A聽move聽towards resource expropriation, tax and royalty increases, as well as demands for local participation in companies鈥� ownership,聽all聽resource nationalism聽components, continue to increase, with Latin America聽taking centre stage,聽a new study shows.
According to the latest聽report from聽risk consultancy Verisk聽Maplecroft,聽there is a clear聽four-year聽trend聽in聽minerals-rich nations to seek greater control over the revenues generated by their natural resources, which is expected to increase over the next two years.听
The consultancy identified 66 countries聽out of the 198 included in聽the resource nationalism index (RNI), or 33% of them,聽that have tightened the grip on their riches聽since 2017.听聽
Latin America is the jurisdiction where risks of expropriation and taxes hikes have聽increased the most in the past four years
Latin America is the jurisdiction where risks of expropriation and taxes hikes have聽increased the most, the study says. Mexico stands out as seeing the聽nation where the risks have climbed the most,聽driven by聽L贸pez Obrador administration鈥檚聽nationalist agenda that wields community and environmental arguments as justification for greater state involvement in the extractive sector, Verisk聽Maplecroft聽says.听聽
Mexico鈥檚聽situation聽is indicative of a wider regional trend affecting聽miners and energy firms聽in the region.听South America鈥檚 three largest economies, Brazil, Argentina and Colombia are also experiencing substantial negative shifts in the index, while the once stable mining destinations of聽Chile and聽Peru are聽in the midst of聽political changes that聽threaten to聽alter the聽operating environment for the industry.听
Copper prices have soared to聽record highs聽this year, handing unions in the two largest producers of the metal 鈥� Chile and Peru 鈥� additional leverage. The price rally has also ratcheted up tensions in labour negotiations and put聽pressure on global supply of the red metal.听
Verisk聽Maplecroft鈥檚聽RNI tracks incidents of direct expropriation and nationalization. The highest scores go to cases where there hasn鈥檛 been adequate compensation, no compensation, or in which a government hasn鈥檛 paid an award to a company following arbitration.听
The ten highest risk countries in the latest edition of the index are Venezuela, Tanzania, Mexico, PNG, Zambia, Russia, North Korea, Kazakhstan, DRC and Zimbabwe.听聽聽聽
The motive behind direct expropriation could be short-term political gain or a genuine attempt to save a vital but ailing industry to support the national interest. 鈥淭he adequacy of compensation is the key factor from a business perspective,鈥� the consultancy says.听
Politics and community pressure
In Latin America, the push to gain greater benefit from natural resources generally hinges on two factors. In Mexico and Argentina, the main driving force is ideology, while in Colombia and Chile pressure comes from communities 鈥� both those hosting聽mining projects and civil society.听
鈥淲hile the traditional bastions of stability for Latin America鈥檚 mining investors are not yet crumbling, they appear to be joining their regional peers on the path of greater resource nationalism,鈥� the report reads. 鈥淥nly time will tell how far each one goes down this road.鈥澛�
In Africa, motivations are much more diverse. The interventionism seen in Liberia and Mauritania is driven by structural governance shortcomings, not nationalist sentiment, Verisk聽Maplecroft聽points out.听
The line between resource nationalism and legitimate national interest isn鈥檛 always easy to draw, and this can exacerbate tensions.听
What is key for miners, according to the report, is to detect the signals early on, so that companies can adapt their investment strategies and exploration portfolios to mitigate future exposure to nationalism trends.听
By doing so, the consultancy concludes, companies can also prioritize investment in jurisdictions where they can be part of the solution. They can work with local stakeholders to find a balance between community needs and industry profitability to secure long-term social license to operate.听