Publications
Partners
Cape Town - Mercantilism was the principal economic system used during the sixteenth to eighteenth centuries. The main goal was to increase a nation's wealth by imposing government regulations on all of the nation's commercial interests.
It was believed that national strength could be maximised by limiting imports via tariffs and maximising exports (investopedia).
On Tuesday Dr David Humphreys, principal at DaiEcon Advisors, addressed the mining indaba in Cape Town on the topic of resource nationalism.
Humphreys maintains resource nationalism is the new form of mercantilism in the 21st Century.
Humphreys says this new thinking is being driven by the polarisation of the minerals supply globally, and the fact that the proportion of this coming from consumer regions like North America and Europe has been diminishing and even flatlining in many respects.
“Historically, the major producers and consumers of minerals were often one and the same – there was an overlap (and) this provided a clear self-interest in consuming countries.
"Now this is less and less the case, the overlap is diminishing,” says Humphreys. He asserts that as this trend continues, it is leading to polarisation.
“This has meant that producing countries focus on how minerals become an issue of national security – the trend that we have seen is a growing focus and debate on resource nationalism, while consumers are impacted by a variety of issues, including higher prices.
"This can give rise to conflict between nations with resources and those using mineral products - a new mercantilism. There has been a politicisation of mineral production and the securitisation of consumption,” explains Humphreys.
For producer countries, the focus is now on broader considerations, such as the development of other sectors from the windfall of mineral resources, the impact on income levels in the country, the impact on communities which live in the mining areas, the effect on the country’s exchange rate and the environmental impact.
Humphreys says this is how the political choice aspect comes in, with the state wanting greater involvement.
“Resource nationalism manifests itself in the following ways: we see increases in taxes and royalties, there are more costly and demanding conditions such as the use-it-or-lose-it policies, social investment requirements increase, (there are more) restrictions on foreign ownership and (greater) requirements for indigenous shareholdings,” Humphreys says.
He adds that state ownership of mines is also not at the top of the list of priorities for producing nations. This is because states view indigenous shareholdings as giving them enough leverage, making state ownership unnecessary.
“In Russia, for example, the state is significantly involved in the oil and gas sector, but you don’t see them doing the same in the mining sector,” says Humphreys.
Humphreys quotes an Ernst & Young survey on business risks in mining, which found that perceptions of resource nationalism as a business risk have been rising steadily since 2009.
In 2009, the industry ranked resource nationalism at 9th out of 10 risks to doing business; it rose to the 8th level in 2010, to peak at the number 1 risk to doing business in the mining sector in 2012.
Calls for the beneficiation of minerals have also been on the rise, as producing countries show an increased inclination to get as much out of their minerals as they can. This has been prompted by the fact that minerals are finite.
Humphreys cites the case of Indonesia, which “imposed an export tax on raw material exports, published new national ownership requirements and talked of the renegotiation of existing contracts”.
Humphreys says that the politicisation of mineral production can lead to a more balanced market, which would allay the concerns of mineral consumers.
“It will choke off some of the small-scale high cost capacity, create opportunities for new large-scale investment in regions like Africa, (and) there is also the likelihood of more strategic investors in the industry,” says Humphreys.
He does warn though that finding a balance between the interests of international investors in mining and mineral host countries will be increasingly challenging.
According to him, “Global miners will have to learn to operate in this more political world.”
He also suggests that investors will have to position themselves as partners in the economic and social development of the countries in which they are investing.
- Fin24
It was believed that national strength could be maximised by limiting imports via tariffs and maximising exports (investopedia).
On Tuesday Dr David Humphreys, principal at DaiEcon Advisors, addressed the mining indaba in Cape Town on the topic of resource nationalism.
Humphreys maintains resource nationalism is the new form of mercantilism in the 21st Century.
Humphreys says this new thinking is being driven by the polarisation of the minerals supply globally, and the fact that the proportion of this coming from consumer regions like North America and Europe has been diminishing and even flatlining in many respects.
“Historically, the major producers and consumers of minerals were often one and the same – there was an overlap (and) this provided a clear self-interest in consuming countries.
"Now this is less and less the case, the overlap is diminishing,” says Humphreys. He asserts that as this trend continues, it is leading to polarisation.
“This has meant that producing countries focus on how minerals become an issue of national security – the trend that we have seen is a growing focus and debate on resource nationalism, while consumers are impacted by a variety of issues, including higher prices.
"This can give rise to conflict between nations with resources and those using mineral products - a new mercantilism. There has been a politicisation of mineral production and the securitisation of consumption,” explains Humphreys.
For producer countries, the focus is now on broader considerations, such as the development of other sectors from the windfall of mineral resources, the impact on income levels in the country, the impact on communities which live in the mining areas, the effect on the country’s exchange rate and the environmental impact.
Humphreys says this is how the political choice aspect comes in, with the state wanting greater involvement.
“Resource nationalism manifests itself in the following ways: we see increases in taxes and royalties, there are more costly and demanding conditions such as the use-it-or-lose-it policies, social investment requirements increase, (there are more) restrictions on foreign ownership and (greater) requirements for indigenous shareholdings,” Humphreys says.
He adds that state ownership of mines is also not at the top of the list of priorities for producing nations. This is because states view indigenous shareholdings as giving them enough leverage, making state ownership unnecessary.
“In Russia, for example, the state is significantly involved in the oil and gas sector, but you don’t see them doing the same in the mining sector,” says Humphreys.
Humphreys quotes an Ernst & Young survey on business risks in mining, which found that perceptions of resource nationalism as a business risk have been rising steadily since 2009.
In 2009, the industry ranked resource nationalism at 9th out of 10 risks to doing business; it rose to the 8th level in 2010, to peak at the number 1 risk to doing business in the mining sector in 2012.
Calls for the beneficiation of minerals have also been on the rise, as producing countries show an increased inclination to get as much out of their minerals as they can. This has been prompted by the fact that minerals are finite.
Humphreys cites the case of Indonesia, which “imposed an export tax on raw material exports, published new national ownership requirements and talked of the renegotiation of existing contracts”.
Humphreys says that the politicisation of mineral production can lead to a more balanced market, which would allay the concerns of mineral consumers.
“It will choke off some of the small-scale high cost capacity, create opportunities for new large-scale investment in regions like Africa, (and) there is also the likelihood of more strategic investors in the industry,” says Humphreys.
He does warn though that finding a balance between the interests of international investors in mining and mineral host countries will be increasingly challenging.
According to him, “Global miners will have to learn to operate in this more political world.”
He also suggests that investors will have to position themselves as partners in the economic and social development of the countries in which they are investing.
- Fin24
