Growing geopolitical tension will make it harder for companies to sit on the fence, says risk advisory firm boss

7 Feb 2023

A protracted Russia-Ukraine war and rising China tension with the Global West will force mining companies to make tough choices, according to the CEO of a global risk advisory firm.

Companies are going to find it increasingly difficult to avoid taking sides in Russia’s war against Ukraine and its Western allies, and in the rising tension between China and the West, Jay Truesdale, CEO of the risk advisory firm Veracity Worldwide, told the African Mining Indaba in Cape Town on Tuesday.

He said that mining executives should better understand the changing geopolitical landscape in which they operate and how to anticipate those changes.

Truesdale noted that miners already well understood the risks of a changing global economy and of expanding into new or unfamiliar geographies to satisfy growing appetites around the world for the raw materials needed for a green energy transition.

But now business leaders were also confronting a seismic geopolitical shift, from the relative stability in the international system over many decades, to a much more difficult reality, an interests-based world driven by direct and explicit state-based competition.

To remain competitive, mining companies — especially those occupying strategic sectors exposed to government oversight — had to appreciate how national interests collided, as well as understand the concrete implications of geopolitics for their businesses.

Truesdale said there were two main drivers of the current geopolitical reality.

First, Russia’s war against Ukraine and the resulting Western sanctions against Russia had disrupted supply chains and trade flows, prompting miners to ask if they would have to take sides.

The second driver of change was competition between China and the West, including increasing protectionism and “decoupling”, both of which would be gravely accelerated by any military escalation in the Indo-Pacific.

This had forced businesses to consider how their business models should change to ensure resilience and redundancy.

Truesdale predicted the Russia-Ukraine war would continue through the northern summer of 2023 and beyond, as neither side had yet been able to muster the strength to push forward militarily. Nor was either side ready to negotiate. This was the midpoint of a protracted stalemate.

That stalemate was projected globally, Truesdale suggested.

At least nine of the G20 governments (the “Global West”) seemed intent on maintaining or expanding sanctions. Another nine G20 countries continued to maintain integrated diplomatic and trade relationships with Russia, refusing to condemn Moscow’s invasion and refraining from sanctions.

This had complicated logistics and operations for mining companies, constraining where they could source, process and sell their goods. It had increased shipping and ground transport costs and caused price fluctuations for minerals and related industries, aggravating inflation.

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Increased risk exposure

The Russia-Ukraine war had also increased risk exposure for non-Russian companies operating in states such as Angola, Burkina Faso, Central African Republic, Guinea, Sudan and Zimbabwe, where Russia had significant concessions and an active diplomatic presence.

“Just as G20 countries and governments on the African continent have been forced to reckon with their policy positions on Russia, global mining companies have been asked whether and how they will take a stand.

“Should they affiliate more directly with the group of governments of largely democratic countries — from which capital, shareholders and many executives hail — or find common cause with the latter, more non-aligned group, which includes most African states, that is hedging its bets and making pragmatic moves?”

Truesdale said governments and the public were watching and judging how companies tried to navigate this faultline. Even for an industry which deeply appreciated risk, there were no easy answers.

China’s growing tension with the West was also shaping African mining companies. China was vital for African mining as it was the largest global consumer of key minerals and metals such as iron ore, copper and aluminium. High Chinese demand for African minerals had put pressure on competitor states to secure access to their own supplies of critical mineral reserves.

This competition had led to greater investment, industry growth and economic development in resource-rich countries. In recent years, though, the China-driven growth of mining had been upended by trade wars, as well as the global Covid pandemic, supply chain disruptions for critical inputs such as semiconductors, protectionist industrial policies and insecurity in the Taiwan Strait and broader Indo-Pacific.

Greater competitive pressure

In 2023, African countries and mining companies operating there would experience even greater competitive pressure between the interests of China and the Global West. As each side tried to reduce its reliance on the other, African countries and companies were considering how they could straddle the divide and maintain productive relations with each other.

Some African companies were discreetly establishing commercial partnerships with both the US and China to try to have it both ways because of the greater competition for African minerals and broader interest in the continent’s development.

Truesdale said many African governments hoped they would no longer need to trade strategic access to their resources for major infrastructure. This was especially important, given the backlash in Africa over unaffordable debt-trap projects and investments favouring expatriate jobs.

Mining companies were seen — fairly or not — as extensions of the interests of the countries where they were based “and therefore as players in the geopolitical space”.

And so mining executives should understand that being too aggressive or too cautious in their decisions could increase their risk in the event of a political or economic crisis in the countries where they operate.

Truesdale suggested that making the wrong decision about China-related decoupling could hurt mining companies at critical, early stages of the supply chain.

Overall, Truesdale said it was hard to predict the effects of the Russia-Ukraine war and the competition between China and the Global West. He suggested business leaders could no longer assume, as in the past, that they had limited ability to control events or shape critical relationships to forestall worst-case scenarios.

Given that macro events were growing more severe and more frequent, business executives should take matters into their own hands by gaining a much better understanding of the environments in which they operated and how they might evolve.

He suggested that companies could no longer simply resort to sitting on the fence in all cases.

“Companies can best position themselves in this interests-based world by understanding the implications of taking a stand, and what it means for their business model if relations between the major global powers become more fraught. The pressure to do it is increasing.” DM

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Increased risk exposure

Greater competitive pressure