"RESOURCE NATIONALISM IS BOTH CYCLICAL AND CONTAGIOUS"

Author: OLIVIER BINYINGO 

Interview with Olivier Binyingo, Director, Herbert Smith Freehills LLP, SA. At the upcoming DRC Mining Week in Lubumbashi from 17-19 June 2020, Mr Binyingo will address the conference on “An asserted Rule-of-law for a conducive investment climate” which will be followed by a panel discussion. The company is also a bronze sponsor at the event.

Let’s start with some background on Herbert Smith Freehills – there is a proud history there.

HSF is one of the world’s leading professional services businesses, bringing together the best people across our global network of offices, including Johannesburg, to meet all of our clients’ legal services needs globally.

We have a solid understanding of the African market derived from a deep track record acting on matters in Africa for over 40 years across all practice groups and industry sectors.

Our offering in Africa is serviced by more than 180 partners from across our global network of offices, including from our 40-lawyer Johannesburg office.

We have worked on matters in all 54 countries of Africa and on over 880 matters in 2019. Our ability to harness our deep pool of experience on the continent means that we can guide our clients through the unique challenges and opportunities of working in Africa to provide tailored realistic solutions.

We have built a particularly strong reputation for our work in Africa’s natural resources sector and have been ranked Band 1 since 2012 by Chambers Global for Africa-wide: Mining and Minerals.

Our team advises on all key issues affecting Africa’s mining industry and across every stage of the mining project life cycle: from exploration and approvals to social licence issues, M&A, financing, mine development and construction, process plants, infrastructure, shipping, marketing, productivity improvements and mine care and maintenance or closure.

We are experts in joint ventures and corporate governance. We guide our clients through equity and debt capital markets and restructuring steps. We are also there to help our clients avoid and resolve disputes.

What projects in the mining industry in Africa are you currently involved in?

We have advised on some of the largest and often first-of-a-kind mining projects across Africa. Some of our recent / ongoing work in Africa includes advising:

• AMC on the project development and project funding of AMC’s Koumbia Bauxite Project in the Republic of Guinea
• Kasbah Resources Limited on the construction, joint venture arrangements, financing, and equity raising for its Achmmach Tin Project in Morocco
• Sierra Rutile on its takeover by Iluka Resources, and ongoing advice to Iluka on its mining operations in Sierra Leone
• a listed mining company on the defence of a class action on behalf 1,826 Zambian citizens alleging environmental claims
• Mitsui on its investment in Vale SA’s coal and infrastructure project in Mozambique
• Base Resources on its acquisition on the refinancing of the Toliara Sands project in Madagascar
• BHP Billiton on its divestments of mining assets in Republic of Guinea and Gabon
• Africa Finance Corporation and Afreximbank on the financing for the development of the Colluli potash project in Eritrea by Danakali Limited
• a confidential client on the acquisition of a significant interest in a coal mining project in East Africa
• a confidential client in relation to the significant changes to Tanzania’s mineral regulatory laws

In the DRC our team members have been involved in projects of Ivanhoe Mines, Tenke Fungurume Mining, MMG and Ruashi, to name a few.

What are some of the current trends / developments that you are seeing in the mining sector both globally and more specifically in the DRC and the region?

The mining industry continues to face challenges from multiple quarters. From more transparency as to the safety of the operations and the impact of those operations on various stakeholders, to continuing pressures from governments to review the value generated by the mining sector.

Understanding and engaging with various stakeholders continue to be a key factor in mining companies maintaining the license to operate and in navigating the various challenges.

Perhaps the trend that we are seeing more of both globally and in relation to East Africa is resource nationalism. During the last few years, various African and Latin American countries have introduced a number of measures aimed at exerting greater control over the extractive sector.

In its 2019 Report on the Resource Nationalism Index, the global risk consultancy Verisk Maplecroft identified the Democratic Republic of Congo (DRC) and Tanzania (along with Venezuela in the LATAM region), in particular, as the jurisdictions with the highest resource nationalism risk.

Measures which are typically associated with resource nationalism include changes to fiscal policies, such as the introduction of higher royalties and windfall profit taxes.

One of the most recent examples of this concerns the changes introduced by the Zambian Government in December 2018 in an attempt to maximise both revenues and foreign investment. In some instances, the measures relied on by governments are more overt, such as the recent attempt by the Government of Zambia to liquidate Konkola Copper Mine plc in order to appropriate Vedanta Resources Holdings Limited’s interests in the company.

Resource nationalism policies are, however, not limited to fiscal measures and include various other steps such as local content thresholds, free carried interest requirements and beneficiation obligations.

The drivers behind resource nationalism are complex and country-specific, however, there are often a number of common political and economic factors.

One key underlying factor, particularly for countries with economies which are highly dependent on the export of raw minerals, is commodity price cycles.

The changes to the DRC’s mining code, by way of example, followed a surge in the price of copper and cobalt, two of the country’s biggest exports, after a significant price slump in 2016.

Resource nationalism may also be motivated by political factors, often in response to populist demands or electoral cycles. Key examples include Tanzania and Zambia where policy changes were in response to specific events.

While the industry continues to monitor public sentiment towards mining operations and the political situation more generally, the Verisk Maplecroft’s 2019 report notes that over 30 countries around the world have seen a significant increase in resource nationalism in 2018, including 21 major producers of oil, gas and minerals.

As the underlying reasons, which led to the rise of resource nationalism, are complex and multi-faceted it is unlikely to be resolved soon. Resource nationalism is both cyclical and contagious and it is therefore likely that the trend will continue.

You are part of the DRC Mining Week conference speaker line-up with a presentation to address the conference on “An asserted rule-of-law for a conducive investment climate” which will be followed by a panel discussion. What will be your message at the event?

The African continent is endowed with abundant natural resources, including about thirty per cent of the world’s mineral reserves. Despite the mineral wealth most resource-rich African countries have been categorized as low income countries. In fact, analysts have observed a negative impact of resource abundance—particularly mineral resources—on long-term economic growth.

There are various underlying causes which drive this phenomenon which are primarily associated to market related factors (especially commodity price fluctuations). These, in turn, are aggravated by political factors that relate to institutional quality.

The development and strengthening of basic political institutions is a challenge that a significant number of developing economies (in Africa and beyond) are faced with.

Amongst such institutions, the Rule of Law merits specific focus both because of the difficulty to construct effective legal institutions and because of its importance for attracting investment at an affordable cost.

Whereas legislation can and should be used to drive human behaviour, for the Rule of Law to genuinely take root in a society it needs to be sufficiently aligned with the prevailing moral consensus.

When the Rule of Law is sufficiently imbedded in society, economic actors obey the law not merely out of fear of punishment, but first and foremost because the law is considered fundamentally fair.

Such “supremacy of the law” constitutes a check on the power of the State (and of the individuals making up the State) and results in the legal stability and predictability that is conducive for attracting investment.

Institution building will always be a lengthy and complex process that has to be tailored to the specific local environment. However, whilst the implementation of principles should be localised, the principles around the strengthening of the Rule of Law themselves are universal in nature.

At its 106th plenary session, the Venice Commission adopted a check list to evaluate the state of the Rule of Law in a single State and identified the following criteria: legality, legal certainty, prevention of abuse (misuse) of powers, equality before the law and non-discrimination and access to justice.

A continuous investment in the improvement of such criteria will assist with reducing perceived country risk and reduce the cost of doing business.

The company partnered with DRC Mining Week for the first time last year and you are returning as a bronze sponsor. How important is this event on the annual mining calendar?

The DRC is one of the pre-eminent mining jurisdictions on the African continent and even globally. For Herbert Smith Freehills, a professional services firm with a strong focus on natural resources, the DRC Mining Week is therefore a very important event on the annual mining calendar.

We see the DRC Mining Week as an excellent opportunity to engage with a wide variety of stakeholders active in the DRC’s mining sector and to keep in touch with the latest trends and developments.

MORE ABOUT Olivier Binyingo:

Olivier Binyingo is a director who works within the Johannesburg office of global law firm Herbert Smith Freehills. He has a wealth of experience assisting clients with their African transactions and projects in the energy and natural resources sector.

Olivier has worked in more than 40 countries on the continent and is especially recognised for his ability to integrate country specific challenges in transaction structuring and negotiations.

He is consistently singled out by Chambers Global for his expertise in relation to Francophone Africa, including the DRC. Olivier is fluent in English, French, Lingala and Dutch.

This article first appeared on Mining Review Africa on 25 March 2020.

For more information, please contact Olivier Binyingo or your usual Herbert Smith Freehills contact: