Permanent sovereignty over natural wealth and resources and the promotion of foreign direct investment
Marrying the two within the Namibian mining industry
The creation of new States during the period of 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, states now have the right to freely use, exploit and regulate their natural resources within their territory. To successfully exploit these natural endowments sometimes requires the promotion of foreign investment, which lies at the centre of the sovereignty of a host state.
Less Developed Countries (LDCs) more often than not find themselves in the dilemma of advancing their domestic socio-economic aspirations and creating conducive environments for investors.This is a classic expression of the 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 the exercise of state authority in such a way that there are domestic benefits emanating from the production and/or exploitation of its natural endowments and that its developmental goals are achieved. The latter involves the employment of free market policies in the promotion of Foreign Direct Investment (FDI), which many African political leaders deem as the appropriate vehicle for the achievement of 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 the United Nations General Assembly Resolution 626 on the “Right to Exploit Freely Natural Wealth and Resources”. The principle was later cemented by Resolution 1803 of the UN General Assembly which prescribes that the state and its people have the right to exercise sovereignty over the natural resources falling within the territorial reach thereof.
In underscoring the international and/or legal relevance of the principle of PSNR, the International Court of Justice (ICJ) pronounced itself in the East Timor Case (Portugal v Australia) that, the rationale behind the formulation of the PSNR principle is that of vesting in the state the power 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 obligates 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 the nationals thereof.
It is a fact that many African countries are endowed with an abundance of natural resources. It is also a fact that many, if not all, African countries are yet to reach the development status. It accordingly follows that those countries lack the necessary domestic capital and technical capacity to profitably exploit their natural endowments.
In response to this deficiency, African states have been compelled to adopt policies and enact laws that seek to attract foreign investment. The creation of investment-friendly milieus often entail the lowering of the host state’s regulatory standards, i.e. tax incentives and low fiscal terms, so as to wallow in commercial activities with ease. This has the unfortunate result that 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 are also in competition for state priority.
Namibia falls within both the class of LDCs and that of countries with natural resources in abundance. It therefore follows that Namibia is neither immune nor is she a stranger to the conundrum at issue. Against this background, this paper seeks to underscore how Namibia has gone about balancing and/or marrying the PSNR principle and the promotion of FDI in the mining industry.
THE NAMIBIAN MINING LAW FRAMEWORK
The starting point is Article 100 of the Namibian Constitution. Said Article confers on the state the ownership of all natural resources save where they are otherwise lawfully owned. This Article can be regarded as the domestication of the PSNR principle, in that the Namibian State has absolute ownership over the resources. As stated earlier, the PSNR not only creates exclusive rights for the state and/or its people, but it obliges government to exercise its permanent ownership of these natural endowments in the best interest of the people of Namibia.
Article 100 should be read in tandem 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 - the regime of 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 living for all Namibians.
From a mining law perspective, the primary legislation through which the state regulates the Namibian mining industry is the Minerals (Prospecting and Mining) Act, Act No. 33 of 1992 (Minerals Act). This Act makes it possible for private and public entities to acquire, through the Minister of Mines and Energy, licenses and claims, so as to gain access to the minerals. However, it is a prescription of the law that an environmental clearance certificate precedes any 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 creating an investment-friendly environment and achieve its developmental goals of economic, political or social nature, Namibia ought to be cognizant of its obligations under its own law and international law.
BALANCING DOMESTIC AND FOREIGN INTERESTS
As alluded to earlier, the Constitution vests in the state exclusive rights of ownership over minerals, and obligates government 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, albeit a complete synchronisation of the two might prove impossible.
In terms of Article 23(2) and 95(a) of the Constitution, government has a mandate to enact laws aimed at arresting the social inequalities and economic imbalances perpetrated by the colonial regimes. It was pursuant thereto that the Foreign Investment Act 1990, Affirmative Action (Employment) Act 29 of 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 seeking to avail opportunities of socio-economic advancement to previously disadvantaged persons. This is primarily because, 33 years after Independence, Namibia has been described as one of the most unequal societies in the world with only a small faction thereof being in control of the natural resources.
However, despite the progressive nature of the NEEEB, 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 prevalent imbalance in the ownership of natural resources, the government has attempted to ensure that domestic interests in the mining sector are advanced, despite lacking in the capacity and capital departments. Pursuant to the United Nations General Assembly Resolution 37/233/A-E recommendation that the creation of state-owned enterprises could be effective in expediting socio-economic advancement, the Namibian government became equal partners with De Beers in NAMDEB, a company specialising in the production of diamonds.
In the same vein, the Namibian government is a 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.
It has been stated that 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 for safeguarding investor interests. This protection is afforded in terms of the Namibia Investment Promotion Act 9 of 2016 (NIPA) which primarily aims at the promoting sustainable economic growth through the mobilisation of 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 by means influencing, regulating, mediation, distribution, production and, planning of economic activities. This is because a heavy reliance of free market principles can have adverse effect of state participation and the associated benefits. Equally, excessive state participation could culminate in capital scare or capital flight. It follows that sustainable balancing measures be implemented.
CONCLUSION
The marginalisation of indigenous people in many African communities was led by the colonisation thereof. However, upon attaining political independence, most colonies did not address this wealth imbalance as the new governments feared being seen as embarking on retribution missions, which would result in the flight of capital needed for economic recovery.
A number of countries have subsequently embarked on affirmative action programmes, commonly known as economic empowerment policies, to address the imbalances, Namibia wishes to follow suite. 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. writing in his personal capacity.