Soft Resource Nationalism

Here’s a very interesting article by the South African Institute of International Affairs that examines the many different types of resource nationalism.  This is part of a growing discourse that looks to encourage and normalize expropriation, heightening risks for foreign investors.

For instance, whereas Canada’s refusal to allow Malaysia’s Petronas to buy Progress Energy Resources Corporation has been termed ‘soft resource nationalism’, Africa’s efforts are regarded as ‘hardcore nationalism’. The radical changes required in the regulatory framework to bring this sector into compliance with international corporate standards contribute to this perception. In the West, because of the strength of regulatory, business and environmental frameworks, incremental changes suffice to cater for the protection of national interests. Just like African governments, Canada’s federal government reviews all big foreign acquisitions to ensure desirable “net benefits” to the country’s economy.

A distinct pattern in resource nationalism seems to be emerging in Africa. Where the state is strong and unionism is weak, as in Tanzania and Ghana, resource nationalism is driven from the top, often with radical policy shifts that cause ruptures in production and markets. In countries with strong unions where the state’s influence is mediated by other actors, combined with high levels of urbanisation and strong civil society organisations such as South Africa, the process is driven by demands for transformation from below. Both scenarios create a very uncertain operating environment for investors. This is in stark contrast to the West where policy changes to block specific foreign investments are simply termed protectionism.

Resource nationalism in Africa thus follows these two main routes: the bottom-up, heady mix of populism combined with genuine concerns around the sustainability of the sector as in South Africa; and the top-down, state-led model as in Tanzania, Ghana and the extreme case of Zimbabwe. The most affected sector is the mining industry where the majority of international investors are found.

One of the rallying points for African governments in support of resource nationalism is the under-declaration of profits by mining companies. They believe that this has been as costly to the welfare of African societies as corruption and weak governance.

Tanzania serves as a good example; despite being endowed with extensive mineral wealth and being Africa’s third largest producer of gold, the Tanzanian government reported that the mining sector contributed only 3.8% to the country’s GDP in 2011. A 2009 report by the World Bank, UNCTAD and the International Council on Mining and Metals revealed that Tanzania lost $207 million due to under-declaration of profits in 2007 alone.

Tanzania’s pronouncement in July that all gold mining companies operating for more than five years must start paying corporate tax is partly a response to the tax evasion and avoidance tactics utilised by investors across all sectors. Many African countries have struggled to reign in investors who change their corporate status and assume a new company name each time the company is due to pay corporate taxes, thus prolonging the period of tax-free benefits. Weak tax regimes and low management capacity to enforce tax compliance are evidently some of the key challenges.