The Return of Resource Nationalism

In May, the CEO of Rio Tinto identified “resource nationalism” as a threat to the profitability of his industry. The phenomenon is unsurprising – resource-rich governments responded similarly to the commodities boom of the 2000s – but this latest wave is distinct in two ways. In several countries—notably the Democratic Republic of Congo (DRC) and Tanzania—governments have instigated stringent terms with a brazen assuredness unseen during the 2000s, when most states ultimately diluted their demands. However, in other countries—including Nigeria and, in recent months, South Africa—politicians have adopted a notably consultative approach to reforms, with the intent of reaching a mutually beneficial arrangement.

TENSION IN THE DRC AND TANZANIA

In March, the DRC’s president, Joseph Kabila, signed into law a controversial new mining code that significantly increases royalty payments for the DRC’s primary exports, cobalt and copper, and removes ‘stabilisation’ guarantees that exempt license holders from the country’s fiscal regime for their first 10 years of operation. Kabila’s approach to this policy change has been unilateral and combative, and he has repeatedly paid no heed to the fierce resistance mounted against these terms by the country’s biggest miners. In outrage, Glencore, Randgold Resources and Ivanhoe Mines, among others, have threatened the government with legal action and warned that it will receive substantially less investment if it does not abandon key aspects of the new code. John Magufuli, Tanzania’s president, has shown similar hostility towards foreign interests, having recently introduced regulatory changes (see box) which have landed Acacia Mining, owned by Canada-headquartered Barrick Gold Corporation, with a tax-related fine of USD 190 billion.

While local politics may be a factor spurring the defiant attitudes of Magufuli and Kabila—particularly Kabila, who is intent on bypassing the constitution and securing a third presidential term—there are several other contributing factors. China’s growing presence in the region has increased politicians’ bargaining power. A consortium of predominantly state-owned Chinese companies are reported to have met with Acacia Mining to discuss the sale of its Tanzanian assets, and China’s USD 6 billion ‘infrastructure for minerals’ deal with the DRC in 2007 has made it a major player in the country. Additionally, journalistic exposés—such as the Panama paper leaks—have exposed the use of transfer pricing by international extractives companies, which has drawn the ire of African leaders.

GIVE AND TAKE IN NIGERIA AND SOUTH AFRICA

On the other hand, Nigeria, which has experienced a four-fold decline in oil revenues following the price crash in 2014, has approached the objective of gaining a greater slice of the sector more collaboratively. In recognition that Nigeria’s decade-long attempt at oil and gas sector reform had failed partly due to a lack of industry consultation, greater measures have been taken to ensure buy-in from international oil companies under Muhammadu Buhari’s presidency. Since 2015, a consultative committee consisting of a wide range of stakeholder representatives has been hard at work to reach consensus on major reforms to the governance and fiscal regime of Nigeria’s oil and gas sector.

Although still at an early stage in the legislative process, the Petroleum Industry Fiscal Bill—one of four sets of legislation collectively known as the Petroleum Industry Bill—shows signs of give and take. There are strong indications that the bill intends to increase the taxation burden for oil companies, particularly those operating in the deep offshore. This includes subjecting upstream companies to Nigeria’s corporate tax, which they were previously exempt from, reducing the number of tax-deductible items, and increasing royalty rates. However, the bill also promises to address the delay in contract approval, a major concern for the multinationals. Multinationals are also expected to benefit from positive changes to the governance of the sector enshrined in the Petroleum Industry Governance Bill (PIGB), which has been passed by the legislature and is currently awaiting the president’s signature. The PIGB will check the powers afforded to Nigeria’s petroleum minister and dismantle the corruption-ridden Nigerian National Petroleum Corporation in an effort to address the conflict between its dual regulatory and commercial roles.

In South Africa, a similar process has been underway with regards to the country’s controversial third mining charter, which proposes onerous local ownership and participation requirements. The charter, which was first announced in June last year during Jacob Zuma’s presidency, was initially met with a chorus of complaints, including that affected parties had not been adequately consulted. Since his appointment as president in February of this year, Cyril Ramaphosa has sought to remedy this situation by suspending legal processes initiated by industry representatives in order to make way for discussions on the best way forward. Discussions thus far suggest that concessions are being made on all sides; the government has reportedly left unchanged the proposed 30 percent local ownership requirement, but done away with proposed revenue deductions and a mining department-controlled fund which the new mining minister identified as a potential “slush fund”. A draft of the revised charter is expected to be unveiled by the end of this month.

Although still in progress, Nigeria and South Africa’s approach to extractive sector reform acknowledges the importance of dialogue to the creation of a sustainable operating environment. Not only is this vital for the success of resource projects, which by nature are long-term investments, but also for relations between foreign companies and their host countries, which are frequently put to the test by the undulations of the commodities market.