Mining hit by nationalism
Alarm bells are sounding for the mining industry over growing government control of resources in sub-Saharan Africa, as states try to cash in on higher commodity prices and secure votes ahead of crucial elections.
Alarm bells are sounding for the mining industry over growing government control of resources in sub-Saharan Africa, as states try to cash in on higher commodity prices and secure votes ahead of crucial elections.
This phenomenon, dubbed resource nationalism, is unlike outright nationalisation seen in the 1960s and 1970s when governments took full control of mines. Instead it takes various forms, including higher royalties and taxes imposed by states on companies, and the introduction or increase of compulsory minimum quotas for ownership.
Aspects such as local beneficiation and procurement of local goods and services are also emphasised.
This development has taken hold in Tanzania, the Democratic Republic of the Congo (DRC) and even SA, according to Peter Leon, partner and Africa cochair at law firm Herbert Smith Freehills, who presented a paper at the October 7-12 International Bar Association Annual Conference in Rome. The development is a concern for mining investors who are easily spooked when rules change in the middle of long-term investments. The general trend “is undoubtedly in the direction of greater fiscal control and greater state intervention”, Leon says.
In 2017 the Tanzanian government claimed there was an “economic war” between itself and mining companies and passed various laws that raised royalties and imposed compulsory government equity stakes in operations. In 2018 the DRC government signed a new mining code into law that introduces a range of changes expected to negatively affect major companies invested there, such as JSElisted Glencore and Randgold Resources based in London.
In SA, the newly gazetted Mining Charter is an example of resource nationalism, although to a lesser degree than Tanzania and DRC, Leon says. The third version of the charter raises minimum quotas on certain aspects for mines, including black ownership.
Resource nationalism is influenced by certain cycles specific to each jurisdiction, with the investment cycle as the first and most fundamental.
“It only manifests after significant investments have already been made and have started yielding returns. Any earlier would avert investors from making the front-loaded capital outlays necessary for prospecting and mining,” Leon says.
A more immediate driver is the commodity cycle in states that are highly dependent on raw mineral exports.
Author Sangwani Ng’ambi, who is also head of public law at the University of Zambia, observes that when prices start rising continuously, the perception is that foreign investors make a larger profit. There may also be a sense, owing to low tax and royalty rates, that the state is not fully maximising the benefits of this windfall in the price of the nation’s natural resource, Ng’ambi says.
Another immediate driver is the electoral cycle, especially in countries where regular elections have close winning margins. “Incumbent governments may seek to increase their electoral support by exploiting the populist appeal of resource nationalism,” Leon says.
Underlying it all is a sentiment that African mining countries did not derive proportionate benefits from the last commodities boom, when multinational mining companies appeared to make windfall profits, he says.
Attitudes have also hardened after an AU report showed that, from 2000 to 2010, African states lost at least $50bn a year to “illicit financial flows”, 56% of which came from the oil, gas and mining sectors.
Jesse Ovadia, assistant professor in political science at the University of Windsor, Canada, views resource nationalism as being about a range of policies aimed at increasing social investment that help ensure a development benefit to citizens.
“The mining industry already acknowledges the need to deliver such a benefit through corporate social responsibility and other initiatives to secure a social licence to operate,” Ovadia says. “But I think resurgent resource nationalism is a response to a long history of [multinational companies] not contributing to local development and not doing enough to mitigate the negative impacts of the extractive [mining, oil and gas] industries.”
ITS RESURGENCE IS A RESPONSE TO A LONG HISTORY OF MULTINATIONAL COMPANIES NOT CONTRIBUTING TO LOCAL DEVELOPMENT