An old African saying goes that if you want to sell milk, you don't sell your cows.
Building Brics Emerging giants
Keep pace with the emerging economic powerhouses Brazil, Russia, India, China and South Africa Learn more
Investors claim resource nationalism is the biggest threat facing commodity producers today, but for governments, taking care of a finite asset is the wise thing to do.
Except for the interlude of the global financial crisis between 2008 and 2009, commodities have enjoyed a spectacular decade. Before the millennium turned, most commodity producing nations were content to let mining companies dig valuable minerals out of the ground, charging them minimal royalties to do so. But as the prices of steel, copper, gold, oil and other minerals began to climb, this started to change.
That has now picked up substantially, analysts say. Resources have largely recovered from the crisis. As other sectors still struggle to regain their footing, the need to rebuild depleted treasuries has left the mining industry blinking in the spotlight as government after government zeroes in.
Ernst & Young, a global accountacy firm, says in its latest risk assessment for the mining and metals industry resource nationalism has become a "contagion" and is now the greatest threat to the global commodities industry.
BlackRock, the world's biggest money manager, is equally alarmed. "We're seeing a general trend around the world of resource nationalism with governments that are short of tax revenue … whether it's by personal taxation levels or extending into corporate or other ways," says Evy Hambro, the BlackRock investment head for natural resources.
Algeria and Nigeria have raised taxes for oil companies over the past two years. Zimbabwe is demanding 51 per cent control of all commodity operations taking place there be handed over to local shareholders. South Africa has also set targets for local ownership, although on far gentler terms than its northern neighbour. And Botswana has obliged De Beers to begin processing diamonds in country before they are exported.
Ollanta Humala, Peru's new president, was voted in this year on a ticket promising to increase distribution of the profits from the country's vast copper, silver and tin resources. Venezuela and Russia, meanwhile, have become textbook cases of quasi-nationalisation. Both have steadily eroded the rights of private investors to the point where the state is now the single largest player in their respective oil industries.
Even developed economies are getting in on the act. Australia stunned investors last year when it announced a 40 per cent supertax on mines. After vociferous protests it has since been scaled back to 30 per cent, but this should still deliver US$8 billion (Dh29.38bn) in extra revenue within the next two years.
Last year, the Canadian government barred BHP Billiton's $39bn bid for the fertiliser maker PotashCorp, saying the deal was not in the national interest. The British have also joined the grab. This year North Sea oil producers were hit by a £2bn (Dh11.73bn) royalties tax.
It's no surprise, therefore, that resource producers are so uneasy, and devoting a substantial amount of energy lobbying against it. "From a Rio Tinto perspective, we have to do a better job on the curse of resource nationalism," Tom Albanese, the chief executive of the global mining house, said at a conference this year.
The pressure to increase state revenue is being driven, at least partly, by popular sentiment. In South Africa, Julius Malema, the fiery leader of the ruling African National Congress' (ANC) youth league, led thousands of supporters on a march to the country's government headquarters last week. They demanded the full nationalisation of mines and farmland.
So far, the South African government has insisted nationalisation is not on the table. But with a quarter of its working age population unemployed, the ANC is constantly seeking new ways to get more from its mineral producers.
And this is where the Gulf states come in. The Arab oil embargo of the 1970s was intended to force up the price of crude as part of its political jostling with the West.
But over the past decade resource nationalism has become less about global influence, and more about creating jobs and infrastructure at home.
According to the IMF, oil proceeds have been used to modernise infrastructure, create jobs and improve the lives of people across the GCC. This has been done as these countries have accumulated reserves, and remain important donors to poor countries. Life expectancy in the GCC area increased by almost 10 years to 74 years during 1980 to 2000.
Abu Dhabi is applying its oil revenue to building its industrial sector as well as to funding its aim to be the region's pre-eminent cultural destination. Dubai is vying to be the Middle East's financial hub, and Saudi Arabia is building six new cities. By 2020, says the IMF, domestic investment by GCC oil producers could top $230bn a year.
As the oil producers show, it is possible to aggressively pursue commodity nationalism while retaining the support of investors.
According to the UN's most recent World Investment Report, Saudi Arabia is in the top 20 destinations for foreign direct investment (FDI).
And although FDI has fallen sharply in the GCC as a result of the world's financial problems, it remains a priority destination for offshore commodities firms.
This would suggest the alarmist talk around resource nationalism is overblown. Governments' inward-looking policies may well complicate investment strategies. But, as the GCC nations have demonstrated, if you have what they are looking for, investors are willing to work nationalist sentiments.
They may not like it, but in the end, they have little choice.
* with agencies
