Kolwezi, DRC – The sun sets on July 6, 2016 in Kolwezi, DRC in one of the copper mines at the Mutanda Mining Sarl open pit mine.
Per-Anders Pettersson / Getty Images
Countries rich in natural resources have become increasingly protectionist in the past year as Covid-19 threatened their economies, a new study finds.
A report published Thursday by risk consultant Verisk Maplecroft indicated that over the course of 2020, 34 countries had seen a “significant increase” in resource nationalism, with the pandemic exacerbating an existing trend towards government intervention.
Verisk Maplecroft found that 18 of the 34 countries depend on the minerals or hydrocarbons they export, and predicted that the threat of isolationism will increase in the coming years as governments try to close fiscal holes in the aftermath of the pandemic.
The mining sector will be the victim of new measures, according to the report, with some of the world’s largest producers of copper and iron ore, particularly in Africa and South America, among the top 10 risky countries.
“It is completely understandable that in these fiscally tight times, governments are wandering into additional sources of income,” Hugo Brennan of Verisk, Head of Mining Risk, told CNBC on Friday.
“Commodity prices are off to a fantastic start through 2021 and this is putting the mining sector firmly on the radar of national governments.”
The top 10 in Verisk Maplecroft’s Resource Nationalism Index included Venezuela, the Democratic Republic of the Congo, Russia, Zambia, Zimbabwe, Kazakhstan, North Korea, Tanzania, Bolivia and Papua New Guinea.
“These are countries most likely to resort to the clashed tools in the nationalism toolbox, such as direct expropriations with no or insufficient compensation,” noted Verisk Americas analysts Mariano Machado and Jimena Blanco.
In recent years, North Korea has announced a new five-year plan that, according to analysts, confirms the decision to increase self-sufficiency and further centralize control of the economy.
Meanwhile, Zambia is engaged in a lengthy legal dispute with Vedanta Resources over its attempt to liquidate the company’s Konkola copper mines.
President Edgar Lungu’s government has also threatened to suspend Glencore’s license to operate the Mopani copper mine in April 2020, amid tensions over the asset’s use as a swing producer.
“The subsequent move to acquire a majority stake in Mopani underscores President Lungu’s desire to increase state control over strategic mining assets in Zambia and has also not hurt his populist reputation,” Africa analyst Aleix Montana told CNBC.
Kitwe, ZAMBIA – Copper is mined at the Mopani Glencore copper mine on January 9, 2019 in Kitwe, Zambia.
Ute Grabowsky / Photothek via Getty Images
Emerging markets and emerging economies ended 2020 with an average annual decline of 10.9 percentage points in government revenues as a share of GDP, according to IMF data collected by Verisk. The worst affected regions were sub-Saharan Africa, with 12.55 percentage points, and Latin America with 8.7 percentage points.
In addition to the highly dependent countries above, many more diversified economies saw a sharper, but more nuanced push toward nationalism of their resources over the past year, the index said.
“The closest countries to watch are the mining jurisdictions, which are characterized by both a painful Covid-related economic contraction and an increase in these less explicit forms of resource nationalism,” said Blanco.
“The governments in these countries are increasingly willing to intervene in the economy, use indirect expropriation or demand that local content requirements be increased – opening the door to a more sophisticated, but still disruptive path to nationalism. resources. “
In South America, the deployment of these “less blunt” mechanisms is usually driven by one of two factors, analysts suggested: ideology, as in Mexico or Argentina; or community pressure from mining areas or wider society, such as in Chile and Colombia.
In sub-Saharan Africa, however, there is a more complex set of underlying motivations.
“Interventionism in Liberia and Mauritania, for example, is driven by structural deficiencies in governance, not nationalist sentiments,” the report said.
“In Mali the political concerns of the transitional government are the problem, while in Guinea there is a need to maximize revenues from bauxite – both countries want to review existing contracts.”
Oil pumps are seen in Lake Maracaibo, in Lagunillas, Ciudad Ojeda, Zulia state, Venezuela.
Isaac Urrutia | Reuters
Nationalist measures brought about by social pressure tend to be more subtle, but pose just as much risk to mining companies, Verisk analysts argued, using the example of a water rights debate in Chile leading to next decade.
While the coronavirus pandemic was not the only factor in the recent push for nationalism, it has catalyzed a trend since 2017 that is reflected in the index.
Verisk expects this trend to intensify over the next two years. In “ rentier mining economies, ” which primarily derive government revenue from the extraction of a particular commodity, governments have developed a tendency to turn to mining to halt public finances, the report emphasized.
However, analysts suggested that mining companies should keep a close eye on environmental, social and governance (ESG) factors in diversified emerging economies where more disguised methods of state intervention become the tool of choice.
“Issues of income distribution, poverty, access to education and health care – just to name a few – can trigger socio-political processes that demand more from the state,” they said.