And this doesn't take into account the programmes offered by different ministries looking to further aid mining businesses, such as for example helping enterprises to improve their technical capabilities in relation to exploration. Nor does it take into account the financial support granted by Export Development Canada (EDC) to facilitate Canadian investment abroad. According to its 2007 annual report, the EDC has supported projects totalling $22 billion worth of exports and investments in Canadian companies in the extractive sector!

From an investment point of view, special tax measures will promote the expansion of 'junior' exploration registering on the stock exchange: thus, the Investment Tax Credit for Exploration (ITCEE) allows the deduction of 15% for 3 years for buyers of 'accredited' shares issued by exploration companies with the backing of the government. According to the Prospectors and Developers Association of Canada (PDAC), this programme of accredited shares allowed Canada to maintain its comparative advantage in this area on the world stage, making it the envy of other competitors such as Australia, South Africa, Brazil, Chile and Peru.(6)

A made-to-measure grant

Finding financial support for mining operations is especially crucial at the exploration stage. Here too has Canada taken the lead by developing special place for on the stock exchange for those companies deemed to be undertaking risky operations. Greater risk must lead to greater reward! The Vancouver Stock Exchange (VSE) has for a long been the point of reference for this type of transaction and a centre of attraction for the smaller mining companies involved in exploration. The numerous associated scandals that have come to light, that of Bre-X notably, have ended up ruining operations.

The Toronto Stock Exchange (TSX) had however already restructured its activities in the 1960s in order to facilitate juniors' entry and accommodate this type of risky capital (TSX Venture). The advantages are many: financing for initial stages, the conversion of debt, private placements, debt balance while projects are developed, etc. In short, the Toronto exchange dominates the global market for financing. In 2007 in Canada, there was a rise of $4.2 billion in the share value of mining companies collectively. Australian stock exchanges, in the meantime, occupied second position with $1.3 billion in shares, while their American counterparts occupied fifth position with $500 million. Thanks to its mining expertise, the TSX is now in seventh position for values traded globally.

Assault on Africa

These rigorous policies of support go some way to explaining the rapid ascent of Canadian mining companies across the African continent in countries open to foreign investment, as much in countries with a strong mining tradition such as Ghana and Tanzania as in those just discovering their mining potential like Mali, as well as in countries experiencing conflict where the risks are great, like the DR Congo. These businesses have found in Canada the support, backing, and finance necessary for all these mining ventures.

In much the same vein, Canadian diplomacy is very much at the service of business interests and the general extension of Canadian influence within this domain. In this regard, the country at times pursues objectives seemingly at odds with its development agenda, some examples of which include:

- In 1996, the Canadian High Commissioner in Tanzania intervened on several occasions to influence revisions to mining legislation as a means of promoting Canadian business interests. And, specifically, in order to counter the legal claims of local miners questioning the legitimacy of the mining company Sutton and designs on Bulyanhulu deposits(7)

- In June 2008, the staff of the very same High Commission energetically intervened in Tanzanian parliamentary affairs to ensure that the country's politicians rejected the conclusions of the Presidential Mining Sector Review Committee on revisions of the mining sector. The Committee had recommended a greater proportion of profits generated by higher prices be kept for the country itself(8)

- In 2004, Canada's ambassador to the United Nations had criticised a part of a report produced by the Panel of Experts on the Illegal Exploitation of Natural Resources in the DR Congo, in which nine Canadian companies were accused of violating OECD (Organisation for Economic Co-operation and Development) guidelines during the country's protracted war.

And now, in order to ensure formalise the sector's acquisitions over the last decade, Canada has signed its first Foreign Investment Protection Agreement (FIPA) plan with mining countries, with Tanzania and Madagascar in first place. This FIPA, already established within many Latin American countries, has among its aims the removal of current agreements through placing them under international arbitration.(9) New legislation on the issue by host countries could not be applied without significant compensation. Supposedly of high importance to Canada, the principles of 'good governance' could hardly apply.

It's a safe bet that Canada's image as a moderate country and disinterested development partner in Africa is now thoroughly outdated.

(1) World Bank, Strategy for African Mining, World Bank Technical Paper no. 181, Africa Technical Department Series, Mining Unit, Industry ands Energy Division, Washington D.C., World Bank, 1992

(2) For a deeper analysis of the World Bank's political orientation, please consult the work of the Groupe de recherche sur les activités minií¨res en Afrique (GRAMA) at the University of Québec in Montréal (UQAM).

(3) Without exception, the majority of the statistics mentioned in this article come from the Ministry of Natural Resources Canada (NRC) and have been taken from Fode-Moussa Keita, 'Les sociétés minií¨res canadiennes d'exploration et de développement du secteur de l'or; les impacts de leurs activités en Afrique de l'Ouest', political science thesis at the University of Québec in Montréal (UQAM).

(4) September 2008 estimate.

(5) Fode-Moussa Keita, op. cit. p. 123.

(6) Ibid., p. 125.

(7) Paula Butler, 'Canada's 21st Century Colonial Interests in the "Good Governance" of African Minerals', 2003, pp 24-30.

(8) http://tinyurl.com/6mwhxu