SPOTLIGHT #10: Resource nationalism in Africa
This edition focuses on resource nationalism in Sub-Saharan Africa. Military governments in Mali, Guinea, Niger, and Burkina Faso are tightening control over natural resources. This trend is reshaping the legal and contractual landscape for foreign investors.
Lead up Spotlight analyses key developments in dispute resolution for the industries we serve. Each month, we share our perspective with clients, colleagues, and prospective partners.
Resource Nationalism: Definition and Context
Resource nationalism is a policy by which States increase control over natural resource extraction by foreign companies. It typically involves three types of measures:
- Discriminatory restrictions on foreign investors based on nationality.
- Forced renegotiation of investment and mining agreements.
- Expropriation or seizure of foreign-owned assets.
Resource nationalism is not new. But it has intensified across Sub-Saharan Africa. The rise of military juntas has accelerated the trend.
These regimes are rewriting the legal rules. They are altering mining codes, investment laws, and contract frameworks. The goal is to transfer more value from foreign companies to the State.
A recent example illustrates the risk. In June 2024, Niger revoked the operating permit of Orano’s local subsidiary at the Imouraren uranium mine. The State then took over the project.
As covered in Spotlight No. 7, this approach follows a familiar pattern. States typically begin by revising their mining codes. Mali did this in 2023. Burkina Faso followed in 2024. New legal provisions are sometimes applied retroactively to existing projects.
Beyond legal changes, military governments use other pressure tactics. Reports confirm the use of tax audits, suspension of tax exemptions, criminal investigations, and detention of company employees. The aim is to force contract renegotiations without resorting to outright expropriation.
These tactics leave investors uncertain about their legal position. Understanding what remedies are available is essential.
Two-Step Response for Investors
Investors facing resource nationalism typically need to consider two responses: negotiation first, then litigation if necessary.
1. Negotiation:
Negotiation is almost always the first step. It is essential when a project is still active. However, it carries risks.
Investors must communicate clearly with State authorities. At the same time, they must protect their legal position. This means contesting alleged breaches in writing. It means keeping records of all interactions. And it means avoiding concessions that could waive legal rights.
Negotiation may involve real compromises. These can include changes to profit-sharing arrangements, adjustments to legal stability clauses, or increased local participation in the project.
Negotiation becomes less effective in certain situations. If a permit has already been revoked and reassigned to another operator, the leverage is reduced. In those cases, litigation may be the primary path.
2. Litigation:
Pressure from the State can quickly escalate. Suspended permits and asset seizures can disrupt commercial relationships. Subcontractors, lenders, and offtake partners all face uncertainty. This can lead to commercial disputes or full investment arbitration.
Arbitration can be a powerful tool. It can shift the negotiating dynamic. It can help preserve shareholder value even in politically difficult situations. And it can create leverage that negotiation alone cannot.
However, arbitration requires careful preparation. Investors need to consider:
- Whether the dispute falls under commercial or investment arbitration.
- The realistic prospects for recovery and enforcement.
- Financing options for legal costs (see Spotlight No. 6 on third-party funding).
- The selection of arbitrators with experience in politically sensitive cases.
Choosing the right legal strategy at the outset is critical. Missteps early in the process can limit options later (see Spotlight No. 6 on litigation financing options).
Conclusion: Mitigating Resource Nationalism Risks
Political instability in Sub-Saharan Africa has increased risks for foreign investors in natural resources. Forced renegotiations, asset seizures, and permit revocations are now frequent occurrences.
These risks are serious. But they are not unmanageable.
Investors who act early have the best chance of protecting their positions. A clear, coordinated strategy combining negotiation and arbitration can limit financial losses. It can also protect ongoing operations and preserve the value of long-term assets.
Lead up assists companies active in Sub-Saharan Africa across infrastructure, energy, mining, and financial services. We advise on dispute prevention, contract structuring, and international arbitration.
Contact us at contact@leadup-avocats.com or visit www.leadup-avocats.com.