Declining Capex Puts and End to Resource Nationalist Bluffing
So far 2012 has been quite a year for resource nationalism, with Argentina seizing back control of YPF from its Spanish owners Repsol, TNK-BP’s never-ending troubles in Russia, and even the creeping expropriation in places such as the United Kingdom and Australia where tax regimes have sharpened with little warning. But could the threats be waning, as competition heats up to actually attract investment? That’s what some people are telling The Financial Times – and it’s all due to a global contraction in capital expenditure, meaning that the resource nationalists have to either put up or shut up if they want to get a major project underway (and collect the future rents from it) rather than just scaring away any new money from coming in the country.
The main reason behind a shift is that natural resources groups are slowing down – or even talking about cancelling – their investment programme, allowing them to play country against country. The slowdown in capex is the result of a weaker outlook for commodities prices over the next five years and rising anger from investors that are demanding larger dividends.
Natural resources companies with a pipeline of, say, five projects in five different countries are now likely to build just two or three of those. Thus, executives have the power to cherry pick which combination of country and project offers the best returns. The threat of a cancellation – or long delays – could be a powerful incentive for politicians to offer better terms to companies, executives mutter. In particular, local and regional politicians will be particularly prone to lobby in companies’ favour in the hope of securing jobs and investments.
Natural resources executives say they see already the first signs of a retreat from the resource nationalism trend in Australia and in many countries in Africa. The shift is, however, less evident in Latin America, where companies, particularly in the mining and agribusiness sector, continue investing strongly. (…)
As Alexandre Chambrier, Gabon’s minister of mining, told me last year about the resource nationalism trend, it is very difficult for government to defend “tax arrangement of the 1980s and the 1990s” while commodities prices remain high.
But if commodities prices remain weak and companies delay and cancel projects, it would be as difficult to justify a bigger take. Thus, going forward, commodities executives might be dealing with resource nationalism-lite rather than its death.