Resource nationalism

"Clearly, this is a matter of concern to businesspeople. Resource-rich countries, especially the oil exporters, attract more foreign direct investment than resource-poor or agricultural economies. But low levels of political freedom in mineral- and oil-rich economies (Botswana and Namibia are exceptions) implies greater political instability, with potentially adverse repercussions for foreign investors.

It seems too that the resurgence of “resource nationalism” around the world, especially in Latin America and the Middle East, but also in African states like Angola, Nigeria, Sudan, Equatorial Guinea, Congo and Chad, is positively correlated with political repression. The more determined the government to control a country’s natural resources, the greater the probability that political freedoms will be suppressed.

None of this is particularly surprising. Returns are greater in high-risk Nigeria, Angola, Sudan or the DRC than in South Africa, Kenya or Ghana. In other words, the correlation is not between political freedom and economic performance, but between political suppression and risk. The fewer the political freedoms, the greater the risk—and the higher the returns. For companies and potential investors, the challenges are those of risk evaluation and risk management. There is a temptation for oil companies to conclude that because Equatorial Guinea has a strong military ruler the risks of political instability are low, while the returns are way above average. That however, is the wrong conclusion. The higher the return, the greater the risks (economic, business and political) of a sudden, unexpected change in fortunes. Risk management is about predicting and anticipating change—as in Zimbabwe in 2007—not about believing that the status quo will last indefinitely."