HIGH RISK OF RESOURCE NATIONALISM All the above factors – from the concentration of production and reserves to the sector’s strategic importance and particularly the potential for high prices – create fertile ground for a rise in resource nationalism. There are various measures a host state can use to increase control, capture a bigger share of the proceeds and acquire new or higher ownership in projects at the expense of foreign participation.


This phenomenon is well-known in the oil industry. It proliferated around the 1950s as oil’s strategic importance to local and global economies became more visible. Some of its manifestations include the emergence of more assertive host governments culminating with the birth of OPEC in 1960, abolishing of previously granted concessions and replacing them with new types of more restrictive contracts that limited the participation of the private sector and their ownership of production, establishing national oil companies and, in many cases, nationalizing the private sector’s assets.


The mining industry also saw a similar wave of resource nationalism, albeit with a more moderate impact. That happened during the three decades following World War II, which registered strong growth in metal production and prices. However, the trend peaked by the mid-1980s, as prices fell, and the industry’s profits declined. During the 1990s and early 2000s, the pendulum swung in the opposite direction in tandem with metals prices, which hit their lowest levels in more than 30 years. Many developing countries privatized the mining industry and opened the sector to foreign investment.


The price recovery, in particular following the financial crisis of 2008, continues to date and has created new ambitions for mineral-rich countries. “A large group of countries are in the process [of reconsidering] their mineral policies to find ways to increase the potential benefits of mineral resources to the nation,” the World Bank concluded in 2011. Those ambitions will only expand under existing trends defined by the energy transition. In April 2023, Chile’s left-wing government announced its intent to nationalize the country’s lithium industry. The risk that other resource-rich countries will follow suit is significant.


15 | ADMISI - The Ghost In The Machine | Q2 Edition 2023


IN A 2017 REPORT, THE WORLD BANK STATED THE OBVIOUS, SAYING THAT “A LOW-CARBON FUTURE WILL NOT BE POSSIBLE WITHOUT MINERALS.


Governments acquiring a stronger presence in the sector and a larger share of the mineral rent is not alarming in itself – after all, they are the sovereign owners of the resource and should secure a fair share of the proceeds. Furthermore, although fiscal stability is a key principle of an ideal tax system, fiscal terms are not set in stone. They can be revisited if conditions change, and the initial terms offered to investors do not adequately accommodate the new circumstances.


However, there is a risk that a rise in resource nationalism can create adverse conditions for investment at a time when


Dar es Salaam, Tanzania: Cathode copper sheets arranged by forklift into containers ready to export. Credit: Moiz Husein Storyteller.


it is urgently needed. That is particularly true in many developing countries where the institutional framework is weak, the government lacks the administrative capacity to implement changes in an orderly manner, and the new fiscal terms are unnecessarily complex, distortionary and fail to target the rent. In such a climate, the state-owned enterprises become a breeding ground for corruption.


The timely success of the energy transition will largely depend on those countries getting the balance right. In a 2017 report, the World Bank stated the obvious, saying that “a low-carbon future will not be possible without minerals.” Without investment and supportive policies for such investment, those minerals will surely be in critical supply.


Dr Carole Nakhle CEO Crystol Energy


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