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Resource nationalism in Peru and South Africa, country risks in Equatorial Guinea and corruption in Russia are the focus of Maplecroft’s latest briefings

22/12/2011

Equatorial Guinea

Maplecroft's Country Risk Briefing on Equatorial Guinea offers detailed analysis of the governance framework, the regulatory and business environment, political violence, human rights, the environment and climate change, plus an economic overview.

Endemic political influence within the legal system and the president’s ability to legislate by decree pose a high degree of legislative uncertainty, and exposes companies to endemic corruption within the government and the judiciary. While Equatoguinean legislation provides the framework for oil and gas operations, companies should expect to face significant challenges regarding transparency. Companies operating in Equatorial Guinea must negotiate an inconsistently applied and non-transparent legal system, resulting in a level of legislative uncertainty. This may increase legal costs, lead to organisational disruption where delays are incurred, and pose significant reputational risk.

The protection of human rights in Equatorial Guinea is exceptionally poor. While nominally a democracy, the country does not hold free and fair elections that meet international standards. President Obiang has ruled the country for more than three decades by way of intimidation and imprisonment of opposition groups, according to human rights groups. Those critical of the government suffer from systematic state repression, including arbitrary arrests and ill-treatment by security forces that often operate with impunity. Companies operating in the country should therefore be aware of potential reputational risks in regards to complicity with the current regime.

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Peru

The Country Risk Briefing on Resource Nationalism in Peru analyses the policies of centre-left President Ollanta Humala towards the extractive sector and how both these and other key trends affect resource-nationalist risks for foreign investors.

Centre-left President Ollanta Humala, has proved far more moderate than some investors and observers feared. He had maintained radical policy positions during the early phase of his election campaign and was known for his past affinity to populist Venezuelan President Hugo Chávez. However, the reform of the tax and royalties regime in late 2011 was less radical than expected and was generally well-received. He has also made attracting new foreign investment to further the development of the mining sector integral to his programme of government and economic policy.

However, elements of the political situation mean that the risk of resource-nationalist policy moves by the government is very real. President Humala’s currently moderate policy positions are not just the result of his close relationship with the centre-left government of Brazil, but a legacy of his electoral and Congressional alliance with ex-President Alejandro Toledo, which is now under acute stress. Given that his core voters are found amongst poorer and often indigenous sectors in Peru’s rural highlands, any disruption of this alliance would increase the likelihood of a return to radical policy positions.

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Russia

The Corruption Risk Briefing for Russia is latest in a new series launched by Maplecroft to help companies proactively assess and mitigate the risks of corruption throughout supply chains, operations and investments.

Corruption is one of the most significant barriers for business operations in Russia. The business activities at greatest risk from corruption are those requiring engagement with public officials, such as public procurement and the payment of tax or customs duties, where bureaucratic inefficiencies may encourage facilitation payments to expedite official functions. Given the lack of transparency and opportunities to engage in corrupt activities, the oil and gas sectors and the pharmaceutical sectors are noted as examples of high risk sectors.

Despite regulation and policy clearly setting out anti-corruption targets in Russia, implementation of the law is weak. This is undermined in particular by the judiciary which is prone to pressure from political and financial interference. Russia is a signatory to a number of international conventions but the focus of anti-corruption measures tends to be punishment and sanctions rather than ethics training. There has been continued articulation of the intention to pursue an anti-corruption agenda, and some modest steps towards reducing corruption and excess levels of bureaucracy. However, the anticipated return of Prime Minister Vladimir Putin to the Presidency in 2012 signals potentially two more terms of political stagnation and continuing corruption.

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South Africa

The Country Risk Briefing on Resource Nationalism in South Africa analyses the underlying “goals” and rationale for nationalisation and whether or not steps taken by government work towards or against company investment. The briefings also provide key trends, including a possible cross-border “domino effect” of resource nationalism.

Resource nationalism is currently at the forefront of political debate in South Africa. The ruling African National Congress (ANC) Youth League’s calls for the nationalisation of the mining sector gained traction in 2010 when the ANC’s General Council agreed to investigate the matter. An ANC research task team’s report will form the basis for policy discussion documents that will be submitted ahead of the party’s policy conference in May 2012. The significant cost implications and constitutional protections are among the reasons that the ANC is unlikely to nationalise the mining sector. However, uncertainty over the policy debate will continue until at least the ANC National Conference in December 2012.

The mining sector has seen significant policy changes since 1994. Some of these, such as the Mining Charter’s 26% black economic empowerment (BEE) ownership target, fall under the resource nationalism umbrella. Although outright nationalisation is unlikely, the mining sector can expect increasingly level of state involvement. The state-owned African Exploration Mining & Finance Corporation (AEMFC) is becoming increasingly active. Meanwhile, policy initiatives such as the Beneficiation Strategy will raise the regulatory burden on companies.

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