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Cardozo International & Comparative Law Review

Abstract

Foreign direct investment (FDI) in resource rich nations is typically fostered through concession or development agreements, which enable investors to explore and exploit the host State's natural resources. Under these agreements various incentives are offered to the investor by the host State, so as to attract their capital. However, once the investment is sunk, the investor becomes susceptible to the resource nationalism cycle. Investors are particularly vulnerable when the natural resource experiences a sustained upward trend. In such instances, the host State seeks to maximize the benefits accruingfrom the natural resource. This can either be accomplished through reversing the tax incentives offered to investors or by outright nationalizing their assets.

The cyclical nature of the resource nationalism cycle can be seen in countries like Zambia, which is a monoeconomy that relies primarily on its vast copper reserves. Since the privatization of copper mines in the early 2000s, copper prices have remained relatively mercurial. Since then, the mineral tax regime has undergone many changes.

This article examines the contractual mechanisms that foreign investors insert into concession agreements in order to protect themselves against the resource nationalism cycle. It will begin by giving an overview of the factors contributing to the resource nationalism cycle, using Zambia as a case study. Thereafter, it will look at the various clauses which investors insert into concession agreements, including stabilization clauses, arbitration clauses, and choice of law clauses.

Disciplines

Comparative and Foreign Law | Contracts | International Law | Law | Oil, Gas, and Mineral Law

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