What are the implications of the August coup in Mali for its investment environment? Charlie Mitchell examines the prospects for business in a country that has suffered from long-term instability
To the Malians who filled the streets of Bamako in late August, cheering the military after a coup removed the government of President Ibrahim Boubacar Keita, economic output might have appeared a secondary concern.
Yet the undiversified Sahelian economy stands on the edge of an economic precipice. Wide-ranging sanctions imposed in response to the coup by the West African regional bloc, Ecowas, including closure of all the country’s borders and a halt to financial flows, threaten to deal the economy a crippling blow.
Amid considerable political turmoil, the few investors outside the stable gold sector are growing jittery. Minimising the long-term economic damage of Mali’s second coup in eight years will require an expeditious transition from military to civilian rule.
The vast, arid country met the coronavirus pandemic following a strong year. “The Malian economy has been surprisingly resilient,” says Alexandre Raymakers, senior Africa analyst at Verisk Maplecroft. “Though two-thirds of the country are in effect under the control or influence of armed groups, Mali recorded a 5.1% growth rate in 2019 on the back of a booming gold mining sector and exceptionally high agricultural output.”
Mali has largely contained the virus, which hit sub-Saharan Africa relatively late. While it threatened to cause a modest economic downturn by hitting supply chains, remittances and the urban economy, the country’s finances have benefited from the collapse of crude oil prices and the growing strength of its main export, gold.
“Because gold is seen as a haven of safe value in troubled times, the price has actually gone up,” says Paul Melly, a consulting fellow for the Africa Programme at Chatham House.
A fortnight after the commodity hit a record high of $2,072 an ounce in early August, a clique of rebel soldiers detained Ibrahim Boubacar Keita, Mali’s president, forcing him into a televised resignation, and proposed a two-year transition to civilian rule. As Malians cheered in the streets, Ecowas, the African Union and international powers – including France and the US – expressed grave concerns and demanded a civilian-led transition, with elections in 12 months.
Within days, Ecowas slapped its sanctions on Mali, closing borders and slashing trade. Since Mali is landlocked, the embargo isolated the country financially and cut off its access to vital sea ports, pushing up prices. International transactions and financing remain blocked, as do cash machines.
“Mali is part of the CFA franc zone, so the central bank is not in Mali but in Dakar,” says Melly. “If Ecowas is not satisfied, it could paralyse the entire banking system.”
Reflecting concerns among international investors, shares in mining firms with Malian sites tumbled after the coup. London-listed Hummingbird Resources and Resolute Mining saw their shares fall by 12 and 14% respectively, while Canadian B2Gold, which runs the Fekola mine in southwest Mali, plunged by 8%.
In mid-September, regional leaders met Colonel Assimi Goita, the leader of Mali’s military junta, to press for a return to civilian rule. “That country can no longer afford any delay in putting a responsible government in place,” said President Nana Afuko-Addo of Ghana.
In late September, an election committee chosen by the junta named former defence minister Bah Ndaw as president of an 18-month transitional government, which will lead Mali into elections. “The international community is watching us, which is why we accepted the Ecowas principles,” Colonel Goita said. “In the coming days, Ecowas must remove these sanctions.”
Ndaw, 70, spent his career in Mali’s military and Goita will fill the powerful vice-president role. Days later Ndaw appointed former minister of foreign affairs, Moctar Ouane, as prime minister, fulfilling another of Ecowas’s conditions for the lifting of sanctions, but at the time of writing the regional bloc had still not lifted them.
Mali could face a lengthy period of instability, decimating businesses and investor confidence and discouraging capital flows from overseas. Even with the transitional government in place, insurgencies in the north will make holding elections arduous.
Investors are cautious
“Investors operating in Mali are adopting a ‘wait and see’ approach,” says Raymakers, who predicts the sanctions regime could last for as long as two months, and the political instability two years. “We have not seen any signs of a general exodus. Investors are likely waiting for a clear indication of what form the political transition will take.”
Mali has long been plagued by terrorism, intercommunal and Islamist violence and corruption. Keita won in 2013 vowing to tackle graft, but drew heavy criticism for elevating family members and wasting funds. It was a decision by the constitutional court to partially overturn election results that sparked this year’s protests, but it is Mali’s inability to contain insecurity in its war-torn north that has prevented its economy from truly taking off. Mali has become the UN’s most dangerous posting for peacekeeping missions.
As a result, 43% of Malians were in extreme poverty in 2019, despite impressive agricultural output in recent years, particularly cotton. In the long term, climate change and rapid demographic growth will endanger food security. The country relies on regional partners, particularly Senegal and Côte d’Ivoire, and runs a large current account deficit.
“The coup has an indirect economic impact due to the embargo on a landlocked country with no direct access to the sea, which is heavily dependent on imports,” says Alhassane Soukouna, a Bamako-based business lawyer. For now, only basic foods, electricity, medicines and fuel can get through, he says.
Impact on key sectors
Even if political stability returns, the overall impression of Mali as conflict-ridden and unstable could cause new investors to look at more stable regional alternatives, particularly coastal nations such as Benin, Senegal and Côte d’Ivoire.
One shining light is the gold sector, accounting for 7% of GDP and 30% of government revenue, with miners – well aware of the risks of operating in Mali – staying put. “The Fekola Mine continues to operate unimpeded and no operational days have been lost due to the recent political developments,” said B2Gold after the coup, announcing its intention to expand the site.
“Financial investments are made at an earlier stage of these projects,” says Soukouna. “As gold produced in Mali is not exported towards Ecowas countries, there should not be any significant impact on mining companies.”
Cotton is another important export with growth potential. Today 40% of the rural population is dependent on the crop, which is widely used in West African clothing.
Soukouna says Ecowas countries will start to suffer if Mali remains cut off for too long, due to decreased revenues from use of their ports.
Before the coup, the World Bank predicted Mali would struggle to sustain itself financially in the long term in the context of global uncertainty, armed conflict and Covid-19. It recommended the government “redirect expenditure towards public health services and take steps to increase its sources of revenue”.
In light of the coup, Mali’s priorities must be reviewed, analysts say. The country must tackle insecurity in the north and intercommunal violence in its centre, diversify its economy and work towards fostering a more stable business climate.
“All of this bad governance, instability and the political crisis undermine the chances of Mali just occasionally convincing an investor that actually Mali is the right place to invest,” says Melly.