Sunday, 5 June 2011

Resource Nationalism: re-slicing the pie

Peruvians went to the polls today. Multinational extractive companies such as Newmont, AngloAmerican. Xstrata and Occidental Petroleum will be watching the results with apprehension. On the ballot list is Col Ollanta Humala, an ex-army officer who once led a military revolt (against President Fujimori, the father of the other candidate in today’s polls). Humala came to the fore in 2006, when he ran unsuccessfully against out-going president Alan Garcia.

Back then, fears that Humala was in the pocket of Hugo Chávez, the socialist president of oil-rich Venezuela played a critical role in his defeat. Just a week before Peruvians went to the polls five years ago, Mr Ch
vez took a 60% controlling stake in Venezuela’s huge Orinoco fields, hitting Exxon, Conoco, Chevron, Total and Statoil. Fellow ‘Chavistas’ in Bolivia and Ecuador were undertaking similar moves to wrest back control of their country’s national assets from foreign companies.

It’s not just Latin America where resource nationalism has been on the rise in recent years. As a special briefing in the latest issue of Ethical Corporation reveals, resource-rich countries in Africa and Asia are following suit. As global commodity prices soar, emerging economies (justifiably, it could be argued) want a bigger piece of the pie. It’s their pie after all. The implications for foreign investors companies are worrying. Around 80% of oil produced by Opec countries is in state hands. Foreign oil companies are now being pushed to develop oil sands, a costly and high-risk enterprise. Not because they want to, Ethical Corporation writer Eric Marx points out. But because the choices open to them are becoming increasingly limited.

So what’s the responsible company to do? In Venezuela, Exxon just walked away. That’s one option. But only if you have very deep pockets, and options elsewhere. These are multi-billion dollar investments in the main. Choosing to renegotiate tax arrangements is another option that’s buying companies time. Good environmental and social investment track-records are proving ever more vital too. Even Chinese companies, which have been pouring money into Africa’s mining sector over recent years, are facing local demands to ‘give something back’. Companies would be well advised to take the likes of Unilever and Standard Bank in undetaking full economic impact studies, which capture their indirect,as well as their direct, contributions to the economies where they invest. 

Marx looks specifically at India, where demands for greater resource nationalism have led to calls for mandatory social investments by foreign companies. In reference to the proposed measure, Indian prime minister Manmohan Singh told industry to see community investment as being in their own long-term interest. “Companies undertaking greenfield projects cannot see their factories and units as oases, cut off from the needs and interests of the community around them,” he warned.

Citing a range of experts from both industry and civil society, Marx builds a convincing case for companies to increase the social returns derived from their investments overseas.  Either that or face ever greater pressure from host governments.

In Peru, Humala has tried to distance himself from Mr Chavez and his brand of radical, nationalistic socialism. It might help him get elected (exit polls have him out ahead). It won’t, however, reduce popular pressure for foreign investors to share a larger slice of the pie. 

[6 June 2011: eds. Humala won the election by a narrow margin. Lima's stock exchange fell 8.7%, in apparent reaction to the socialist candidate's win] 

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