On the eve of the 2013 Mining Indaba, resource nationalism remains a serious investment risk which threatens both foreign investors and resource-producing states alike. With growing attention devoted to the subject, it appears that assertive resource-exporting countries in Africa risk alienating international capital. In newly resource-rich states and older producers alike, some proposals ostensibly aimed at maximising society’s benefits from resource extraction have spooked investors. Much discussion at the Indaba this week will touch on the disparate experiences often termed resource nationalism, but it is worth reflecting on what the term really means.
At one level, it seems to be a misnomer used to describe just about any assertive stance taken by governments on extractive sector governance. At another level, it has been used to denote grassroots level activism, extending in some respect to the labour unrest which the rhetoric around the nationalisation of mines in South Africa may have exacerbated.
Actions regarded as resource nationalism have thus varied widely, from tax hikes, through demand for greater state equity and indigenous participation, to renegotiation of stability clauses in mining contracts. Also, so-called beneficiation strategies – pursued by South Africa, Brazil, Indonesia, Vietnam and others – involve demands for value-added processing before exporting.
The term has generally described initiatives by host governments to secure greater financial, regulatory, and sometimes operational control over extractive activities. Recently, Zambia and Mali have pushed for 25 to 35 percent state participation in mining projects. In Ghana, public opinion supports a windfall tax on extractive firms. Similar demands are made in other African mineral producers. Ernst and Young, the global consultancy, claims in its Business Risks in Mining and Metals 2012/13 report that resource nationalism is the biggest risk for mining companies in Africa.
Beyond the definitional controversy, it is true that governments that have pursued naked resource nationalism have tended to suffer adverse effects in the longer term. Given the cyclical nature of global commodity prices, producers’ hubris during commodity super-cycles can be punished when prices fall. Often, such policy imprudence discourages investors. Indeed, when governments abruptly or unilaterally revise existing agreements or break with established conventions, complaints by affected foreign companies will be legitimate.
On the other hand, when companies seek unfair concessions such as in wartime Democratic Republic of Congo (DRC), they prejudice the rights of host communities. Such behaviour inadvertently invites interventionist government actions. It is, though, a risky strategy to move against foreign mining interests without fully following the rule of law. Unlike Zimbabwe’s aggressive resource nationalism, a newly elected government in Zambia managed recent policy changes by informing and directly negotiating with foreign companies, including raising copper royalties to six percent.
African governments should not be in hock to multinationals but decisions on mining should be taken competently and constructively. Otherwise, they risk losing the big mining investments which are vital to developing new reserves for the overall benefit of the economy.
For example, BHP’s departure from Guinea after the country adopted new mining codes in 2011 led to concerns that the country could be scaring off serious industry players whilst opening the door to lower quality investors. The still ongoing review of major mining contracts being done by Guinea’s government must therefore be completed expeditiously and impartially. Nevertheless, some recent mining disputes tied to African resource nationalism really belong in a grey area.
For the rest of this column, please go to (South African) The Age website: http://www.saiia.org.za/feature/resource-nationalism-threatens-africa-s-mining-boom.html