In an attempt to attract foreign investment, streamline regulatory processes and ensure sustainable development in its promising mining industry, Madagascar has enacted a New Mining Code (the New Mining Code). Madagascar is rich in mineral resources like cobalt and graphite which are crucial in supporting the green transition, and the New Mining Code represents a foundational step in creating a conducive environment for mining activities and investment in the country.
As the demand for minerals supporting greener energy technologies increases, Madagascar is particularly well positioned to assist due to its rich deposits. Illustrating this growth in demand, Madagascar’s graphite production has grown from 12,582 tonnes to 53,400 tonnes over four years. Madagascar is also home to 120,000 tonnes of cobalt reserves and is the world’s eighth largest producer of the mineral.
Content of the Code
As interest in cobalt and graphite continues to grow, so has interest in ensuring that these commodities are ethically sourced, minimizing harm to the people who mine the minerals, and the environment from which the minerals are removed. Increasingly, end-users and retailers are demanding that key inputs into their supply chains be sourced ethically. The New Mining Code endeavors to balance these demands by:
- strengthening the role of the state and local communities;
- establishing a fair mining tax regime;
- securing mining rights and investments; and
- reformulating the link between mining activities and environmental, social and governance standards.
Mining Administration
Mining permits are managed by the Bureau du Cadastre Minier Madagascar (BCMM). The New Mining Code has strengthened institutional governance by redefining the mandate and structure of the National Mines Committee (CNM) of the BCMM. The CNM has been granted oversight powers on activities of mines and supports the BCMM by conducting assessments of the market.
Any natural person of Malagasy nationality and any legal entity under Malagasy law, may acquire and hold mining permits, approvals and authorizations. Legal entities must have at least one representative resident in Madagascar. Importantly, the New Mining Code, read together with the Investment Law (Law 2007-036), does allow foreign companies to hold mining rights.
Local Communities and the Environment
To include local communities, the New Mining Code establishes the Mining Fund for Social and Community Investment (the Fund) and requires permit holders to formulate a Corporate Social Responsibility Plan. The purpose of the Fund is to establish sustainable development programs that benefit local communities through the proceeds of mining activities. The Fund will be managed through a partnership between local communities and local authorities.
Article 253 of the New Mining Code echoes provisions contained in the Malagasy Environment Charter (MEC) which stipulates that investment projects must undergo an Environmental Impact Assessment.
Royalties and Taxes
The royalty rate has been revised upwards from 2% to 5% with a reduction of 30% applicable to the 5% royalty rate if the products are locally “transformed”. The composition of the 5% royalty rate comprises a 2% mining rebate for the benefit of local communities and a 3% mining royalty rate for the benefit of the State.
The term “transformed” is not defined and its application is not explicitly outlined, however, it can be inferred that the 30% reduction of the 5% royalty rate will be applicable to mining entities that advance the local beneficiation of the commodities prior to their export.
Investment Protection
The Malagasy government has moved to allay investor fears of any reneging of agreements by guaranteeing returns on their investments through guaranteed maintenance of the legal and regulatory regimes in force at the time of request. A “Stability Guarantee” is granted to any holder of a permit and is valid for a renewable period of up to 5 years. Permit holders can request more favorable measures that would have come about after the date of exercising the stability option. Permit holders will, however, not be allowed to derive benefits from the Stability Guarantee if they fail to fulfil any of the obligations or terms outlined in their mining specifications.
Future Outlook
Madagascar’s sustainable resources hold great promise, with ample opportunities for growth and development in the country’s mining sector. The New Mining Code promotes Madagascar as a mining friendly jurisdiction that is open and welcoming of foreign business, and seeks to balance the implementation of policies that attract foreign capital and expertise against the safeguarding of the interests of local communities and the environment. While several progressive measures have been introduced, this change is not without its challenges. Effective implementation of the New Mining Code will require both robust monitoring and enforcement mechanisms to ensure compliance and protect investors.
For more information on this topic, please visit the Dentons webpage to download the full snapshot article, or contact the authors; Brandon Irsigler, Davin Olen and Mthabisi Khumalo.
