AMN - Resource nationalism a risk to investment – comment by Yolanda Torrisi

A nation’s mineral resources can bring jobs and wealth to local people and economies. But just as mineral deposits attract industry and investment, they can also evoke heightened emotions on the question of how much control of natural resources should stay in-country. A push towards local control, dubbed resource nationalism, is on the increase across the globe, with the Democratic Republic of Congo (DRC) one of the latest “notable movers” towards protectionism.

Resource nationalism has been described as the tendency of people and governments to assert control over natural resources in their territory. Resource outfit Verisk Maplecroft has been tracking the sometimes-disadvantageous effort in its Resource Nationalism Index (RNI), with the 2018 assessment unveiled last month. The idealist trend towards resource nationalism is on the rise in 30 countries across the globe, with the DRC and Russia’s trajectories being the latest big moves towards an “extreme risk” to investment. The two territories are joined by six other countries in the extreme risk category, including Zimbabwe, Tanzania and Eswatini (Swaziland).

Local involvement in mining projects, like that seen with South Africa’s black empowerment transactions, can bring certainty to investments by ensuring local people may be involved in businesses in their communities. These efforts can help stabilise or improve sovereign risk assessments when the rules are easy to understand, consistently and fairly applied and mitigate disadvantage in a country so as to reduce the risk of conflict. But radical changes that introduce uncertainty and slow down project approvals and developments are what we must lobby against and oppose as an industry.

The DRC Mining Code’s new 10% royalty for its now “strategic substance” cobalt and protections for other minerals such as copper are new resource protectionist measures in the country. They introduce risks and new costs not factored into feasibility studies and economic assessments of mining projects in the Congo. The 50 per cent super-profit tax to be applied in the DRC when commodity prices end up 25 per cent higher than in a feasibility study is another game changer in the now extreme-risk nation.

Like the code’s other changes, it brings with it unwelcome uncertainty that could threaten projects and the ability to obtain finance for developments. Another disappointment is the elimination of the DRC’s 10-year grace period for operators to factor in regulatory change. Another potentially-costly new rule, it could change the timetable for a wide variety of investments.

But resource nationalism is not a one-way street if efforts in Zimbabwe are anything to go by. The country may end up reversing its nationalist trend if its parliament and new President Emmerson Mnangagwa support a cabinet push towards a turnaround on indigenisation laws for foreign diamond and platinum miners.

Resource nationalism can be based on many flawed assumptions. But let’s address a core assumption about regulatory ‘reforms’ first that are designed to block or discourage foreign investment across the continent — that projects foreign nationals are blocked from will be immediately picked up and pursued by people in the country instead. This is naïve. If a country kills off planned-out projects, surely the likelihood of their resumption declines. At the very least, the amount of time it will take to get them up and running again to bring in wealth and jobs will be seriously delayed.

As an industry, we must encourage governments and key public figures to not introduce project-blocking measures put forward by resource nationalists. Without the jobs and wealth, new developments create, Africa’s economies won’t thrive and flourish, and communities and miners will all lose out.

-       Yolanda Torrisi is Chairperson of The African Mining Network and comments on African mining issues and the growing global interest in the continent. Contact: yolanda@yolandatorrisi.com