TXRogers wrote: Protectionism around natural resources is surging, and could spell danger for commodities
https://www.cnbc.com/2021/03/05/nationalism-on-natural-resources-is-surging-miners-could-suffer.html
Countries rich in natural resources have become increasingly protectionist over the past year as Covid-19 threatened their economies.
A report published Thursday by risk consultancy Verisk Maplecroft indicated that over the course of 2020, 34 countries had seen a “significant increase” in resource nationalism, with the pandemic exacerbating an existing trend toward government intervention.
Verisk Maplecroft determined that 18 of the 34 countries are dependent on the minerals or hydrocarbons they export, and predicted 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 mining 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, particularly in Africa and South America, featuring among the top 10 countries at risk.
“It is entirely understandable that governments are casting around for additional sources of revenue in these fiscally constrained times,” Verisk’s Hugo Brennan, Head of Mining Risk told CNBC on Friday.
“Commodity prices have enjoyed a stellar start to 2021 and this puts the mining sector firmly on the radar of national governments.”
The top 10 in Verisk Maplecroft’s Resource Nationalism Index comprised Venezuela, the Democratic Republic of Congo, Russia, Zambia, Zimbabwe, Kazakhstan, North Korea, Tanzania, Bolivia and Papua New Guinea.
“These are countries most likely to resort to the bluntest instruments in the resource nationalism toolbox, such as direct expropriations with no, or inadequate, compensation,” Verisk Americas analysts Mariano Machado and Jimena Blanco noted.
In recent years, North Korea has announced a new five-year plan that analysts say confirms the decision to increase self-sufficiency and further centralize control of the economy.
Meanwhile, Zambia has been embroiled in a long-running legal dispute with Vedanta Resources over its attempt to liquidate the company’s Konkola Copper Mines.
President Edgar Lungu’s government also threatened to suspend Glencore’s license to operate the Mopani copper mine in April 2020, amid tensions over the use of the asset as a swing producer.
“The subsequent move to acquire a majority stake in Mopani underscores President Lungu’s desire to increase state control over strategic mining assets in Zambia and has done his populist credential no harm either,” Africa Analyst Aleix Montana told CNBC.
Emerging markets and developing economies closed 2020 with an average 10.9 percentage point year-on-year decrease 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 percentage point hit, and Latin America with 8.7 percentage points.
In addition to heavily-reliant nations above, many more diversified economies saw sharper yet more nuanced pushes toward nationalism of their resources over the past year, according to the index.
“The countries to watch closest are the mining jurisdictions characterized by both a painful Covid-related economic contraction and a rise in these less explicit forms of resource nationalism,” Blanco said.
“The governments in these countries are becoming more willing to intervene in the economy, use indirect expropriation, or demand increases in local content requirements — opening the door to a more sophisticated, but still disruptive, resource nationalism path.”
In South America, deployment of these “less blunt” mechanisms tends to be driven by one of two factors, analysts suggested: ideology, as with Mexico or Argentina; or community pressure from mining areas or broader society, as in Chile and Colombia.
However, in sub-Saharan Africa, there is a more complex breadth of underlying motivations. “For example, the interventionism seen in Liberia and Mauritania is driven by structural governance shortcomings, not nationalist sentiment,” the report explained.
“In Mali, the political concerns of the transitional government are the issue, while in Guinea it is the need to maximize revenue from bauxite — both countries are looking to review existing contracts.”
Nationalist measures brought about through social pressure tend to be more subtle, but carry just as much risk for mining companies, Verisk analysts argued, using the example of a debate over water rights in Chile potentially increasing the regulatory burden and operating costs to firms over the next decade.
While the coronavirus pandemic was not the sole factor in the recent push toward nationalism, it has catalyzed a trend reflected in the index since 2017. Verisk expects this trend to spike sharply in the next two years. In “rentier mining economies,” those which primarily derive government revenues from mining of a particular asset, governments have developed a tendency to turn to the mining industry to backstop public finances, the report highlighted.
However, analysts suggested that mining companies would need to watch ESG (environmental, social and governance) factors closely in diversified emerging economies where more covert methods of state interventionism become the instruments of choice.
“Issues around income distribution, poverty, access to education and healthcare — to name but a few — can trigger socio-political processes that demand more from the state,” they said.
Avoid this type $hit like the plague. Because there is no false vaccine to cure it. It's real. And it's fatal.
The delusional part of our planet yaps incessently about the enviroment, energy alternatives, blockchain mirages, human rights for every freak and deviant, and their own exceptionalism.
The remaining 3/4's of our planet is trying to survive, and keep what is their's. And they are willing to point a gun directly in your face to prove it.
Nothing recalibrates the human mind better than lead penetrating flesh.
Tx