A rise in commodity prices may spell good news for mining companies and investors but there is always a danger that favourable market conditions can give rise to resource nationalism.
For example, a recent Fitch Solutions report on nickel cites that an upward trend in the price of the metal increases the risk of mining royalty increases to benefit from elevated prices.
In recent years, countries such as Tanzania have introduced new mining laws that have been formulated to ensure that local companies can benefit more from their mineral resource wealth. While the intention is noble, such laws have not always been well received by international mining companies. This, in turn, has an impact on a country’s investor friendliness.
Now, Uganda is following the lead of many other countries in East Africa and is set to implement a new law that will allow would allow the government to own shares in private mining operations.
According to a Reuters report, the new bill will provide for state equity participation in large, medium and small scale mining up to a maximum of 15%. In addition, investors would be required to enter production sharing agreements (PSAs) with the government. Previously, companies could apply and be granted mining licences on their own.
For years, the government of Uganda has been trying to attract investors to exploit it vast natural resources. Will the new law help this cause or will this form of resource nationalism dissuade investors from the country?
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