Resource nationalism on way to Africa
June 20, 2007
By Daniel Magnowski
London - High raw materials prices are stirring resource-rich African states to drive harder bargains with investors, but governments will not hold the whip until they are less dependent on foreign money.
"Resource nationalism is what is happening," said Tim Williams of Ernst & Young.
"A lot of countries are seeing superprofits and they're trying to change the rules. The problem is that it discourages new capital expenditure, and the high-risk money for new exploration."
Zimbabwe's government said this month it would take control of uranium, coal and methane projects; the Democratic Republic of Congo is reviewing mining contracts; and Tanzania has agreed new mining deals with two firms.
The moves come against a backdrop of record profits for big mining firms, the darlings of equities markets. With demand for metal soaring, largely to stoke Chinese industry, mining stocks are way up and the sector is awash with merger activity.
Poor African countries, traditionally exporters of raw materials that are refined elsewhere, see a chance to get back a bit of their own.
African Eagle, developing Zambian copper and gold projects costing up to $70 million (R494 million), got a fright when there was talk of boosting the royalty tax on minerals to 10 percent from 0.6 percent.
Knowing that they have what the world wants gives African states the strength to ask for more in return, says strategist Alex Gorbansky.
"Governments are behaving in a way they couldn't when commodities prices weren't what they are today," he said.
African governments would like to wield even more power, but they still need the money and the expertise western mining companies bring.
Unless they can take advantage of many years of high resources prices, as Russia has benefited from oil, African countries can only dictate terms to a certain extent.
One way governments have been attracting money is by doing deals with China.
Although China might have the edge by being able to offer cheap loans and aid as part of a resources package, western firms had the advantage of knowledge and experience of running mining projects, said Michael Lynch-Bell of Ernst & Young.
Companies and investors in Africa know they are dealing with governments prone to rewriting the rules.
"You'll get periodic changes in the tax regime in lots of these places," said financial adviser Lloyd Edwards-Jones. "People will do as much as they can get away with." - Reuters
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