Short-term gains can result in a longer-term loss of investment when governments impose too many demands on mining companies

Many parts of Africa are resource-rich and have the potential to attract much-needed capital and generate hard currency earnings. Impacting on the ability to attract this much-needed investment is instability and uncertainty, including as a result of shifting levels of resource nationalism.

Resource nationalism persists through good times and bad – be it to alleviate hardship or want a greater share of perceived resource booms. This manifests in various forms. It can be seen in increased direct/indirect taxes, expropriation/local ownership requirements, local resourcing requirements (employees, services, goods) and the like. 

It is not that increased taxes or localisation policies are wrong per se, it is the continued moving of the goalposts that causes uncertainty that deters investment (draconian requirements will likewise kill investment). Countless times the point has been made that investing in mines and developing mines are long-term. It often takes 10 years or more to bring a mine into production. If the rules of the game are not certain and stable over the long term, then it is going to be near impossible to convince a board to make the investment – how do they achieve a level of comfort that there will, in fact, be a meaningful return on the investment?

Although mines represent a potential lifeline to many African governments, the short-termism approach of continuously moving the goalposts only exacerbates the vicious cycle that they find themselves. There may be a short-term gain from taxes, but at the expense of attracting long-term investment, returns and localisation benefits, which would otherwise have a real multiplier effect.

The simple truth is that governments must ensure certainty and goalposts if they wish to attract much-needed investment and grow their economies. There are too many examples across the continent evidencing governments that have failed to do so - resulting in many investments not being made, expansion projects being stalled, or existing operations pushed into loss-making positions.

Written by Bruce Dickinson, Partner at Webber Wentzel