Africa's New Resource NationalismBy Kemet Global Ltd, PRNE
Monday, April 4, 2011
LONDON, April 5, 2011 - At The Times' Africa CEO Summit on Tuesday 22 March 2011, Brian Menell,
Chairman of Kemet Global Ltd., presented to the Natural Resources Session his
views on the challenges posed by the increase in "resource nationalism" which
is building momentum across the African continent.
Brian Menell identified two dominant trends that are transforming the
African mining investment landscape. The first is the trend away from the
history of African mining investment being polarised between big global
companies building mega projects on the one hand, and short term
opportunistic cowboys on the other hand. The former group has high project
hurdles in terms of scale and is generally risk averse, while the latter
group are focused more on selling stories and flipping assets than on
building mines. Historically, this polarisation has resulted in the
underdevelopment of a lot of promising mid-tier projects, particularly in the
less established mining jurisdictions. The growth of well financed and
technically competent mid-tier mining companies to fill this gap in Africa
has come a long way over the last ten years. In the Oil and Gas arena, this
trend is less well established but is building momentum nevertheless.
Governments across the continent will increasingly discourage short term
opportunistic investment through the increasing rigorous implementation of
"use it or lose it" style regulations to enforce investment commitments and
work program obligations.
Brian Menell expressed his view that this trend and its momentum in
Government , is entirely positive for both the countries concerned, and for
the stability of the equity and debt markets for African resources companies.
This is, however, only the case when Government enforcement of mining
regulations is conducted in the context of a level "political playing field".
If these processes are politicised or significantly distorted by
"bureaucratic entrepreneurialism" they can be a very serious deterrent to a
long term investment vision.
The second key trend in the African resource investment landscape
identified by Brian Menell is the growing "resource nationalism", that can be
seen across much of the continent. As the number of African governments which
are either democratically elected, or are increasingly sensitive to populist
perceptions, grow, the focus on countering the perceptions of foreign
exploitation of natural resources likewise grows. This increasing sensitivity
to populist "anti-imperialist" perceptions has come at the same time as
increased self-confidence and growing capacity on the part of many African
governments. Hence the increasingly assertive examination of new models of
participation in natural resource projects and companies on the part of State
and domestic business interests.
The manifestation of this trend range from the "Black Economic
Empowerment" legislation in South Africa, to the much more radical measures
being put in place in Robert Mugabe's Zimbabwe, to the calls by Alpha Conde,
the newly elected President of Guinea, which is rich in Bauxite and Iron Ore,
for 33% back in rights for the State into all mineral projects in order to
establish a large and fundable "National Mining Company".
Brian Menell believes that the "National Mining Company" model, to house
minority interests in all mineral projects on behalf of the State, as an
industry specific Sovereign Wealth structure, will become increasingly
fashionable. He envisages a significant number of these State entities for
mining assets, mirroring the much more established State Oil Companies, being
created across the continent over the coming few years.
The natural instinct of the mining industry is to fight these
developments in every way possible. They are generally seen as an enforced
transfer of value which undermines project economics and must be avoided or
minimised. Brian Menell called for a more pragmatic and progressive approach
to this unavoidable trend.
Brian Menell suggested that if populist resource nationalism is resisted
to rigidly by mining and oil industry investors, the measures that would,
regardless of this opposition, be imposed, would be (and in a number of cases
already have been) much more destructive and costly than they could be if the
process was engaged with in a more positive and constructive manner.
Brian Menell proposed that these Mining Sovereign Wealth Structures could
be a very valuable contribution to the stability and sustainability of
African mining investment jurisdictions, if they are established with sound
principles and objectives. Firstly, they must be transparent so that the
leadership, population and media can all see the value creation accruing to
the nation. Secondly, back in rights must be acquired from the investors at a
value of not less than historic cost. Thirdly, in return for back in rights
the State must offer greater certainty with respect to tenure of title,
preferential taxation regime etc. to demonstrate the principle of value for
value and lastly, back in rights should be limited to 25%.
Brian Menell concluded his presentation by repeating his call to
developers of African mining and oil projects to see "resource nationalism"
as both a challenge, and an opportunity. A challenge to avoid forced transfer
of value or ownership without fair compensation, and an opportunity to forge
a more sustainable and closer bonds with the countries in which they operate.
"If, as natural resources investors in Africa, we can overcome our
natural aversion to any additional state intervention or participation, and
constructively engage in the search for new models and structures to satisfy
populist aspirations, we will find opportunity in adversity. We can do a lot
to help guide the processes in directions that create more long term
certainty and ultimately benefit all of our stakeholders."
Notes to Editor
Brian Menell is a founder and principal of the Kemet Group, a group of
private companies that invests in mining projects and advises on natural
resource transactions across Africa. Over the last 23 years Brian Menell has
participated in mining, oil and gas, diamond, and energy infrastructure
assets in 18 African countries.
For more information, please contact: Victoria Geoghegan Pelham Bell Pottinger: +44(0)20-7861-3925
For more information, please contact: Victoria Geoghegan, Pelham Bell Pottinger: +44(0)20-7861-3925
Tags: Africa, April 5, Kemet Global Ltd, London