By Judith Tseke
JOHANNESBURG, Feb 4 — Standard Bank, South Africa’s biggest bank, says this year will be tough for the African continent with oil producing countries such as Nigeria and Angola already experiencing financial hardship after the recent rapid fall in the oil price and mining economies such as the Democratic Republic of Congo (DRC), Zambia and South Africa also expected to face difficulty in terms of growth.
The Global Head of Mining and Metals at Standard Bank, Rajat Kohli, said here Tuesday: “The reality is that lower commodity prices mean lower revenues and therefore lower tax receipts coming into the host countries, so it’s going to be challenging.
“But in the medium term, we firmly believe that the narrative for African mining remains intact, that it’s a very attractive continent to invest into in terms of its growth potential. It’s relatively under-explored and relatively under-developed.”
Kohli said public investors had lost a lot of revenue by investing in mining in the past as a result of a fall in commodity prices and a drop in the share prices of mining companies. This has resulted in these business houses being reluctant to invest in the mining sector.
He expects risk takers in private equity to invest where public investors are reluctant to invest in order to fill the gap which currently exists.
The bank says the commodity price cycle has hit its lowest and it expects commodity prices to remain stable for a short term before they start to rise.
The bank says the multi-billion euro plan announced by the European Central Bank (ECB) might help boost investment in the mining sector. The United States Federal Reserve is expected to raise interest rates this year and the ECB is loosening its monetary policy, with the stated plan to flood the financial markets with liquidity.
This could be beneficial to the mining sector which has seen a drop in commodity prices in the recent times.
The Head of Mineral Research at Standard Bank, Walter De Wet, said: “We think ultimately any monetary easing is positive for risky assets, including commodities, but it really depends on which currency you view it.
“Obviously, we see the dollar is quite strong, so it doesn’t necessarily mean that the ECB action would affect commodity prices in dollar-denominated terms, but certainly we’d expect commodity prices in euro terms and a few other emerging market currencies to perform quite well relative to dollar terms.”