The Ebbing Tide Of Resource Nationalism
BMI View: The rising tide of resource nationalism in Asia over the past quarters is set to lose momentum. Against the backdrop of lower commodity prices and slowing economic growth, a growing number of governments will be forced to moderate their mining policies in the coming quarters. Crucially, the challenge will remain how the host governments can best manage their mineral wealth to promote broad social and economic development, while maintaining an adequate risk/reward balance for mining companies.
The stellar run in commodity prices and the bumper profits reaped by mining companies over the past decade encouraged many host governments to become more interventionist in their mineral sectors. In a bid to extract a greater share from the resource sector, many governments have exercised their own forms of resource nationalism ranging from a gradual rise in taxation to the outright expropriation of mining assets. The destruction of value caused by sudden changes in mining policies has been at the heart of investment risks for many miners. However, the rising tide of resource nationalism in Asia over the past quarters is set to lose momentum ( see 'Battling The Rising Tide Of Resource Nationalism', December 6, 2012). Against the backdrop of lower commodity prices and in some cases, mounting economic woes, we believe a growing number of governments will be forced to moderate their mining policies in the coming quarters.
The mining sector has been the central pillar of economic growth for many countries over the last decade. Beyond the generation of tax revenues, mining investment has created employment opportunities, enhanced local infrastructure and brought about widespread social development. Crucially, countries such as India, Indonesia, Thailand and Malaysia can ill-afford to risk souring investor sentiment in the face of deteriorating economic conditions. Fears over the 'tapering' of the quantitative easing (QE) program in the US has sent a wave of risk aversion rippling through emerging markets (EM) since mid-year, prompting debilitating outflows of capital from many EM markets.
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