On 16 October 2019, Andrew Thake, Global Head of Content, Production and Strategy for Mines and Money, brought together four experts to discuss Resource Nationalism in Mining: Opportunities and Challenges for the Industry. Over a little less than an hour, John Price, Managing Director of Americas Market Intelligence, Sylvia Noury, a Partner with Freshfields Bruckhaus Deringer LLP, Emmanuel Yoka, Managing Partner of Marys Capital Investments and President of the Mining Federation of Congo Brazzaville, and Ludivine Wouters, Managing Partner of Latitude Five covered a variety of topics relating to the causes, manifestations and various avenues for mining companies and investors to address resource nationalism. Though much of the debate focused on Africa and Latin America, regions of expertise for the panellists, the points raised were often relevant to virtually any region where mining takes place.
Some key points emerged from the discussion:
- Though resource nationalism is sometimes still linked to nationalist or anti-colonial rhetoric where this continues to resonate with voters, it is now generally driven by economic motives: the vulnerability of resource-dependent economies and State budgets can exacerbate social and political tensions and the frustration of unrealised expectations as to sustainable development and positive impact. The chronic disconnect between perceived and actual returns for mining companies and/or their shareholders is also a factor, particularly in commodity price surges, as is the rise of democracy empowering local communities to voice their intolerance to poverty and challenge national Governments in this regard.
- Resource nationalism encompasses a wide spectrum of measures, from classic expropriation and nationalisation of strategic assets to more modern manifestations whereby States interfere in operations by reviewing pre-agreed terms, imposing arbitrary taxation, abusing regulatory powers to deny or revoke licences and/or forcibly acquiring shares in local subsidiaries. These measures may be accompanied by State harassment in the form of prosecution, investigations or police action intended to exert leverage, often based on allegations of non-compliance justifying what the State presents as lawful and orderly processes rather than creeping nationalisation. In these cases, the “obsolescing bargain”, which sees negotiating power shift from foreign investor to host State after investments are made, can prove a dangerous catalyst.
- These measures should be distinguished from cases where new regulation, inspired by resource nationalism, will increase taxes, State control, local content and CSR requirements and/or reduce the scope and validity of exemptions and special benefits for miners without affecting the validity of then-current title nor previously agreed terms, particularly under stabilisation clauses. Such changes may be negative for future investment where regulatory reform is poorly managed, with little industry consultation, or informed as State authorities may not be able to back up claims as to the “unfairness” of prior terms nor fully anticipate the long-term impact of new provisions.
- The emergence of a robust international arbitration system may mitigate the effects of resource nationalism: only investors’ legal rights and remedies are at stake in such a dispute, irrespective of the justification of resource nationalism in the court of public opinion. These rights and remedies are derived from mining contracts, in which international arbitration provisions are as essential as those relating to stabilisation, and/or an international investment treaty if the investment is structured via a jurisdiction that has such treaty in place with the host country. The investor’s compliance and governance practices will be heavily scrutinised in this context: to get justice, miners must come to the dispute with “clean hands” and the certainty that their business is in order with regard to national laws, or risk seeing their claims rejected or damages discounted.
Interestingly, although 72% of webinar participants consider that resource nationalism is on the rise globally, 23% disagreed with that statement and 5% were uncertain – demonstrating again how multi-faceted this phenomenon can be. Current and potential hotspots in Africa and Latin America, regions of expertise for the panellists, were discussed at length: Venezuela, Tanzania, Zambia and DRC are among the 10 countries most affected by resource nationalism according to a published index, with risks of regional contagion around current hotspots in Africa and specific risks in Congo-Brazzaville as well as Mexico, Guyana, Ecuador and Argentina. Positive examples were also discussed, like Botswana and, to some extent, the countries of West Africa.
Two issues were raised, which merit further comment and perhaps greater consideration by the mining industry:
1. Miners can and should prepare for the almost inevitable demands of new, or aspiring, national leaders.
Individually, this entails laying sturdy foundations for their operations through unimpeachable permitting, governance, corporate and commercial structures and practices.
Collectively, miners could strengthen industry representation and invest in ongoing communication with civil society and Government stakeholders, which need access to better information about natural resources and the business of extracting and transforming them: heated debate is often linked to positions of principle or even emotion, so providing sound data and communicating on it effectively at national and local levels are essential. This would entail more coordination and investment in time and capacity from the industry, both at the corporate level and in the host countries, to demonstrate relevance and dispel “unfair deal” claims. The industry could also do more to support capacity-building initiatives: even when heads of State and ministers change, the reality of daily life for operators happens with mines, tax, customs, labour and other departments – the more understanding and clarity there is in that relationship, the better it can withstand political, social or economic shocks.
2. A clear link should be established between resource nationalism, based on principles of sovereignty over natural resources firmly established since UN Resolution 1803 of 14 December 1962, and the State’s corresponding obligations of good governance and optimal management of public finances.
The very causes used by States to justify resource nationalism, summarised above, are those that lead international organisations (OECD, World Bank) and policy initiatives (IGF) to focus on good governance as the means to transform resource wealth into sustainable development. Policy, regulation or State action should aim to improve impact not only through revenue increase but primarily through wider and more transparent allocation of such revenue, which is the State’s responsibility: increasing State transparency and accountability is always a positive factor in attracting investment and can rebalance the resource nationalism debate.
The industry could usefully leverage the existence of mining chambers (and if necessary reinvigorate these) to better inform both Government and civil society stakeholders and represent industry demands in this regard in the context of regulatory reform processes; a more unified mining sector could even lobby international organisations involved in natural resource policy to address the tendency to consider that States’ capacity or governance issues can handily be transferred to operators in the form of financial risk or burden...
Ludivine Wouters is Managing Partner of Latitude Five where she is in charge of mining services. Ludivine will be speaking at the upcoming Mines and Money London, taking place at the Business Design Centre, 25-27 November.