Risk of resource nationalism rises significantly in 30 countries, finds Verisk Maplecroft index

Investors face “significantly” higher risk of resource nationalism in 30 countries compared to last year, according to Verisk Maplecroft’s latest Resource Nationalism Index (RNI). This includes 21 major oil, gas and mineral producing nations.

The Democratic Republic of Congo (DRC) and Russia are two notable movers in the list, which ranks 198 countries in terms of the threat of resource nationalism on companies. Both have been downgraded to extreme risk.

The RNI measures the risk of governments taking greater control of natural resources. It considers the risk of expropriation, imposition of more stringent fiscal regimes and pressure on companies to source goods and services from local providers.

In total, eight countries are now rated extreme risk. DRC is joint top alongside Venezuela. They are followed by Tanzania in third place and Russia in fourth. North Korea and Zimbabwe rank joint fifth, with Swaziland in seventh and Papua New Guinea in eighth.

The top ten is completed by Kazakhstan in ninth place and Bolivia in tenth. Both these countries are rated high risk.

When it comes to squeezing investors, DRC has moved from sixth in the ranking to joint top. Verisk Maplecroft said the move is precipitated by the country’s new Mining Code. It has imposed “onerous fiscal terms on existing operators and allows heightened levels of government interventionism in the sector”, the company said.

Since the code came into force last June, the DRC Government has attempted to block commercial asset transfers, tried to usurp operators to glean more profit and choked exports from a cobalt mine.

“The situation in DRC won’t improve anytime soon,” warned Verisk Maplecroft Africa analyst, Indigo Ellis. “The new president, while seemingly a change from the old guard of President Kabila, will not represent a significant departure from the status quo for mining regulation.”

Verisk Maplecroft said the DRC Government is likely to add copper as a strategic substance, possibly as early as this year. It will then be subject to the punitive 10% royalties currently levied on coltan, germanium and cobalt.

Verisk Maplecroft said its research confirms that outright expropriation is less of a risk to extractive companies than it used to be. The RNI identifies indirect forms of resource nationalism – including increasing tax pressures, changing contractual terms and stronger local content requirements – as the most common issues driving a country’s risk environment, alongside worsening regulatory climates.

But expropriation is not entirely off the menu in all countries. Venezuela and Russia are rated among the highest risk of such behavior. But the well-recognised risks associated with both jurisdictions – including political instability, high levels of government interference and international sanctions – mean foreign companies already have limited footprints there, said Verisk Maplecroft.

Africa is home to ten countries experiencing a growth of indirect forms of resource nationalism. These include Tanzania, Zambia – ranked 17th, Gabon in 23rd and Equatorial Guinea in 40th.

But host governments in other regions are also using measures to wrestle revenue away from oil, gas and mining operators. India (15th), Malaysia (30th), Turkey (36th), Iraq (42nd) and Mexico (68th) are among major producing countries that have also seen their index scores deteriorate.

Moving in the other direction, 24 countries have seen the threat decrease. These includeZimbabwe, now ranked fifth in the index, Vietnam ranked 25th, Ecuador ranked 46th and Guinea in 94th place.

Verisk Maplecroft said that although Zimbabwe has a long way to go to become a stable investment destination, the RNI suggests it could be on the right trajectory.

“Since he came to power, President Emmerson Mnangagwa has actively courted foreign investment, and two cabinet ministers have pledged to remove indigenisation laws for foreign diamond and platinum miners. If parliament and Mr Mnangagwa were to endorse these changes, Zimbabwe could climb out of the ‘extreme risk’ category of the index for the first time,” it said.

Adding: “Given [that] the country is home to the world’s second largest reserves of platinum and chromium, alongside major deposits of gold, diamonds and iron ore, its potential could be enormous if it manages to start attracting meaningful foreign investment.”

Ecuador is another country that has made significant progress in reducing the risk of resource nationalism, finds the RNI. It has jumped from third place and extreme risk two years ago, to 46th and medium risk in 2019.

“Since President Lenín Moreno came to power in 2017, he has transitioned the government away from the authoritarian left-wing policies of his predecessor, Rafael Correa, towards a more moderate and consensual centre-left administration,” said Verisk Maplecroft.

President Moreno has introduced changes that strengthen democratic norms, restore powers to government institutions and tackle a legacy of systemic corruption, it added.