Abstract

Sponsors and investors in the resources sector have to pursue resources projects wherever they exist, and must therefore contend with the laws, regulations and socio-economic conditions of the resource host nations. Natural resources form part of the real wealth of nations, from which other forms of capital are made (OECD, 2011). In resource economies, the capital intensity of these projects often necessitates the introduction of private capital. While the need for this capital is generally accepted as necessary, there is contestation as to the extent to which this introduction of capital should confer a right of ownership to the resources. This contestation is often linked to the concept of resource nationalism. Resource nationalism is the discourse about how a state and its citizens should manage and distribute profits derived from natural resources (Koch and Perrault, 2018). In this context, the state exerts its influence primarily through the implementation of legislation, the extraction of rents such as royalties, and the imposition of taxes. The influence exerted by the citizens can range widely from popular protest (Dunai and Hume, 2021) to localised mass action. The pressure from the citizens is also seeing greater translation into legislation as the risk of incumbent political formations losing power to so called populist leaders becomes more acute (Myadar and Jackson, 2018). Leading indicators of resource nationalism often include periods of significant fiscal deficits in host nations along with high commodity prices making the resources sector an appealing avenue to extract revenues. The recent recessions of 2020 and significant governmental spending in response to COVID-19 may present such leading indicators of another cycle of resource nationalist policies. Investors often treat the capital outlay required to meet the expectations of the state and the citizens as a cost in their contemplation of the economic viability of a project. This treatment may assume that the citizens have no means of independently providing capital to the project, which saddles the investors with the dilutive financial burden of facilitating this participation. The last decade has seen an increase in the use of alternative instruments of funding for resources projects. This increase, linked to the cyclicality of resources, is also reflected in a relative reduction of traditional debt and equity providers, and an increase in private capital such as sovereign wealth funds and family offices (González-Ruiz, Mejia-Escobar and Franco-Sepúlveda, 2021). Alternative funding instruments could potentially present an opportunity for the participation of citizens to be separately funded rather than facilitated as a cost of the project, thus achieving the objectives of the state, while enhancing the attractiveness of projects to investors. This study aims to answer the following primary research question: can alternative funding instruments be used to provide dedicated capital for the participation of a nation’s citizens without materially reducing the economic attractiveness for investors.