Despite the somewhat loaded connotations behind resource nationalism as a phrase, the truth behind the term is a complex ongoing negotiation between companies looking for stable policy environments within which to operate and developing countries trying to balance the need to attract foreign investment and the obligation to ensure that the state and its citizens get a fair slice of the benefits.
According to IHS Economics & Country Risk principal Africa analyst Dr Robert Besseling, the concept of resource nationalism is evolving over time, with many countries - particularly in Africa - moving away from heavy top-down taxation and state ownership requirements and towards local content quotas, beneficiation and other means of increasing local economic participation in resource projects while also diversifying economies to reduce exposure to commodity price volatility.
Chris Lo spoke to Besseling to get some in-depth insight into the development of resource nationalism, beneficiation methods and the latest on the long wait for the proposed amendments to South Africa's Mineral & Petroleum Resources Development Act.
Chris Lo: How has the concept of resource nationalism evolved in the mining sector over the years?
Dr Robert Besseling: I think first of all, the term 'resource nationalism' is becoming very ubiquitous. Everyone seems to use it without really knowing what they're talking about; there's no specific definition anymore for resource nationalism. In particular, governments over the last spree of commodity booms have toughened legislation to ensure government ownership of assets, of minerals, as well as combining this with a heavy tax regime. That was their way to assert ownership and control over these mineral resources.
I think, essentially, this has failed. Generally, GDP [gross domestic product] has contracted every time commodity cycles have gone down, and generally the benefits have not spread beyond the sector directly associated with the extracted resources.
So what has happened more recently is a new focus on what could be called local participation, essentially also local ownership, and a new word - beneficiation. Rather than allowing the state to control through ownership and through taxation, it's allowing the local economy to participate in the mineral resources sector, for example by setting quotas for local employment and local procurement.
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We're seeing this happen in South Africa, in Mozambique, in Angola. In Nigeria there is similar talk underway in the oil and gas sector, although that's currently stalled. There are lots of instances around the continent where we've seen the governments changing their policies to accommodate greater local content provisions, rather than just relying on state ownership and taxes.
Chris Lo: Are mining companies generally happy about this shift towards local content rather than state ownership?
RB: Well, some companies have no choice - they might be already very heavily invested, and they're not going to withdraw from a country just because of the change in the legislative regime. Certainly, some companies will be very happy that the focus is shifting from tax and state ownership towards more local content.
But at the same time, a number of companies - against the backdrop, of course, of the drop in commodity prices - are using this almost as an excuse to withdraw. In South Africa, for example, a number of large mining majors are leaving the coal and platinum mining sectors simply because they do not want to become affected by, let's say, export bans and local processing requirements. Of course, that opens up opportunities for other companies that are more willing to do this. But certainly, some of the majors who are already spreading their risk more broadly these days because of the lower revenues from commodity prices are using this almost as an excuse to withdraw from countries, South Africa's coal and platinum mining sectors being a key example.
CL: How does the shift towards local content requirements influence the economics for African countries looking to maximise the benefits of mining projects while minimising their exposure?
RB: I was just talking about the real correlation between GDP growth rates and commodity prices. In previous cycles, we've seen a real, clear correlation - that GDP growth does dip when commodity prices dip. However, more recently we've seen the opposite, where global commodity prices are dropping, yet in sub-Saharan Africa in particular GDP growth rates are staying at global record highs. This is mostly because, slowly, the economies, whether through state manipulation or not, are diversifying. They're no longer as reliant on extractive resources as they previously were.
So while the mining sector and oil and gas are certainly shrinking in terms of their contribution to the GDP, this is being compensated by a growth in manufacturing in particular, as well as transport and wider infrastructure development, which is not always related to extractive resources. And on top of that, other things like services, banking, IT and telecoms are all booming throughout the sub-Saharan region. That has essentially broken this commodity cycle, or at least its correlation between economic growth and the global export prices.
CL: Can local content and local employment requirements become more problematic for mining companies operating in countries that lack a good pool of skilled mining labour, or a base of local sub-contractors?
RB: I think it's important to realise that this shift in resource nationalism is very much driven by politicised rhetoric. Electoral campaigns in Zambia, in Mozambique, in South Africa of late, have all been about greater beneficiation in the local economy from the extractive sectors.
In fact, what is happening is companies are finding ad hoc solutions negotiated case-by-case with the government. All the pieces of legislation being pushed through, whether in Mozambique or South Africa or Angola or Nigeria, all leave huge gaps in the legislative framework, which essentially allow for case-by-case negotiations to proceed. Therefore the larger companies with the mega-projects in particular will be negotiating with key people in government and in the business sector to avoid these blanket regulations applying to them, and essentially negotiate separate agreements as part of their mega-project frameworks.
CL: Globally speaking, has resource nationalism developed separately in different regions as a result of local conditions, or has the move towards local content and beneficiation been fairly universal?
RB: It is to a certain extent. Generally, through the World Bank, IMF [International Monetary Fund] and the transparency initiative and so on, there has been a greater shift towards local content. But in Africa itself, it is more noticeable. For example, in Latin America there is still a very high risk of expropriation by the state, sometimes without compensation.
That completely differs from Africa, where expropriation is really quite rare. There are only a couple of cases - not counting Zimbabwe obviously - where expropriation has occurred in the last few years. Whereas in Argentina, for example, and other Latin American countries and some Asian countries like Myanmar previously, expropriation was almost a common occurrence. So certainly it's not an evenly spread evolution, that's for sure.
CL: What's the latest on the proposed amendments to South Africa's MPRDA [Mineral & Petroleum Resources Development Act], and what's at stake in terms of mining investment in the country?
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RB: It's unfortunately, yet again, a very confused waiting game. At the IHS South African [Coal] Exports Conference last month, the mines minister [Ngoako] Ramatlhodi did not go into much detail, yet promised that more detail would be forthcoming very soon, especially on which minerals will be classified as strategic, what this entails, and especially what the pricing implications will be, in terms of differential pricing with discounted prices for domestic sales from export sales.
A few days later the mines minister promised that President Jacob Zuma would give these details in his State of the Nation Address. A lot of international focus on the State of the Nation has gone into the reaction of some parliamentary members, but not actually on the address, and the address did not cover any detail whatsoever on the MPRDA; certainly not on the strategic classification of certain minerals. So considering we're looking at least six more months of negotiations with still no clarity from top levels of government what the key decisions on the strategic classification will entail, we're looking at a much longer waiting game for the MPRDA.
CL: Are many governments now focusing on accelerating the process of mining legislation, or is this waiting game something companies are just going to have to live with for now?
RB: Some governments are really pushing through legislation very quickly. Mozambique for example - my team and I were not expecting any clear provision of the natural gas and LNG legislation until after the elections [in October 2014], only in the middle of this year. In fact the key statutory reforms were done before the election; they were really pushed through to try and get final investment decisions from the big gas companies involved up north. So that is one clear example where governments have taken the hint and really pushed through legislation. Not always perfectly so, but certainly in this particular example the framework for LNG and gas investment in Mozambique has massively stabilised and it's got a clearer long-term vision now, because of this fast-tracking of legislation.
CL: Is there a country you would highlight as striking a particularly good balance when it comes to creating a clear investment environment for miners while also ensuring its citizens get their fair share of the benefits?
RB: I would actually point out Mozambique at the moment, which is still a very hot topic, not just for the gas, but also for the coal mining sector, which did fall into a lazy state last year with key investors [Rio Tinto] pulling out. Yet the excitement has again returned to the sector. This is a country where we can see the government negotiating deals that are relatively favourable for the key investors in coal and gas, yet also trying to fulfil their promises to the electorate of greater beneficiation from the extractive sectors.
The Mozambicans to a certain extent are trying to base this on the Angolan model, where we've seen huge diversification being pushed through in the economy, founded on oil and mining wealth. Mozambique is trying to do the same thing by getting local partners involved as contractors, as owners, in procurement and in security provision. They are trying to diversify the economy much more broadly - they are still trying to encourage the investment, yet at the same time keeping up their pledge to the electorate.