Resource Nationalism: The balancing Act

Windhoek – A wave of resource nationalism is sweeping across Africa and this situation is not peculiar to countries that have been outspoken about the topic – like South Africa and Zimbabwe – but also includes the likes of Chad, Nigeria and Guinea.
Guinea passed a Mining Code in September 2011 which imposed stricter regulations on mining companies. The Mining Code emphasises transparency and goes to the extent of making the publication of mining contracts mandatory.
The Guinea Code seeks to make mining firms accountable to the citizens of the country, with Minister of Mines  Mohamed L Fofana explaining that, “(We plan) to clean up the mining sector and will conduct a review to remove unconscionable provisions in certain contracts and ensure we have balance and fairness.”
An important milestone in resource nationalism is the decision by some countries to implement the Africa Mining Vision, which was adopted in Addis Ababa, Ethiopia at the 2nd African Union Conference on a Sustainable Future for Africa’s Extractive Industry.
The declaration compels African states to shift from the profit maximisation goal that has characterised mining for decades, and rather adopt a stance that is more inclined to social responsibility and benefits the local population.
The underpinning factor is that the appetite for resources is growing, not only in Africa but across the whole world.
Countries are industrialising at a faster pace and the quantum leaps forward in technology mean that the demand for natural resources is escalating.
Africa is home to a huge percentage of the world’s most in demand resources and as such focus on mining policies has centered on the continent.
The predominant policy idea has been to increase state participation in the mining sector in various ways.
Hence we get new legislation, tax policies and levies being adopted.
As said by Namibia’s Minister of Finance Saara Kuugongelwa-Amadhila, “We only want to make sure that we get a fair share from their (resources) value.”
The question at hand though is the economic viability of state-led mining sectors.
For starters, mining operations are quite expensive to start, run and maintain at profitable levels. This has hamstrung many governments that want to enter mining as they simply do not have the cash at hand to do so.
Consider this example: In Namibia, one of the largest uranium deposits in the world was discovered on the Atlantic coastal areas of Swakopmund.
Developing this resource would cost an estimated R20 billion over three years. Namibia’s total national budget for 2012/13 is R37b.
This means the Namibian government cannot – at the moment – exploit this resource individually. The obvious option, for a state that is keen to enter mining, is to find a suitable and trustworthy partner to assist it in the project.
Unfortunately, in the world of big business, trustworthy international partners are few and far between and so patience must be exercised so that the government can get as good a deal as possible without compromising on the broader resource nationalism goals.
In Namibia, the government has established an arm called Epangelo Mining. Epangelo Mining has been granted Exclusive Prospecting Licenses (EPL) for several strategic minerals and has adopted a framework whereby they have joint ventures with investors and ownership is diluted with time.
In Zimbabwe, the government has decided that locals will hold at least 51 percent of any venture that is worth US$500 000 or more.
When the government started implementing this policy, alarmists said Zimbabwe would experience capital flight.
Instead, what we have seen – after some bickering – is that foreign investors are not pulling and are complying with the law.
This is because they have come to the realisation that they need the resources that are in Zimbabwe and 49 percent of something is better than 100 percent of nothing.
The fact is that Africa needs investment for it to tap into its resources. But that investment must be sound and take into cognisance that natural resources are finite.
When those resources are depleted the foreign investors will leave. As such it is prudent for African governments to structure deals that ensure more of the wealth is retained on the continent and that are minerals are not ruthlessly exploited by foreign investors who do not have our interests at heart.
As a result, we must find a balance and strike deals that make it clear that Africa should be the prime beneficiary of its resources and that investors are welcome to come and make some money for themselves on the continent.
At the end of the day, African leaders must remember that their citizens expect to benefit from their resources.
 

July 2013
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