Kenya Is Hiring McKinsey to Help Unlock Its Mining Potential

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Kenya’s government is recruiting McKinsey & Co. to design a 20-year mining plan that will guide development of the nascent industry, Mines Secretary Najib Balala said.

The plan will be funded by the U.K. Department for International Development, Balala said in a phone interview from London on June 24, without providing further details. McKinsey, based in New York, didn’t immediately respond to an e-mailed request for comment or to a voicemail left on the consultancy’s London office number.

“This national strategy will actually position Kenya properly,” Balala said. “We want to have Kenya as a regional hub.”

Kenya is overhauling its mining laws to increase revenue from an industry that represents only about 1 percent of gross domestic product. Under the new code, the government will impose royalty rates ranging from 1 percent of the gross sales value of industrial minerals such as gypsum and limestone, to 5 percent for gold, 10 percent for coal, titanium ores, niobium and rare-earth elements, and 12 percent for diamonds.

Mining in Kenya, East Africa’s biggest economy, has lagged behind neighbors like Tanzania to the south, where the industry contributed about 4 percent to GDP in 2013, according to World Bank data. Tanzania is Africa’s fourth-largest miner of gold after South Africa, Ghana and Mali.

The government and the Kenya Revenue Authority plan to conclude an agreement on collecting royalties in the coming weeks, Balala said.

Chinese Loan

The Kenyan Senate is expected to approve the new mining code by Aug. 27, before it is enacted into law by January, Balala said.

The legislation will ensure all miners pay their taxes and boost revenue to 1.5 billion Kenyan shillings ($15 million) next year from about 21 million shillings in 2012, he said.

A key component of the plan to be designed by McKinsey will be an airborne geological survey, Balala said. The government has been in talks with the Export-Import Bank of China for the past two years for a $67 million loan to help fund the study, and may end negotiations after failing to make headway, he said.

The government will decide within the next month whether “it’s on or it’s off” with the Beijing-based trade bank and consider private-bank loans or funding from the Treasury instead, Balala said. The Exim Bank of China is already funding other projects in Kenya and the country “may be exhausting our opportunities there,” he said.

‘No Movement’

Kenya has previously said China-controlled Geological Exploration Technical Institute would conduct the mining survey over as many as three years, Nairobi-based Business Daily reported in August, citing Balala. There has “been no movement,” Balala said on Wednesday.

Balala is in London to meet with officials from companies including Acacia Mining Plc, Anglo American Plc, and Rio Tinto Group about developing mines and a metal exchange in Kenya, he said. Base Titanium, the Kenyan unit of Perth, Australia-based Base Resources Ltd. is already mining titanium in the East African country.

Kenya is the world’s third-biggest producer of soda ash, used to make glass, and ranks seventh in output of fluorspar, used in steel, according to the U.S. Geological Survey. It also has deposits of coal, gold, rubies and sapphires. Randgold Resources Ltd., which owns mines in Africa, said last year it planned a study of Kenya’s gold-mining potential.

The minister said he also met with officials from the British Geological Survey, which agreed to share geological data on Kenya that it previously collected from the country. Kenya gained independence from Britain in 1963. The information will be stored at a planned data bank at the ministry’s headquarters in the Kenyan capital, Nairobi, Balala said.

(An earlier version of this story was corrected to remove the reference to a report Balala said had been issued by Acacia.)

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