Call us today on +27 11 044 8985/6 or email info@fmdrc-zambia.com

Effects of resource nationalism on mining investors in Africa

Resource nationalism in the African mining sector has been on the rise lately. For instance, in some African states, which make key contributions to international mining, larger mining rents indicate greater national control. That being said, international investors will do well to consider the dangers that come with ignoring the main drivers of resource nationalism.  This, in turn will lead to the realization of some of the issues that cause inefficiencies in the mining sector.

African governments thus ought to take a more hardline approach to resource nationalism. In the meantime, long-term foreign investment in much of Africa’s mining sector is gradually becoming risky. This is evident from government efforts to extract higher rents from the natural resource funding by foreign firms that have obtained mining contracts in certain regions. As such, investors are faced with two risks; higher royalty rates charged to international investors, and harsh requirements for resource procurement.

The former is a means for the governments to industrialize their mining and energy sectors, while exerting greater control over these industries. This pattern appears in South Africa, Zambia, Mali, and Guinea.

Resource nationalism is also evident in the shaping of industrialization strategies in South Africa’s mining sector. This is seen through the country’s recent draft Mining Charter (2018). Whereas its 2017 Mining Charter predecessor aimed at bringing about arrangements for broadly-based black economic empowerment (BEE) for historically disadvantaged South Africans (HDSAs), the new Charter does so more rigorously. This is through the enforcement of a minimum of 30% black ownership, inclusive of a 5% free-carried interest rate for HDSA mining employees.

Zambia is also experiencing shaky investor confidence in its mining sector. This is attributed to heavy taxation as a form of resource nationalism. It has a 30% corporate tax on mining, and a 4-6% royalty tax on minerals such as copper. Between 2001 and 2016, it experienced 15 years’ worth of short-term mining reforms. This lead to eight re-draftings of national mining contracts. The unstable rates would then earn the country a Fraser Institute Investment Attractiveness ranking of 58 out of 91. This, according to media reports, was due to a combination of factors, including the government mismanagement of mining revenue. Consequently, an estimated 60% of the country’s 14m population live below the world poverty line. This is in spite of Zambia having some of the highest natural copper resources of any country.

Earlier on this year, the government introduced legislation requiring 30% of bulk goods to be transported by railway. This was with a view to “revive” collaboration between the transportation and mining sectors. The adaptation of these changes together with the increase in cargo would result in the trains operating above capacity.  It is thus no surprise that the foreign investors perceive the move as yet another government attempt to draw further investment from mining firms to maintain or improve Zambia’s infrastructure.

The current state of resource nationalism in both South Africa and Zambia raises the question of whether natural mineral resources are being sufficiently devoted to human capital all over the continent. Moreover, other case studies regarding the elite capture of the mining sector have emerged from states such as Ghana. This is a country where, despite its strong record of upholding civil liberties and the rule of law, the Mineral Development Fund has been taken over. This has since resulted in embezzlement and fund misuse, as well as a general lack of openness about the management of mineral resources.

Possible solutions that have come to the fore include institutional reform that tackles better revenue collection in the mining sector. According to research, this may be one way of countering corruption in the industry. Similarly, mechanisms to ensure the social accountability of domestic and international mining partners may speed up the transfer of wealth to communities still uncompensated for the effect that mining has had on them.

Meanwhile, increased government mining rents have sometimes helped African countries such as Mali to achieve measurable economic growth. According to a co-report from the African Development Forum and the World Bank, employees in mining firms in Mali earn on average US $1,200 per month. This is higher than the average income for other employees in Mali, including agricultural workers.

Be that as it may, increased government rents have also allowed socio-political ramifications to damage local mining communities. In the DRC, for instance, where the revenue from mineral sales supports warlords who control the mining areas, violence has increased. On the other hand, in economies such as Zambia or the DRC, mining generates a disproportionately large share of the national revenue. In such cases, unreasonable government rents in the form of taxes and royalties should be reviewed urgently. This is for purposes of to restoring investors’ confidence in the industry and redirect the flow of wealth.

 

About The Author

Related posts

Leave a Reply

Your email address will not be published. Required fields are marked *