Kolwezi, DRC – The sun jells on one of the open pit copper mines at Mutanda Mining Sarl on July 6, 2016 in Kolwezi, DRC.
Per-Anders Pettersson/Getty Representations
Countries rich in natural resources have become increasingly protectionist over the past year as Covid-19 put in jeopardied their economies, a new study has shown.
A report published Thursday by risk consultancy Verisk Maplecroft indicated that during the course of the course of 2020, 34 countries had seen a “significant increase” in resource nationalism, with the pandemic exacerbating an existing turn toward government intervention.
Verisk Maplecroft determined that 18 of the 34 countries are dependent on the minerals or hydrocarbons they export, and prognosticated that the threat of isolationism would increase in the coming years as governments attempt to plug fiscal holes in the wake of the pandemic.
The funding sector will bear the brunt of new measures, according to the report, with some of the world’s top producers of copper and iron ore, surprisingly in Africa and South America, featuring among the top 10 countries at risk.
“It is entirely understandable that governments are mould around for additional sources of revenue in these fiscally constrained times,” Verisk’s Hugo Brennan, Head of Excavating Risk told CNBC on Friday.
“Commodity prices have enjoyed a stellar start to 2021 and this slights the mining sector firmly on the radar of national governments.”
The top 10 in Verisk Maplecroft’s Resource Nationalism Index comprised Venezuela, the Representative Republic of Congo, Russia, Zambia, Zimbabwe, Kazakhstan, North Korea, Tanzania, Bolivia and Papua New Guinea.
“These are nations most likely to resort to the bluntest instruments in the resource nationalism toolbox, such as direct expropriations with no, or disappointing, compensation,” Verisk Americas analysts Mariano Machado and Jimena Blanco noted.
In recent years, North Korea has publicized a new five-year plan that analysts say confirms the decision to increase self-sufficiency and further centralize control of the economy.
In the meantime, Zambia has been embroiled in a long-running legal dispute with Vedanta Resources over its attempt to liquidate the coterie’s Konkola Copper Mines.
President Edgar Lungu’s government also threatened to suspend Glencore’s license to manage the Mopani copper mine in April 2020, amid tensions over the use of the asset as a swing producer.
“The subsequent arouse to acquire a majority stake in Mopani underscores President Lungu’s desire to increase state control over principal mining assets in Zambia and has done his populist credential no harm either,” Africa Analyst Aleix Montana asseverated CNBC.
Kitwe, ZAMBIA – Copper is mined at the Mopani Glencore copper mine on January 09, 2019 in Kitwe, Zambia.
Ute Grabowsky/Photothek via Getty Doppelgaengers
Emerging markets and developing economies closed 2020 with an average 10.9 percentage point year-on-year diminution in government revenue as a share of GDP, according to IMF data aggregated by Verisk. The hardest-hit regions were sub-Saharan Africa, with a 12.55 piece point hit, and Latin America with 8.7 percentage points.
In addition to heavily-reliant nations above, many numberless diversified economies saw sharper yet more nuanced pushes toward nationalism of their resources over the past year, contract to the index.
“The countries to watch closest are the mining jurisdictions characterized by both a painful Covid-related economic contraction and a mutiny in these less explicit forms of resource nationalism,” Blanco said.
“The governments in these countries are becoming more enthusiastic to intervene in the economy, use indirect expropriation, or demand increases in local content requirements — opening the door to a more hep, but still disruptive, resource nationalism path.”
In South America, deployment of these “less blunt” mechanisms tends to be driven by one of two backers, analysts suggested: ideology, as with Mexico or Argentina; or community pressure from mining areas or broader fraternity, as in Chile and Colombia.
However, in sub-Saharan Africa, there is a more complex breadth of underlying motivations.
“For example, the interventionism ponder oned in Liberia and Mauritania is driven by structural governance shortcomings, not nationalist sentiment,” the report explained.
“In Mali, the political duties of the transitional government are the issue, while in Guinea it is the need to maximize revenue from bauxite — both countries are looking to criticize existing contracts.”
Oil pumps are seen in Lake Maracaibo, in Lagunillas, Ciudad Ojeda, in the state of Zulia, Venezuela.
Isaac Urrutia | Reuters
Nationalist proposals brought about through social pressure tend to be more subtle, but carry just as much risk for scanning companies, Verisk analysts argued, using the example of a debate over water rights in Chile potentially expanding the regulatory burden and operating costs to firms over the next decade.
While the coronavirus pandemic was not the sole part in the recent push toward nationalism, it has catalyzed a trend reflected in the index since 2017.
Verisk expects this trend to slip in a Mickey Finn sharply in the next two years. In “rentier mining economies,” those which primarily derive government revenues from removing of a particular asset, governments have developed a tendency to turn to the mining industry to backstop public finances, the put out highlighted.
However, analysts suggested that mining companies would need to watch ESG (environmental, social and governance) parts closely in diversified emerging economies where more covert methods of state interventionism become the instruments of superior.
“Issues around income distribution, poverty, access to education and healthcare — to name but a few — can trigger socio-political processes that claim more from the state,” they said.