Resource nationalism has become a much-discussed topic in the mining world of late, but while the debate has created a fair amount of heat, it has done less to shed light on how businesses and governments could work together.
Given the rapid rise in commodity prices across the world, it is not surprising that governments in Africa are looking to their natural resources to boost revenues, provide jobs for their citizens and mitigate the effects of higher food prices. Given the increasing democratisation of the continent, citizens are better placed than ever to push their governments to turn this pressure into action.
Of course, talk of resource nationalism makes mining companies very nervous very quickly. And there is an instinct, especially among those who have been burnt in the past, to fight against the trend. But governments and mining companies need to remember that they have a shared interest in a long-term, sustainable natural resources industry. So companies that react simply by fighting governments are sacrificing their long-term interests to short-term concerns.
Indeed, the old caricature of authoritarian governments playing a cat and mouse game with cowboy businesses looking to make a quick buck is now out of date, if indeed there was ever any truth in it. The increasing democratisation of the African continent has meant that governments are increasingly sensitive to popular pressures. Likewise, moves to pursue more rigorous enforcement of ‘use it or lose it’ regulations reflect government attempts to discourage opportunistic, short-termist approaches. In the context of this new landscape, both mining companies and governments have an interest in creating long-term partnerships that will provide greater stability for investors worried about returns and a longer-term picture for governments looking to create wealth for their people.
Rather than being distracted by fears of government takeover, mining companies should use this opportunity to push for a settlement that gives all parties an interest in making the project successful.
Four key principles
One way in which this can be achieved is through government investment via mining-specific sovereign wealth structures, forming true partnerships, not takeovers, the success of which is dependent on four key principles: transparency, fairness, stability and limitation.
As well as being transparent about their operations, mining companies invested in Africa should be doing more to educate the citizens, media and politicians – owners of the country’s natural resources – about the benefits of foreign investment. Projects which do not have the backing of the people will always be vulnerable in the long term and an arrogant approach that fails to take into account the local historical, cultural and political dynamics undermines respect and makes constructive engagement impossible.
Governments too must also ensure that businesses investing and developing the industry receive fair treatment. Government back-in rights can help to promote mutual benefits by giving both sides a stake in success, but they must be done at a value not less than historic cost. Short changing miners not only hurts those businesses directly, but also drives away other firms and investors, leaving the future development of the industry in doubt.
Miners should not have to give up equity for no returns. Stability will benefit businesses and governments alike, creating long-term partnerships that both can rely on when building for the future. Therefore it is reasonable that miners receive greater certainty of tenures of title and preferential tax duties and royalty regimes.
In order to give governments the benefit of exposure to assets without making it more difficult to invest in Africa, mining sovereign wealth structures should not become a euphuism for nationalisation. Therefore back-in rights should be limited to 25%.
Of course, there will be those on both sides whose actions will be driven primarily by fear – fear either of the greedy hand of the state destroying asset values, or of buccaneer businesses minting billions of dollars of profit from African resources while the people go hungry. But working together, business and government should see that their shared interests are far greater than the fear that divides them.
Transparency, fairness, stability and limitation. Four principles that should be at the heart of a new era of long-term partnerships between government and private enterprise. Four principles that can help to change the natural resources industry from a battle between government and industry into a true partnership that works to the benefit of all. These are strong principles that the mining industry should throw its weight behind. Governments should do so too.
*Brian Menell is the CEO of Kemet,a group of private companies that invests in, and manages, a range of natural resource projects across Africa. Born in South Africa, Brian is part of the Menell family, which founded one of South Africa’s most successful mining and industrial conglomerates, the Anglovaal Group.