Namibia’s Mining Industry: Marrying Sovereignty Over Natural Resources and Foreign Direct Investment

The creation of new states during decolonisation urged the development of a principle which encompassed various demands and interests.

Rooted in the right to self-determination, and with the primary aim of enabling economic development, these states now have the right to freely use, exploit and regulate natural resources within their territory.
To successfully exploit these natural endowments sometimes requires promoting foreign investment, which lies at the centre of the sovereignty of a host state.

CLASSIC CONFLICT

Less developed countries (LDCs) often face the dilemma of advancing their domestic socio-economic aspirations and creating a conducive environment
for investors.

This is a classic conflict between two internationally recognised constructions – namely, the principle of Permanent Sovereignty over Natural Resources (PSNR) and the promotion of international trade and investment.

The former entails exercising state authority in such a way that domestic benefits emanate from the production and/or exploitation of natural endowments and that developmental goals are achieved.

The latter involves employing free market policies in promoting Foreign Direct Investment (FDI), which many African political leaders deem the appropriate vehicle for achieving developmental goals.

FDI has become an important source of foreign financing for developing countries, representing the largest share of external capital flows.
The principle of PSNR first came to international light with the adoption of United Nations General Assembly Resolution 626 on the ‘Right to Exploit Freely Natural Wealth and Resources’.

The principle was cemented by UN Resolution 1803, which prescribes that states and their people have the right to exercise sovereignty over natural resources falling within their territorial reach.

In underscoring the international and/or legal relevance of PSNR, the International Court of Justice (ICJ) pronounced itself in the East Timor Case (Portugal v Australia) – that the rationale behind the formulation is that of vesting power in the state to legislatively regulate the natural resources industry and the national economic activities for the common good.

The author Duruigbo reiterates this stance and asserts that the PSNR principles obligate the state to ensure that the primary beneficiaries of the exploitation and administration of the natural resources within its territorial realm is none other but their nationals.

AFRICA

Many African countries are endowed with abundant natural resources.
It is also a fact that many, if not all, African countries have yet to reach development status.

It accordingly follows that these countries lack the domestic capital and technical capacity to profitably exploit their natural endowments.
As a result, African states have been compelled to adopt policies and enact laws that seek to attract foreign investment.

The creation of investment-friendly milieus often entails the lowering of a host of regulatory standards, i.e. tax incentives and low fiscal terms, so as to wallow in commercial activities with ease.

As a result, LDCs wind up sacrificing and/or promoting some national interests to the detriment of other interests.
These countries, therefore, inadvertently compete for foreign investment.

Similarly, different domestic social, political or economic aspirations also compete for state priority.

Namibia falls within both the ambit of LDCs and countries with abundant natural resources.

Therefore, Namibia is neither immune nor a stranger to the conundrum at hand.

Against this background, I will seek to underscore how Namibia has gone about balancing and/or marrying the PSNR principle and promoting FDI in the mining industry.

FRAMEWORK

The starting point is Article 100 of the Namibian Constitution.
It confers ownership of all natural resources on the state, save where they are otherwise lawfully owned.

This article can be regarded as domestication of the PSNR principle, in that the Namibian state has absolute ownership over the resources.

As said earlier, the PSNR not only creates exclusive rights for the state and/or its people, but obliges the government to exercise its permanent ownership of these natural endowments in the best interest of the Namibian people.

Article 100 should be read together with Article 99 of the Constitution, which requires the state to promote and protect foreign investments.
These articles resonate well with the economic regime to which Namibia subscribes – a mixed economy, which entails the concerted participation of both private and public, as well as domestic and foreign entities, to achieve the collective goal of economic growth, prosperity and a dignified life for all Namibians.

From a mining law perspective, the primary legislation through which Namibia regulates the mining industry is the Minerals (Prospecting and Mining) Act (No 33, 1992 (Minerals Act).

This act makes it possible for private and public entities to acquire, through the minister of mines and energy, licences and claims to gain access to the minerals.

However, the law prescribes that an environmental clearance certificate precede mining operations.

This certificate can only be granted unconditionally to a holder who has conducted and submitted an Environmental Impact Assessment (EIA) and the concomitant Environmental Management Plan (EMP) in terms of the Environmental Management Act (EMA).

Against this backdrop, it is evident that in invoking the PSNR principle and also creating an investment-friendly environment and achieving its developmental goals of economic, political or social nature, Namibia ought to be cognisant of its obligations under its own law and international law.

BALANCING INTERESTS

The Constitution vests exclusive rights of ownership over minerals in the state, and obligates it to promulgate laws aimed at the sustainable use and protection of minerals from irrational use, for the collective good of all Namibians.

In the same vein, the state is constitutionally obligated to promote and protect foreign investment.

It is implicit in these constitutional prescriptions that the end-goal is the sustainable attainment of socio-economic and socio-political development of the highest order, even though a complete synchronisation of the two might prove impossible.

In terms of Article 23(2) and 95(a) of the Constitution, the government has a mandate to enact laws aimed at arresting the social inequalities and economic imbalances perpetrated by the colonial regimes.

Pursuant thereto, the Foreign Investment Act 1990, Affirmative Action (Employment) 1998, the New Equitable Economic Empowerment Framework (NEEEF) and the associated National Equitable Economic Empowerment Bill (NEEEB) were formulated.

The NEEEF/NEEEB is an instrument of economic transformation. It aims to create socio-economic opportunities to advance previously disadvantaged Namibians.

However, despite NEEEB’s progressive nature, it has been criticised in that its requirement for a 25% ownership and 50% management transfer to locals is too aggressive for business, and has the potential to discourage FDI.

Given the imbalance in the ownership of natural resources, the government has attempted to ensure that domestic interests in the mining sector are advanced, despite lacking the capacity and capital departments.

Pursuant to the United Nations General Assembly Resolution 37/233/A-E recommendation that creating state-owned enterprises could be effective in expediting socio-economic advancement, the Namibian government became equal partners with De Beers in Namdeb, which specialises in diamond production.

In the same vein, the Namibian government is sole owner in a private entity called Epangelo Mining, which serves as a model for state participation by contributing to the development of strategic minerals and general mining investment and beneficiation of mineral products.

FOREIGN INVESTORS

Foreign investors compensate for the capital and capacity deficiencies of LDCs like Namibia, albeit sometimes at the expense of the latter.
Accordingly, there is need to safeguard investor interests.

This is provided for in the Namibia Investment Promotion Act, which primarily aims to promote sustainable economic growth through mobilising foreign and local investment, as well as availing investment disputes resolution mechanisms.

The end-goal remains the enhancement of economic development, diversification and other socio-economic ambitions.

Governments of host states can participate in their economies through influencing, regulating, mediation, distribution, production and, planning of economic activities.

This is because a heavy reliance on free market principles can adversely affect state participation and the associated benefits.
Equally, excessive state participation could culminate in a capital scare or capital flight. It follows that sustainable balancing measures be implemented.

CONCLUSION

After attaining political independence, most former colonies did not address wealth imbalance as the new governments feared being seen as embarking on retribution missions and result in a flight of capital needed for economic recovery.

A number of countries subsequently embarked on affirmative action programmes, commonly known as economic empowerment policies, to address the imbalances.

However, some of these empowerment policies tend to counteract the interests of foreign investors and hence the flow of foreign direct investment into these African nations.

FDI is important in that it allows a country to acquire new technology and skills and to create new employment, which is critical to the growth of any economy. The correct balance between conformance with governance principles and performance in an entrepreneurial market economy must be found.

– Karel N Gaeb is an associate legal practitioner at Sisa Namandje and Co Inc. This article is written in his personal capacity