The mining sector is likely to shake off what has been quite a tough time in recent months following challenges in access to finance among other setbacks.
As an intervention to the persistent challenge of lack of access to finance, the government is currently in discussions with the World Bank on how to set up a guarantee fund that aims at facilitating access to finance for the sector.
In the monetary policy and financial stability statement presented by the central bank, Governor John Rwangombwa, last week, said mining – for the second year running – topped in the sectors with the highest loan rejection rate by local banks.
In 2015, the statement noted that 96 per cent of the total loan applications in the sector were rejected, up from 68 per cent in 2014.
The biggest loan request rejected from the sector was of about Rwf4.5 billion owing to lack of tangible security and the business being a start up with no track record.
So far, a concept of the guarantee fund has been developed and is under review by the Ministry of Finance and Economic Planning, according to the Minister of State for Mining, Evode Imena.
If finally approved, the guarantee fund is likely to see banks increase lending to the mining sector, whose growth is held back by access to finance challenges.
Imena said banks’ hesitance to fund the sector has also been due to lack of quality feasibility studies that give a clear picture of the quality and quantity of mineral projects to inform the profitability of the mining ventures.
Without quality feasibility studies, banks shy away from extending credit to operators in the sector as they are unaware of the risks involved in the projects.
To change this, the minister said they had set up a professional body made up of experts from the mining and geology fields from Rwanda and beyond to work in standardising and refining the studies to include information sought for by banks.
“In the process, banks will be involved to incorporate aspects they are keen on to ensure they are able to conduct a risk assessment of the projects seeking loans from them,” Imena told The New Times.
Giving insights into their challenges in financing mineral projects, Edigold Monday, the managing director of Crane Bank Rwanda, said other than the fall in global prices, the lack of clarity in terms of cash flows in the sector also posed a challenge.
“If you look at the finances required by the mining sector, it is quite a heavy investment and for over a long time depending on the stage at which the client approaches the bank. Most times we are relying on short-term funds but you have people seeking funds for exploration that may go up to 10 years, which can be challenging for us to avail the funds,” Monday explained.
Going forward, she said bankers would convene a roundtable session with people active in the sector to see ways to work closely around the challenge.
The global economic trends have also had an impact on the local mining sector.
The fall in commodity prices in the international markets have further worsened the situation for the sector by increasing the risks and reducing profitability while the sluggish growth of the Chinese economy has reduced their purchasing capacities of Rwandan minerals.
Despite the challenges, miners are upbeat that the situation is likely to change in coming days following the interventions being made.
Of importance to them, however, is the urgency of intervention given the rate of drop in revenues in the past two years.
Statistics indicate that the revenues from the sector dipped to $149 million last year, from about $210 million in 2014.
Frank Butera, the executive secretary of Rwanda Mining Association, said that setting up the guarantee fund would boost banks’ confidence to extend loans to operators in the sector.
He said the tough times for the sector began around the last trimester of 2014 with experts predicting that it would persist for about one year given the international market factors and the global economy.
Butera explained that access to finance was important for the growth of the sector as standard mining projects required massive capital investments.
Butera added that the organisation that brings together mining firms operating in the country had hired consultants to help them meet the banks’ requirements, as well as deal with other challenges faced by miners.
Previously, the sector was largely dependent on pre-financing of traders by their clients, which was becoming difficult due to the unpredictability of the global prices of commodities and a perception that minerals from the region were conflict related.
The perception created by a section of international organisation has also tainted the image of the local mining sector.
Last year, Imena, the minister of state in charge of mining, appeared before the Monetary Policy and Trade Subcommittee of the US House of Representatives in an attempt to demystify the misperception.
While appearing before the Congress, he called for Rwanda to be considered a ‘conflict-free’ mineral country noting that Rwanda had made efforts in transparency by developing a mineral traceability programme.
However, going forward, the government and stakeholders remain optimistic that there is going to be a turnaround in the sector and the outlook remains positive.
Imena said although this year might not be an easy one for the sector, the interventions will lay foundation for the growth of the sector.
Despite the challenges, the sector remains one of the top exports from Rwanda, in 2015, the sector’s export generated $117.81 million from exports of about 7280 tonnes and $203.2 million worth of exports in 2014.
The sector has also caught investors attention with the recent entrant being Mawarid mining Company, an Omani-based firm that signed a $39-million project with the government. Statistics indicate that about 50 mining license applications were received annually for the last four years.
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