The South African Institute of International Affairs Business in Africa Research Project Timbuktu’s Golden Legacy The Experience of South African Firms Doing Business in Mali Mercedes Sayagues Series Editor: Neuma Grobbelaar SAIIA’s Business in Africa Project is sponsored by the Royal Danish Embassy, Pretoria Copyright © SAIIA, 2005 All rights reserved THE SOUTH AFRICAN INSTITUTE OF INTERNATIONAL AFFAIRS ISBN: 1-919969-45-4 Business in Africa Report No. 6 Please note that all amounts are in US$, unless otherwise indicated. SAIIA National Office Bearers Fred Phaswana Elisabeth Bradley ● Moeletsi Mbeki John Buchanan ● Alec Pienaar Acknowledgements The South African Institute of International Affairs (SAIIA) wishes to express its sincere appreciation to the Malian National Centre for Investment Promotion (CNPI), the Ministry of Finance of Mali, USAID, the United Nations Development Programme, the mining trade union SECNAMI and the South African Embassy in Mali. Their assistance proved invaluable in extracting recommendations and assessing the impact of South African investment in Mali. SAIIA also wishes to thank the South African companies (both in Mali and South Africa) that participated in this survey and imparted their experiences and recommendations. Our sincere appreciation also to Pippa Lange, SAIIA’s external language and style editor, for her sterling work on this report. About the Author Mercedes Sayagues is a freelance writer and journalist from Uruguay, who has lived in Africa since 1992. She is based in Pretoria and covers West Africa regularly. Among other studies in 2004, she researched Senegal’s Aids policies for SAIIA. Ms Sayagues holds an MA in Journalism from New York University. About the SAIIA Business in Africa project This is the fifth country case study in a comprehensive survey of business conditions prevailing in Africa, conducted by SAIIA’s Business in Africa project. The report forms part of a series of country and sectoral studies undertaken with a view to extrapolating specific policy recommendations for African governments on how to create a more supportive business environment in Africa. The New Partnership for Africa’s Development (Nepad) initiative emphasises the critical importance of the private sector to the continent’s economic development. South Africa’s expanding track record as a significant and, even more important, a fellow African investor is a notable indicator of local business confidence in the future of the continent. This is also making it possible for the private sector to play a stronger role in the continent’s development. Although it is generally assumed that South African investors are less averse than others to taking risks, in view of their knowledge of, and proximity to, the African market in terms of appropriate technology and products, the SAIIA Business in Africa project aims to verify whether this is indeed the case. Moreover, the research identifies critical areas in which reform is essential if Africa’s private sector is to contribute to growth and sustainable development. The Business in Africa project is headed by Neuma Grobbelaar, the Director of Studies at SAIIA, who is assisted by Hany Besada, the Business in Africa researcher. The following reports have been published by the project thus far: Games D, A Preliminary Survey: The Experience of South African Firms Doing Business in Africa, Business in Africa Report 1, SAIIA, 2003. Grobbelaar N, ‘Every Continent Needs an America’: The Experience of South African Firms Doing Business in Mozambique, Business in Africa Report 2, SAIIA, 2004. Games D, An Oil Giant Reforms: The Experience of South African Firms Doing Business in Nigeria, Business in Africa Report 3, SAIIA, 2004. Besada H, Glimpse of Hope in West Africa: The Experience of South African Firms Doing Business in Ghana, Business in Africa Report 4, SAIIA, 2005. Grobbelaar N & K Tsotetsi, Africa’s First Welfare State: The Experience of South African Firms Doing Business in Botswana, Business in Africa Report 5, SAIIA, 2005. Methodology and Rationale This report is based on a series of interviews that were conducted in Mali in May 2005 with resident South African companies to research their experience of the Malian business environment. The study found that South African companies are mainly involved in Mali’s fast-growing gold mining sector. Because of the small number of South African companies currently operating in Mali, the SAIIA survey was complemented by interviews with government officials, private sector operators, academics, diplomats, donors, trade unionists, members of NGOs and United Nations officials. The one-on-one interviews were supplemented with follow-up interviews with some of the head offices of those companies in South Africa. The study was also informed by research conducted by the UN Economic Commission of Africa (UNECA), the African Development Bank (AfDB), Organisation for Economic Co- operation and Development (OECD), the UN Conference on Trade and Development (UNCTAD), the International Monetary Fund (IMF), the World Bank, the World Trade Organisation (WTO), the United Nations Development Programme (UNDP), Mali Finance, USAID and the Department of Trade and Industry of South Africa. The purpose of the study was to identify some of the pitfalls associated with doing business in a country such as Mali, while also giving credit to some of the success stories. The study is also informed by the fact that French-speaking Africa poses new and particular challenges to South African investors venturing northwards. Table of Contents Executive Summary 1 Introduction 6 Overview of the Socio-Economic Environment 9 Regionalism 57 Trade and Business Linkages 72 Between South Africa and Mali Results of the Survey 87 The Impact of the South African Business Presence in Mali 116 Some Policy Recommendations 126 Conclusion 130 Appendix 1: Bilateral Investment Treaties Signed by Mali 134 Appendix 2: Double Taxation Treaties 135 Appendix 3: Breakdown of Custom Duties 136 Appendix 4: Mali’s Exports & Imports 138 Appendix 5: Tax Concessions & Guarantees for Approved 141 Projects under Mali’s Investment Code Appendix 6: The View from the Private Sector 144 Appendix 7: Mali’s Trade Arrangements & Membership of 146 Other International Bodies Business in Africa Executive Summary This West African country is counted as a success story on the continent for the following reasons: • In 1991, Mali successfully achieved a peaceful transition to multi-party democracy after 23 years of brutal dictatorship. Three free-and-fair elections have been held since its first multi-party election, and their results have been respected. • Mali is a multi-ethnic, peaceful and stable haven in a war- racked region. • The liberalisation of the economy by successive governments since 1991 and the introduction of market- based reforms have resulted in a strong economic performance. Since 1994, the country’s annual economic growth has averaged 5%, well above the sub-Saharan African average of 3.2%. Real GDP per capita has risen by 2.5% every year.1 Today, Mali is among the three top economic performers in West Africa, along with Benin and Senegal. In the early 1990s, gold mining was identified as the means to drive the country’s short and medium-term economic growth. The revision of the Mining Code in 1991 resulted in a veritable gold boom. Mali became Africa's third-largest gold producer, after South Africa and Ghana, when large mining corporations such as AngloGold Ashanti, Randgold Resources and Iamgold entered the country. As a direct result of the development of three new mines by South African companies, gold production has grown almost eightfold in less than a decade, from 6.6 tonnes in 1996 to 66 tonnes in the peak year of 2002, when an exceptional seam was exploited, and returning to a normal level of 53.6 tonnes in 1 World Bank Country Brief, www.worldbank.org South African Institute of International Affairs 1 Sayagues: Timbuktu’s Golden Legacy 2004. Gold is now Mali's primary export and main foreign currency earner, accounting for 71.8% of Mali's total export income in 2002. South African investment in Mali is significant when measured against the overall size of the local economy, although restricted to a handful of players and heavily concentrated on gold mining and energy. The South African power utility, Eskom, manages a regional hydroelectric dam. In contrast with the investment profile of South African companies in other African countries, there are no South African retailers, fast food chains or tourism operators involved in Mali. South African investment has had a considerable impact on Mali’s economy, both positive and negative. The effects on economic growth, the balance of payments, state revenue, job creation, private sector development and skills transfer have been generally positive and benevolent. Mining activities by South African companies have bolstered tax and customs revenue, added to payroll and social security charges, and created both downstream and upstream businesses that service the mines at the national and provincial levels. Villages around mines, in particular, have grown into active business nodes through direct and indirect job creation. Among the negative effects are the limited linkages with local businesses. This is attributable to the specialised nature of South African investment, which is capital- and technology- intensive; the complexities and difficulties of operating in Mali because of language and cultural differences; and the lack of domestic investment capacity. Although the companies surveyed by SAIIA identified the government’s policies, which support peace, political stability, a democratic dispensation and religious and ethnic tolerance, as very positive factors, most of them rated Mali as more business-friendly in theory than in practice. The government’s 2 South African Institute of International Affairs Business in Africa policies, plans and documents affirm its intention to create an investment climate that is supportive of foreign businesses, but operating in Mali makes companies aware of gaps, for example between plans crafted in the past 10 years and old tax and labour regulations that have not been updated.