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[Dehai-WN] Economist.com: Resource nationalism in Africa

From: Berhane Habtemariam <Berhane.Habtemariam_at_gmx.de_at_dehai.org>
Date: Fri, 10 Feb 2012 23:47:38 +0100

Resource nationalism in Africa

Wish you were mine

African governments are seeking higher rents and bigger ownership stakes
from foreign miners

Feb 11th 2012 | JOHANNESBURG | from the print edition

THE true extent of Africa's vast wealth of resources is hard to guess.
Geologists have picked over most of the rest of the globe in search of
minerals, yet huge swathes of Africa remain largely unprobed. But the
immense ore deposits so far discovered and soaring commodity prices on the
back of rip-roaring Chinese demand have convinced the world's miners that
the continent is the next big frontier. Bumper profits have also spurred
mineral-rich countries to seek a bigger share of the spoils.

The list of African governments that have miners in their sights is a long
one. South Africa, home to the greatest mineral wealth in the world,
estimated to be worth $2.5 trillion, is considering imposing a swingeing 50%
windfall tax on mining "super profits" and a 50% capital-gains tax on the
sale of prospecting rights. Those are among the proposals put forward by an
independent panel of experts, set up by the ruling African National Congress
(ANC) to study the possibility of greater state intervention in the mining

Ghana, Africa's second-biggest gold producer, recently announced a review
and possible renegotiation of all mining contracts to ensure that mining
profits are "maximised.[for] the good of the country". It plans to raise
taxes on mining companies, from 25% to 35%, and a windfall tax of 10% on
"super profits" in addition to existing royalties on output of 5%. Zambia,
which is Africa's biggest copper producer, recently doubled its royalties on
the metal, to 6%. Guinea, home to the world's largest bauxite reserves as
well as one of the world's biggest iron-ore deposits, is helping itself to a
15% stake in all mining projects and an option to buy a further 20%. Namibia
has decided to transfer all new mining and exploration to a state-owned

If miners in these countries feel hard-done by, they should count themselves
lucky that they are not wielding their shovels in Zimbabwe. Its
"indigenisation" policy will force foreign firms to "cede" a 51% stake to
locals. Nigeria may renegotiate offshore oil contracts, because today's
"unfair fiscal terms" are costing the country $5 billion in lost revenue, it
claims. And so it goes on. Right across the continent governments are
seeking new ways to squeeze more out of foreign-owned firms growing rich off
what lies beneath Africa's soil.

Resource nationalism is nothing new. Big Oil has suffered periodic bouts of
nationalisation and sometimes seen contracts torn up in the Middle East and
beyond that had run for more than 50 years. Nor is the practice confined to
developing countries that feel they came off second-best when negotiating
resource deals in years gone by. Australia is set to raise some $8 billion a
year through a controversial new tax on miners; Britain has previously
dipped into the profits of oil companies in the North Sea.

However, in the past year resource nationalism has jumped to the top of the
list of things that worry the 30 biggest global miners. This was prompted by
25 countries worldwide announcing plans to boost their take of profits,
according to a survey by Ernst & Young, a consultancy. A rapid rebound after
commodity prices collapsed in the aftermath of the financial crisis in 2009
convinced cash-strapped governments that large multinationals were easy
targets. In Africa mining companies are often especially vulnerable-they are
usually the biggest corporate beasts around. Widespread poverty has provided
a ready excuse for governments dependent on income from resources. The trick
for miners is to ensure not only that the money keeps flowing but also that
the miners agree to the spending on roads, railways, schools and hospitals
that are now a customary part of the package the industry offers to acquire
mineral rights.

Many feel abused but they do not have much choice. In a world where big new
ore bodies are hard to find, most will keep coming back to Africa. Of the
ten biggest mining deals to be completed last year, seven were in Africa,
according to Ernst & Young. Even as governments move to grab bigger slices
of the cake, high prices mean the miners remain profitable. Anglo American,
a mining giant, has earmarked $8 billion for new platinum, diamond, iron ore
and coal projects; Brazil's Vale said in June that it plans to spend more
than $12 billion over the next five years. Rio Tinto, which has not had an
easy time with its mammoth African investment at Simandou in Guinea, also
signalled it will stick with Africa.


Many of the resources are spread across the continent fairly evenly, leaving
miners with a choice about where to go. Given that mining investments can
cost many billions of dollars and take up to a decade to show a profit,
miners are understandably wary of working in countries where the fiscal
rules change unpredictably.

Zimbabwe's new law requiring indigenisation, apparently without
compensation, is clearly not designed to attract new foreign investment. The
three biggest miners already operating there-Zimplats, Rio Tinto and Anglo
Platinum-also face a doubling of royalties on platinum to 10%, along with a
ban on raw platinum exports, that will oblige them to build a refinery in
Zimbabwe at a cost of some $2 billion.

Regardless of Zimbabwe's heavy-handed treatment, mining companies do not
necessarily object in principle to giving locals a larger stake in their
operations. After the end of apartheid in South Africa, white mining bosses
were at the forefront of drafting the country's black-economic-empowerment
laws. These require mining firms to sell stakes of at least 26% to black
shareholders by 2014.

The ANC-commissioned panel recommends that this be increased to 30%. The
Chamber of Mines recently announced that on average its 33 members,
representing three-quarters of the industry, had already achieved today's
target. Nonetheless, the government puts the black share at just 9%, as most
black-owned shares were bought with borrowed money. This could mean trouble.

Investors have been even more worried by the persistent demands of the
ruling ANC's powerful Youth League for nationalisation, with or without
compensation. The ANC's expert panel has come out strongly against the idea
on the grounds that the official purchase of listed mining companies'
shares, at an estimated cost of 1 trillion rand ($130 billion), is far
beyond the government's means and implementing a Zimbabwe-style asset grab
would be unconstitutional and counter-productive.

Most ministers are privately opposed to nationalisation. Many lived in exile
in Zambia in the 1970s and 1980s when President Kenneth Kaunda nationalised
the country's copper mines-with disastrous effect. South Africa's president,
Jacob Zuma, continues to insist that nationalisation "is not government
policy". But investors remain nervous.

Ernst & Young recently suggested that southern African countries such as
Botswana, Mozambique and Namibia were becoming increasingly attractive
mining destinations at the expense of South Africa, which has slipped 18
places since 2008, to 67th out of 79 countries in the annual survey of
mining-investment attractiveness compiled by the Frazer Institute, a
Canadian think tank.

Miners and governments often look enviously at Debswana, the successful
50-50 diamond joint venture between Botswana and De Beers, the world's
leading diamond firm. Set up over 30 years ago, it accounts for nearly a
third of Botswana's GDP, half of government revenues and around
three-quarters of export earnings. Even though 80% of the profits go
directly into government coffers, De Beers considers Debswana one of its
best investments. So why is the model not being adopted everywhere?

Because, says James Suzman, public affairs director at De Beers, Botswana is
unique. It has rich and productive mines, a stable and trustworthy
government with one of Africa's best records of good governance and it is a
small country of 2m people where the impact on ordinary folk is huge, so
everyone feels they are benefiting. In Namibia, where De Beers also
operates, the cash-strapped government seems reluctant to carry its share of
the investment burden. And even Botswana is not above a bit of resource


Last year De Beers was obliged to move its London-based sorting operation to
the country-and all the jobs and other economic benefits that go with it-in
return for extending the renegotiating period for its diamond-sales
agreement from five years to ten. Meanwhile Namdeb, a similar joint venture
between De Beers and Namibia, has run into a trouble. Without new investment
of around $1 billion, Namdeb says, its mines will have to close in the next
couple of years. With it, they could probably be successfully exploited for
another five decades.

Populist advocates of greater state participation in mining often forget
that nationalisation, partial or complete, means that when the going gets
tough, as it eventually will in a cyclical industry like mining, the state
must be prepared to cough up, like any other shareholder, to keep the
business afloat.

It is much easier for states to impose royalties on production volumes.
These can be reaped whether or not the company is profitable. The art is in
striking the right balance. African governments must not wring so much out
of their resources today that the mining companies fail to invest for the



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Received on Fri Feb 10 2012 - 17:48:12 EST
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