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Credit to mining sector doubles after moratorium lifted
Miners drilling holes in rock for blasting.
Banks have doubled funding to the mining sector after President William Ruto's administration lifted a temporary freeze on the issuance of large-scale prospecting and mining licences, raising prospects of a turnaround for a sector whose contribution to economic output has been in decline.
Latest industry data shows credit to the sector grew sharply in the first year after a blanket December 2019 moratorium on the issuance of prospecting, mining, and dealership licences was lifted following a raft of reforms including an online mining cadastre.
Loans to investors in the sector jumped 96.7 percent to Sh49.3 billion in the year ended September 2024, the Central Bank of Kenya says in the latest report on sectoral distribution of credit. This bucked a trend where credit to the private sector slowed to levels last seen when interest controls were in force, growing a marginal 0.4 percent year-on-year in September.
Miners and prospectors, whose applications had been pending for years, were given up to November 30, 2023, to update documents on registration, owners, and sources of funding following a Cabinet resolution that lifted the ban.
The CBK data shows the stock of credit to the mining and quarrying sector rose steadily from Sh21.9 billion in October 2023 to a peak of Sh53.5 billion in August before contracting for the first time in that review period to Sh49.3 billion last September.
The State Department for Mining said it had evaluated 1,162 applications by mid-September 2024, with a measly 95 applicants getting approval to prospect and mine.
A majority of prospective firms were locked out for lacking supportive documents, including proof of adequate funding as well as tax and environmental compliance certificates.
“We have awarded licences cumulatively to investments around Sh132 billion. Majority of them want to do industrial and construction minerals. But there are few who are engaged in titanium and other strategic minerals,” Principal Secretary for Mining Elijah Mwangi said in an interview last September.
“Before, we give you a licence, you’ll have to sit with us and prove that you that you have the capacity to invest the funds that you have indicated in your applications. They must justify that they have the financial capability to do mining or prospecting.”
Investors attach work programmes as part of licensing process, revealing “detailed plan for the duration for which the licence or permit is sought and outline the details of the activities and expenditure commitments for each year of the term of the licence or permit”, according to the Mining Act 2016.
Increased funding is expected to lift activities in the sector whose output has been contracting in recent years, with the latest Kenya National Bureau of Statistics showing a 2.7 percent year-on-year drop in the quarter that ended June 2024.
“We have not concluded on evaluation and awarding of the applications. We expect that the investments will be higher,”Mr Mwangi said.
“For us to grow as a country, we need investment in explorations. We need people who will come and bring money so they can do explorations. When they do that we are going hire people and services, and that’s one way of spurring our economy and growing our contribution to the GDP.”
The past struggles for firms in the industry is reflected in corporate income tax remitted to the Kenya Revenue Authority, which only beat construction and education sectors.
Companies in the mining sector contributed about Sh4.15 billion in CIT taxes, paid on profit, for the financial year ended June 2024, according to KRA, a 1.5 percent drop from Sh4.22 billion the year before.
“Mining is a highly capital-intensive venture and requires patient capital and very strategic decisions. Most times, large companies that operate across the borders look to acquire deposits for they will exploit in 20 years or more years to come,” Patrick Kanyoro, chairman of the Kenya Chamber of Mines, said.
“I know there has been discomfort ad suspicion that these firms have been here for long, and we see nothing. Yes, we want them to mine now, but for many strategic business decisions, that may not be possible sometimes.”
The government lifted the ban on issuance of permits and licences for 56 industrial and construction minerals but has maintained that approval for prospecting and extraction of strategic minerals be done on case-by-case basis guided by Mining (Strategic Minerals) Regulations, 2017.
The regulations places the responsibility to explore mine and deal in strategic minerals or deposits in the hands of National Mining Corporation, which may do so on its own or through a partnership with a company which has required technical and financial capacity.
Minerals which Kenya has declared as strategic are cobalt, graphite, copper, tantalum, lithium, Niobium, coltan, nickel and tin. Others are radio-active minerals like uranium and thorium, tsavorite, rare earth minerals and chromite.
