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natural resources and environment | 19 May 2020
BY Edwin Berman AND Ntsiki Adonisi-Kgame
ENSight

natural resources and environment


South Africa: COVID-19 – a new chapter in state sovereignty over natural resources?

The exploration and exploitation of natural resources in Africa, and the world, has often mirrored social and political events of the day. Prior to decolonisation, much of the resource-rich developing world did not share equitably, or in some cases at all, in the benefits from the development of their resources. A watershed moment occurred in the aftermath of the second world war when the “sovereignty principle” was developed through several United Nations general assembly resolutions.

The sovereignty principle provides that all states exercise permanent sovereignty over their natural resources, which places rights and duties on the state to exercise such resources in the interests of its people and communities.

The development of the sovereignty principle had a cascading effect on mineral regulation and the prevailing mineral agreements between states and companies. A wave of mineral law reforms has occurred across Africa over the last several decades. There has also been a gradual renegotiation of most mineral agreements. Noticeable trends have been the emergence of so-called local content requirements imposed on foreign investors and the conclusion of community development agreements as a form of social licence to operate. It is now widely considered to be the case that key to a State achieving a successful mineral law reform or mineral agreement negotiation is the delicate balancing of benefits to flow to the company, the State and the host community.

Will COVID-19 usher in a new chapter in the development of the sovereignty principle? In this regard, we note the following:

  • Where states previously relied on mining companies to ensure benefits flow to host communities from resource extraction through infrastructure development, such as building schools or roads, or payment of levies and taxes to a general revenue fund, we anticipate that States may try to divert such efforts to directly combat the spread of COVID-19.
  • Mining companies may provide host communities with personal protective equipment companies had previously sourced for their own operations.
  • Mine hospitals can be converted into temporary quarantine facilities.
  • Where mines have experience in preventing the contraction by their employees of occupational diseases, mines can assist in a State’s programmes for screening and testing for COVID-19.
  • States who can divert proceeds from mineral taxes directly to COVID-19 related initiatives may be able to better shield their populations from COVID-19.

In placing new reliance on mining companies and mineral taxes in this way, there is an automatic adjustment to the current relationship between States and mining companies in so far as the flow of benefits to host communities is concerned.

It remains to be seen whether such adjustments will lead to more formal changes in mineral laws or mineral agreements, such as to cater for previously approved community projects to be converted into COVID-19 relief projects or for mineral tax laws to be amended if currently not flexible enough for tax revenues to be used for COVID-19. At the same time, mining companies may encounter significant changes in demand and supply of the resources they extract as a direct result of COVID-19. This will impact on the balancing of benefits to companies, States and host communities from resource extraction in the post-COVID-19 world.

Whether or not COVID-19 will usher in a new chapter for State sovereignty over natural resources, it is certainly the case that mining companies will remain relevant to the fight against COVID-19, and may prove to be a great resource themselves to resource-rich States.

Ntsiki Adonisi-Kgame
Natural Resources and Environment | Director
nadonisikgame@ENSafrica.com
cell: +27 82 382 7232

Edwin Berman
Natural Resources and Environment | Senior Associate
eberman@ENSafrica.com
+27 82 560 1386