Major Trends Shaping African Economic and Security Policy

Africa has an abundance of natural resources

In this monthly summary of major trends shaping the African policy space, Exclusive Analysis’s Natznet Tesfay looks at resource nationalism in Mozambique and South Africa, oil sector reform in Nigeria and the implications of a new Jihadist group’s attack in Tamanrasset, Algeria for terrorist activity in the region.

Mozambique – The government is likely to impose capital gains tax on sales of resource rights in a bid to maximise revenue from mining and energy.

On 2 March 2012, the government announced plans to levy a capital gains tax on the sale of Cove Energy Plc, which is currently at the centre of a bidding war. Mineral Resources Minister Esperança Bias stated that while the rate for this new tax has not been decided, the government would legislate for capital gains tax so that it could be applied to such deals going forward.

We assess that this is part of a resource nationalism trend in Mozambique, which has already affected the mining sector. The proposed capital gains tax legislation is likely to apply to the sale of rights natural resource concessions going forward. Additionally, requirements for local content currently proposed for the draft mining code will likely be included in future energy legislation. These proposed local content requirements include indirect taxes in the form of social investment as well as participation of local stakeholders, an opportunity that is likely to primarily benefit firms associated with the ruling FRELIMO elite.

South Africa – The ANC is likely to propose a new 50 percent profit tax and an expanded state role in the mining sector.

In June 2012, the ruling African National Congress party will hold a policy conference that is likely to trigger the most extensive revision of its economic policies since coming to power in 1994. Recently released proposals are a clear indication of likely future policy, with most proposals likely to be finalised by the end of 2012 to be implemented in the two-year outlook.

The mining sector faces the highest risks from the proposed new policies given the ANC’s plans to impose a 50 percent resource rent tax (profit tax) triggered by the return on investment. The party expects this to generate some $5.3bn – though this could be lower depending on metal prices – in budget revenue each year that will be channelled to a sovereign wealth fund to finance infrastructure development and local beneficiation plans and to stabilise the currency. Moreover, the ANC is likely to propose a 50 percent capital gains tax, which would be effective even before the commencement of production to encourage developments of assets. The party is also likely to propose expropriation where assets are not developed by setting minimum levels of expenditure per hectare. Investments that are held in off-shore registered entities are likely to become liable for a 30 percent withholding tax.

Nigeria – The renewal of ExxonMobil’s licences indicates that the government is likely to have made concessions on fiscal terms in the draft PIB.

On 22 February 2012, the petroleum minister renewed three oil leases namely OML 67, 68 and 70 held under the NNPC/ExxonMobil JV for a period of twenty years for a value of $665m. For the past four years, ExxonMobil and other international oil majors have disputed the renewal of their 50 year old licenses due to proposed changes in the fiscal terms of the draft Petroleum Industry Bill.

The PIB aims to replace or repeal all 16 existing pieces of energy legislation and will result in significant changes to the structure and administration of the oil and gas sector. However, the bill’s ratification has been stalled. This regulatory uncertainty has led to a decline in new investment to Nigeria’s energy sectors and likely to have driven the October 2010 decision by Royal Dutch Shell, Nigeria’s largest producer, to sell off some of its oil and gas fields.

The renewal of ExxonMobil’s licences indicates that the government is likely to have made concessions, such as the inclusion of stability clauses or pledges not to raise significantly hydrocarbon taxes with the eventual passage of the PIB. Upon the PIB’s ratification, the government is likely to negotiate adherence to the new legislation on a case-by-case basis, lowering the risk of sector-wide contract revisions. The petroleum minister also pledged to renew the licenses of Shell and Chevron in April 2012.

Terrorism Update – An attack in Tamanrasset, Algeria, shows high IED capability among a new Islamist group.

The Monotheism and Jihad in West Africa (MJWA) claimed responsibility for a vehicle-borne improvised explosive device attack on the national police headquarters in the southern Algerian city of Tamanrasset on 3 March 2012. The suicide attack destroyed the front of the building and wounded 26. This was the largest suicide VBIED in Algeria outside al-Qaeda in the Islamic Maghreb (AQIM)’s northeast Kabylie heartland since 2007. It was also the first attack to occur in Tamanrasset’s provincial capital.

MJWA’s composition makes any attacks in Algeria most likely to occur in the west or in the desert provinces, potentially including Ouargla, where Algeria’s Hassi Messaoud oilfield is located, rather than in Algiers or other northern cities. MJWA is likely either to compete, or eventually partner, with AQIM for a share of kidnap and drug -smuggling revenue. However, the Tamanrasset attack suggests greater appetite for spectacular attacks than shown by AQIM’s Sahel factions.

Outside Algeria, MJWA has specifically threatened West Africa, citing Nigerian, Malian and Senegalese colonial era freedom fighters as its inspiration, suggesting it will be more committed to attacks in west African and Sahel cities than AQIM. A video released last year featured speakers of Hausa, used in Niger, Burkina Faso, and northern Nigeria, indicating recruitment in one or more of these countries. Attractive targets would include government buildings, embassies, and hotels used by European expatriates, especially in Nouakchott and Bamako, where its capabilities are likely strongest.