This post is prompted by an otherwise inspiring story about a Ugandan man who set up an essential medicines factory in his country despite the many odds.
The buzzword in many African business and development circles is public-private partnerships. In time I'll blog about formal partnerships, which are mostly project-specific. But what follows are some brief thoughts about a related vital issue: relations between business and government -- the scope for better (but appropriate) channels of communication to unlock growth, development and conservation potential, and the pitfalls where these channels are too narrow, too wide, or not transparent.
In most settings I've experienced, the balance is off. Business either has 'too much' access to government, or too little.
My last blog was on The Times CEO Summit Africa. On one panel -- intended to illustrate the dynamism and promise of African entrepreneurship -- I heard Ugandan businessman Emmanuel Katongole speak about the challenges he faced setting up a local factory (with India-based partners) to manufacture anti-malarial and anti-retroviral medicines -- a tale of perseverence and patience. He described how prospects were grim until he eventually managed to see the country's president, Yoweri Museveni, who helped things happen. But while others at my table were impressed by the businessman getting presidential access and approval, part of me was stunned that it took a one-to-one meeting with the head of state before a man could build a small factory. Granted, Katongole needed to lock-in assurance that the Ugandan government would buy locally-made drugs. But if intended to illustrate entrepreneurship in Africa, it instead left one wondering how no-one else at the summit remarked on how odd it was that a man must meet the president himself before a small private business can contribute to a big public goal.
The point here is that across the region I cover, one is often confronted by extremes: either business finds government unresponsive, inaccessible and unimaginative (it often finds it hostile, parasitic or predatory too, but that's another issue); the result is often that opportunities go unmet to generate and implement ideas on where business and government can work together to address economic exclusion, poverty, insecurity, corruption or environmental harm. Or -- the opposite extreme -- some businesses enjoy unreasonably ready access to senior public decision-makers, but in channels and forums that are hidden from scrutiny.
(I put South Africa aside -- in my day job I focus a lot on Business Unity South Africa, the new Black Business Council and the challenges of business-government relations even on issues -- such as addressing young people's job-creation aspirations -- where their interests are in large part identical. In SA, racial legacy issues, among other things, continue to complicate business representation / umbrella groups.)
One shouldn't need presidential meetings to start a firm that can 'do well while doing good'; but also -- arguably -- it is alarming if some businesspeople can speak to the president while others cannot get a meeting with their local council official (*). Perhaps I'm naive -- business and government are either too close or too distant, whether one is in Dakar or DC, Lubumbashi or London.
In some settings, I don't think it necessarily inappropriate if big business has very close contact with the leadership of host governments. If a lone mining firm is prepared to risk entering an unstable post-conflict setting and develop resources that might kickstart wider recovery, it is understandable that they work closely with national leaders (of course, there are many caveats and risks here - especially where one is dealing with transitional unelected post-conflict administrations).
But given the amount of interest these days in the private sector's role in partnering government in Africa, there needs to be more attention to achieving the right balance between government that is unresponsive to business, and too 'responsive' -- to the detriment of other businesses and the wider public interest.
It is easy for critics to say that outfits like the US-based CIPE spread a gospel of market democracy that may be inappropriate for host societies or a front for building markets for Western firms. One should also be cautious about whether 'business' is a subset of 'civil society' or a different kind of actor alongside government and civil society. But at some level those like CIPE working to increase the capacity of local business to make itself heard by policymakers are involved in just as worthy an activity as those working to strengthen the independent media or other social watchdogs: where the private sector has appropriate regularised access to and influence on government, it can be one important source of demand or oversight on issues such as corruption. This may especially be the case where, as in much of sub-Saharan Africa, government or civil society capacity is weak.
There will always be a need to guard against proper input becoming improper influence, but donors and others should consider more support to inclusive, transparent business umbrella groups potential as contributors to good governance and developmental decision-making momentum. For the same reason it makes no sense -- as my doctoral research covered -- for African government officials or donor governments to hold extensive dialogue with often small NGOs while ignoring or avoiding business actors that may have a far greater local footprint (for better or worse), greater long-term stake in governance and stability, and greater understanding of what is needed to build peaceful and prosperous societies.
Jo
* I certainly don't intend to imply that Katongole benefited from improper proximity to the president: in his case it seems more about sheer persistence, but the point stands.
Saturday, 14 April 2012
Monday, 19 March 2012
Resource nationalism: hardly the 'end of history'
Today was quite a day -- I'm going to namedrop: politicians (Blair, Obasanjo, Tsvangirai, Mandelson) and businesspeople (Ivan Glasenberg, Xavier Rolet, Tidjane Thiam) - and that curious mix of both, Cyril Ramaphosa.
Today I sat at The Savoy, London (as one does on a Monday morning ...) agreeing with most of what former prime minister Tony Blair was saying opening The Times CEO Summit Africa. I say 'most' because he suggested that Africa had 'moved on' from global ideological debates about Left or Right; his view seemed to be that it was now clear to all what are the correct policy prescriptions in African countries, and it is now merely a matter of these being implemented. Africa, he said, is in a 'post-ideological' age...
Mr Blair of course is -- with great respect to him -- surely wrong. Like many at today's event he spoke of public-private partnerships as the solution to unlocking Africa's growth and development potential. But there is nothing ideology-free about the concept -- just ask unions in South Africa (or whatever still-crystalising force takes up the current slack on the Left of politics there); and if Africa's growth story is 'post-ideological', no-one has told South Africa's cabinet (let alone its wider society), which is still struggling for some coherent consensus on what are the appropriate / ideal relative roles for government and the private sector in meeting economic and development challenges, imperatives and aspirations.
The issue is wider than South Africa -- or Africa, as indeed was illustrated in a panel debate, soon after Mr Blair's talk, discussing the issue of 'resource nationalism'. Wherever significant natural resources are at stake, the terms on which these are extracted (etc) inevitably gives rise to large, difficult questions about the relative roles of the host state and foreign firms (some state-owned) -- how national wealth is developed inherently involves deeply ideological preferences and orientations.
For long-term investors it may be healthier if debates about the role of foreign investment or private capital take place in host societies (even if this causes discomfort or even some disinvestment) than that we pretend that business and development (which overlap when it comes to natural resource sectors) take place in some 'post-ideological' space -- only for the tide of history to take everyone by surprise.
Host governments will continue to struggle to articulate the role that private investors play in national development; corporates will continue to wrestle with when and how to become overtly or explicitly involved not only in developmental activities but also societal debates about their own role in countries where the overall ideological agenda remains contested. It remains contested precisely because we have not seen the end of history and universalisation of some final ideal form of human government.
(We did the briefing book for today's CEO summit -- here -- and I wrote a blog today for 'Business Africa' on the summit, including discussion of mining firms' relations with local informal mining communities in Africa -- here).
Jo
Today I sat at The Savoy, London (as one does on a Monday morning ...) agreeing with most of what former prime minister Tony Blair was saying opening The Times CEO Summit Africa. I say 'most' because he suggested that Africa had 'moved on' from global ideological debates about Left or Right; his view seemed to be that it was now clear to all what are the correct policy prescriptions in African countries, and it is now merely a matter of these being implemented. Africa, he said, is in a 'post-ideological' age...
Mr Blair of course is -- with great respect to him -- surely wrong. Like many at today's event he spoke of public-private partnerships as the solution to unlocking Africa's growth and development potential. But there is nothing ideology-free about the concept -- just ask unions in South Africa (or whatever still-crystalising force takes up the current slack on the Left of politics there); and if Africa's growth story is 'post-ideological', no-one has told South Africa's cabinet (let alone its wider society), which is still struggling for some coherent consensus on what are the appropriate / ideal relative roles for government and the private sector in meeting economic and development challenges, imperatives and aspirations.
The issue is wider than South Africa -- or Africa, as indeed was illustrated in a panel debate, soon after Mr Blair's talk, discussing the issue of 'resource nationalism'. Wherever significant natural resources are at stake, the terms on which these are extracted (etc) inevitably gives rise to large, difficult questions about the relative roles of the host state and foreign firms (some state-owned) -- how national wealth is developed inherently involves deeply ideological preferences and orientations.
For long-term investors it may be healthier if debates about the role of foreign investment or private capital take place in host societies (even if this causes discomfort or even some disinvestment) than that we pretend that business and development (which overlap when it comes to natural resource sectors) take place in some 'post-ideological' space -- only for the tide of history to take everyone by surprise.
Host governments will continue to struggle to articulate the role that private investors play in national development; corporates will continue to wrestle with when and how to become overtly or explicitly involved not only in developmental activities but also societal debates about their own role in countries where the overall ideological agenda remains contested. It remains contested precisely because we have not seen the end of history and universalisation of some final ideal form of human government.
(We did the briefing book for today's CEO summit -- here -- and I wrote a blog today for 'Business Africa' on the summit, including discussion of mining firms' relations with local informal mining communities in Africa -- here).
Jo
Friday, 2 March 2012
'Corporate foreign policy'
What do cranes, social media firms, lethal injection formulas, foreign investment in mobile phone companies and Coca-Cola factories have in common?
Last month marked the symbolic anniversary of the ‘Arab Spring’. If the geopolitical events of 2011 have shown global firms and brands anything, it may be the significance of having a coherent principled position explaining where they stand when bigger issues -- democracy, human rights, human security, and the rule of law -- are acutely at stake.
That is, such firms increasingly need a ‘corporate foreign policy’: not just a strategy for operating in various countries -- aside from contingency plans, firms always need to negotiate and sometimes compromise with host governments -- but a considered and clearly communicable position on where they stand should great controversy arise, or good conscience lay some claim.
These dilemmas are particularly acute in countries with weaker democratic credentials, but many firms respond in an ad hoc fashion, risking either their reputation with customers or their relations with governments, or both. This is an interesting and evolving aspect of the work we’re developing, and the subject of an unpublished paper by Prof Tim Fort and my colleague Dr Stephanie Hare. They focus on the choices faced by internet and social media companies -- whose services are used by activist, opposition and civil society groups as a platform for protest and publicity -- when governments seek to close down such virtual (and often virtuous) public spaces:
CARS AND CRANES
I’ve been meaning to blog on this for months...:
The jurisprudence on these issues is vast and complex, and they're covered exhaustively elsewhere. For many firms, the practical prospective question is how to avoid incurring liability at all -- whether in some future court, or in the court of general public opinion, where corporate reputations are made and lost.
Recently, US states that apply the death penalty turned to Danish chemicals firm Lundbeck AS for supplies of sodium pentobarbital and other chemicals used in lethal injections after the British government barred its firms exporting chemicals for such use. Lundbeck requested US authorities not to use its products thus, but argued that it was impractical for it to boycott certain markets (trace how its chemicals are used). The point here is mainly that Lundbeck staff probably had no sense that they would suddenly be thrust in the spotlight, or a thorough policy position on the death penalty.
A more recent prompt for finally penning this blog also concerns the death penalty. It was seeing a photo in the Sunday Times of February 26 showing a public hanging in Iran: a man dangling from a commercial crane arm. In the context of concerns about the Iranian penal system, the practice of using cranes for state executions there has forced foreign crane-building firms to reconsider Iran as an export market.
SOUTH AFRICA TO SWAZILAND
The issue has already arisen twice this year in the region I cover most closely, southern Africa:
Both MTN and Coca-Cola are no strangers to the challenges of operating in a wide range of places with all manner of host governments. MTN vigorously denies any wrongdoing, and Coke’s Swazi operations support livelihoods for many locals at a time of particular economic hardship in the kingdom; operating there requires cordial relations with the royal household (and can conceivably enable a moderating influence on regime conduct). The cases don’t so much say anything about the particular firms as they do about the significance of firms ensuring they accept (and can readily and persuasively explain) the reputational and other risks they run by choosing to operate wherever they do. Things can change quickly in hitherto peaceful investment climates.
POLICYMAKERS?
There is a somewhat troubling dimension -- a theme mentioned in my first ever blog -- to the ‘corporate foreign policy’ idea: isn’t part of the concern that the private sector already has too much influence on government policy in ways that the public does not always see or understand? On a strict view, elected governments make ‘policy’ -- corporations have business strategies. Also, giving ‘corporate foreign policy’ a name should not obscure that many global firms have wrestled with these issues for decades (as indeed the apartheid divestment campaigns in the 1980s showed).
But what we’re talking about here is globally-operating firms (especially brand-sensitive ones) thinking strategically about what their position is, and should be, on controversial positions taken by foreign governments in countries in which they operate; many of these will not be democratic countries in the above pure policymaking sense. And while these dilemmas are not new ones for companies, the instant / social / mobile media age increases the fallout radius and urgency of corporate ‘foreign policy’ foul-ups.
Global brands are operating in ‘the worthiness age’ (see Bassi et al’s Good Company, BK, 2011). It is one reason for setting up this blog; so while it is important to monitor inappropriate blurring of corporate and governmental foreign policy, the more firms that adopt a considered view of their operations and attempt worthy outcomes, the better. And it feels good to advise those firms open to asking these questions.
Jo Ford
Ps – I note that a blog called ‘corporate foreign policy’ exists, although I don’t necessarily agree with all its views.
Last month marked the symbolic anniversary of the ‘Arab Spring’. If the geopolitical events of 2011 have shown global firms and brands anything, it may be the significance of having a coherent principled position explaining where they stand when bigger issues -- democracy, human rights, human security, and the rule of law -- are acutely at stake.
That is, such firms increasingly need a ‘corporate foreign policy’: not just a strategy for operating in various countries -- aside from contingency plans, firms always need to negotiate and sometimes compromise with host governments -- but a considered and clearly communicable position on where they stand should great controversy arise, or good conscience lay some claim.
These dilemmas are particularly acute in countries with weaker democratic credentials, but many firms respond in an ad hoc fashion, risking either their reputation with customers or their relations with governments, or both. This is an interesting and evolving aspect of the work we’re developing, and the subject of an unpublished paper by Prof Tim Fort and my colleague Dr Stephanie Hare. They focus on the choices faced by internet and social media companies -- whose services are used by activist, opposition and civil society groups as a platform for protest and publicity -- when governments seek to close down such virtual (and often virtuous) public spaces:
- They document how Google coded a ‘speak to tweet’ application for Twitter, a notable part of the social protests, while Facebook carried postings of text and images from protesters in Cairo’s Tahrir Square.
- They contrast Vodafone and France Telecom, who complied with government requests to shut down their network, and later re-opened the network, allowing the government to send mass text messages to customers of these networks, attempting (unsuccessfully) to counter protest sentiment.
CARS AND CRANES
I’ve been meaning to blog on this for months...:
· Then yesterday came a report that General Motors has settled a civil suit brought in the US as part of the long-running ‘apartheid reparations’ set of cases by South African claimants. These groups allege that major companies which did not sever commercial relations with the apartheid regime ought to be considered liable for human rights abuses committed by the South African government, including on the basis that their operations helped the state self-finance.
· This week too the US Supreme Court has been hearing arguments in the Ogoniland (Nigeria) cases of whether a corporation (there, Shell) can be held liable for human rights violations under a US statute giving jurisdiction in US courts for civil wrongs committed in violation of international law -- such as torture -- wherever these occur.
The jurisprudence on these issues is vast and complex, and they're covered exhaustively elsewhere. For many firms, the practical prospective question is how to avoid incurring liability at all -- whether in some future court, or in the court of general public opinion, where corporate reputations are made and lost.
Recently, US states that apply the death penalty turned to Danish chemicals firm Lundbeck AS for supplies of sodium pentobarbital and other chemicals used in lethal injections after the British government barred its firms exporting chemicals for such use. Lundbeck requested US authorities not to use its products thus, but argued that it was impractical for it to boycott certain markets (trace how its chemicals are used). The point here is mainly that Lundbeck staff probably had no sense that they would suddenly be thrust in the spotlight, or a thorough policy position on the death penalty.
A more recent prompt for finally penning this blog also concerns the death penalty. It was seeing a photo in the Sunday Times of February 26 showing a public hanging in Iran: a man dangling from a commercial crane arm. In the context of concerns about the Iranian penal system, the practice of using cranes for state executions there has forced foreign crane-building firms to reconsider Iran as an export market.
SOUTH AFRICA TO SWAZILAND
The issue has already arisen twice this year in the region I cover most closely, southern Africa:
· Among Coca-Cola’s largest bottling operations in Africa is its Swaziland one. When the firm ran a birthday message for King Mswati III -- the continent’s last absolute monarch -- exiled Swazi democracy activists criticised its perceived explicit support for the king during ongoing suppression of free political activity in Swaziland.
· South Africa’s continentally-active mobile phone firm MTN is now in the spotlight on allegations that in order to win a tender for running a state-owned phone network in Iran, it sought to influence the South African state’s foreign policy position on Iran in the UN Security Council and elsewhere. A defeated Turkish bidding firm made the allegation that MTN asked Pretoria to ensure a relatively soft stance was taken on nuclear and other issues.
Both MTN and Coca-Cola are no strangers to the challenges of operating in a wide range of places with all manner of host governments. MTN vigorously denies any wrongdoing, and Coke’s Swazi operations support livelihoods for many locals at a time of particular economic hardship in the kingdom; operating there requires cordial relations with the royal household (and can conceivably enable a moderating influence on regime conduct). The cases don’t so much say anything about the particular firms as they do about the significance of firms ensuring they accept (and can readily and persuasively explain) the reputational and other risks they run by choosing to operate wherever they do. Things can change quickly in hitherto peaceful investment climates.
POLICYMAKERS?
There is a somewhat troubling dimension -- a theme mentioned in my first ever blog -- to the ‘corporate foreign policy’ idea: isn’t part of the concern that the private sector already has too much influence on government policy in ways that the public does not always see or understand? On a strict view, elected governments make ‘policy’ -- corporations have business strategies. Also, giving ‘corporate foreign policy’ a name should not obscure that many global firms have wrestled with these issues for decades (as indeed the apartheid divestment campaigns in the 1980s showed).
But what we’re talking about here is globally-operating firms (especially brand-sensitive ones) thinking strategically about what their position is, and should be, on controversial positions taken by foreign governments in countries in which they operate; many of these will not be democratic countries in the above pure policymaking sense. And while these dilemmas are not new ones for companies, the instant / social / mobile media age increases the fallout radius and urgency of corporate ‘foreign policy’ foul-ups.
Global brands are operating in ‘the worthiness age’ (see Bassi et al’s Good Company, BK, 2011). It is one reason for setting up this blog; so while it is important to monitor inappropriate blurring of corporate and governmental foreign policy, the more firms that adopt a considered view of their operations and attempt worthy outcomes, the better. And it feels good to advise those firms open to asking these questions.
Jo Ford
Ps – I note that a blog called ‘corporate foreign policy’ exists, although I don’t necessarily agree with all its views.
Thursday, 22 December 2011
Resource nationalism and risk
This year a lot of my work has been helping firms navigate and anticipate the demands of governments and/or communities in African countries for a greater stake in natural resource projects -- mainly mining.
It's made me wonder about how we tend to think about 'political risk'.
The term one often hears with clients facing these demands is 'resource nationalism'. Now, the term is not particularly helpful: such demands partly reflect cyclical patterns (much of the 2000s was a commodities price boom), and so its hardly surprising that from Australia to Zimbabwe there'll be some seeking to re-adjust relationships for more favourable terms; the phenomenon is not limited to emerging or developing economies; and where a country's strategic longer-term interests are involved the term 'nationalism' seems pejorative, whereas its perhaps only natural that sovereigns move to protect their resources...
Also, the term is unhelpful because it suggests radical postures like the outright nationalisation of sectors experienced in Africa and Latin America in the late 1960s and 1970s (and sometimes since). Whereas what we see in the recent actions of governments such as those in Zambia, Namibia or Guinea may alarm investors and threaten margins and contradict existing agreements, but are not necessarily tantamount to expropriation or nationalisation. As I suggest below, in some cases we can understand these moves as mitigating, not increasing, longer-term investor risk.
I recently came across an in-house report from October 2005. At the time South Africa's parliament was considering a law compelling firms to process a portion of rough diamonds locally, in order to create more jobs. The report's title was 'Diamond law raises nationalisation fears'. But it struck me as wrongly stated: regulation like that makes full-scale nationalisation or other radical future action less likely, not more so.
In some cases -- Guinea is a good example -- new mining codes and revenue arrangements simply reflect a somewhat understandable readjustment of terms by newly-elected or post-conflict governments (facing huge development challenges and revenue shortfalls) after a generation or more in which unaccountable administrations did not necessarily pursue the wider national public interest in negotiating terms for the extraction of finite mineral resources, or were weakly placed to do this.
Sometimes 'resource nationalism' reflects nothing more than popular demand to see a greater share of natural resource wealth benefit the host country or community. Of course, the dynamic is open to abuse: Zimbabwe's indigenisation laws are an example of very small numbers of political actors using 'national entitlement' discourse to enrich their person or party; some accuse the ANC Youth League in South Africa of promoting mines nationalisation in recent years -- by invoking historic demands to ensure mineral wealth benefits 'the people' -- merely as a means to get the state to bail out distressed black empowerment investors.
However, in Zimbabwe's case the hijacking of indigenisation for political ends should not obscure how the notion that foreign investors should yield a greater share or show tangible livelihoods gains is a popular one in countries with high youth unemployment and levels of poverty. So on one level the term 'nationalism' is, after all, apposite to what is going on in many African mining jurisdictions, in the sense that it involves emotional issues as much as rational ones.
South African business leader Bobby Godsell was right when he said that ANC Youth League leader Julius Malema -- who has driven nationalisation calls there -- was giving some very bad answers to some very good questions. [See my subsequent post elsewhere on this: here].
One of the questions is 'how do we reach a proper balance between what is commercially viable in private sector investment, and what is publicly credible for communities increasingly conscious of the value of what lies beneath their soil?' These are difficult questions -- for one thing, South Africa's case is scarcely analogous to Guinea, or anywhere else -- but I wonder if many investors have misconceived political risk when it comes to the principle of the state taking a bigger stake in extractive projects. In the short term, such moves are ostensibly alarming. In the longer-term, when the state (and workers or communities) have a stake in a firm's success it can help stabilise the whole investment, grounding and legitimising it; the state then becomes a partner in the project in a more meaningful way, and when faced with local demands the firm can point locals to the government for answers, rather than dealing with creeping high expectations alone.
So when executives react to the state making noises about, say, a 'free' 10% stake in new exploration projects as indicating 'political risk', I sometimes wonder whether it isn't more risk-laden to believe one can enter on easy terms only to wake up three to five years into a project with the state demanding it all be renegotiated.
I often think that mining executives who 'high-five' each other for securing a good deal from an African mining jurisdiction might be unaware that there is such thing, in my mind, as a deal that is too good. If its terms seem very favourable but insufficiently match the local public interest, it seems almost inevitable that there'll be pressure to revisit the whole deal structure. Predictability is of high value in mining. In the longer term, a 'good' deal may be one that makes it very hard for even a populist government to justify alterations.
That is, one cannot guarantee everything and prevent every eventuality; but one can safeguard longer-term moves by narrowing the grounds on which host publics and governments can claim to not be getting a fair deal. Fairness may sound like tree-hugging in the hard world of mining. But a clear-eyed view of risk will often tell one that it is implicit in bargaining. Even Zimbabwe's self-interested ministers find it hard to sustain demands that are unfair for firms; but firms feel very exposed without being able to point to fair terms.
Renegotiation of terms can provide opportunities for firms (and others) to promote revenue transparency or tie further payments to improving social or national infrastructure -- perhaps providing greater insulation from accusations of extracting without truly investing.
Practical, country-specific manifestations of broader 'resource nationalism' ideas and trends are a big part of my 'day job', but also at the heart of what it means for the private sector to operate in an increasingly public world...
It's made me wonder about how we tend to think about 'political risk'.
The term one often hears with clients facing these demands is 'resource nationalism'. Now, the term is not particularly helpful: such demands partly reflect cyclical patterns (much of the 2000s was a commodities price boom), and so its hardly surprising that from Australia to Zimbabwe there'll be some seeking to re-adjust relationships for more favourable terms; the phenomenon is not limited to emerging or developing economies; and where a country's strategic longer-term interests are involved the term 'nationalism' seems pejorative, whereas its perhaps only natural that sovereigns move to protect their resources...
Also, the term is unhelpful because it suggests radical postures like the outright nationalisation of sectors experienced in Africa and Latin America in the late 1960s and 1970s (and sometimes since). Whereas what we see in the recent actions of governments such as those in Zambia, Namibia or Guinea may alarm investors and threaten margins and contradict existing agreements, but are not necessarily tantamount to expropriation or nationalisation. As I suggest below, in some cases we can understand these moves as mitigating, not increasing, longer-term investor risk.
I recently came across an in-house report from October 2005. At the time South Africa's parliament was considering a law compelling firms to process a portion of rough diamonds locally, in order to create more jobs. The report's title was 'Diamond law raises nationalisation fears'. But it struck me as wrongly stated: regulation like that makes full-scale nationalisation or other radical future action less likely, not more so.
In some cases -- Guinea is a good example -- new mining codes and revenue arrangements simply reflect a somewhat understandable readjustment of terms by newly-elected or post-conflict governments (facing huge development challenges and revenue shortfalls) after a generation or more in which unaccountable administrations did not necessarily pursue the wider national public interest in negotiating terms for the extraction of finite mineral resources, or were weakly placed to do this.
Sometimes 'resource nationalism' reflects nothing more than popular demand to see a greater share of natural resource wealth benefit the host country or community. Of course, the dynamic is open to abuse: Zimbabwe's indigenisation laws are an example of very small numbers of political actors using 'national entitlement' discourse to enrich their person or party; some accuse the ANC Youth League in South Africa of promoting mines nationalisation in recent years -- by invoking historic demands to ensure mineral wealth benefits 'the people' -- merely as a means to get the state to bail out distressed black empowerment investors.
However, in Zimbabwe's case the hijacking of indigenisation for political ends should not obscure how the notion that foreign investors should yield a greater share or show tangible livelihoods gains is a popular one in countries with high youth unemployment and levels of poverty. So on one level the term 'nationalism' is, after all, apposite to what is going on in many African mining jurisdictions, in the sense that it involves emotional issues as much as rational ones.
South African business leader Bobby Godsell was right when he said that ANC Youth League leader Julius Malema -- who has driven nationalisation calls there -- was giving some very bad answers to some very good questions. [See my subsequent post elsewhere on this: here].
One of the questions is 'how do we reach a proper balance between what is commercially viable in private sector investment, and what is publicly credible for communities increasingly conscious of the value of what lies beneath their soil?' These are difficult questions -- for one thing, South Africa's case is scarcely analogous to Guinea, or anywhere else -- but I wonder if many investors have misconceived political risk when it comes to the principle of the state taking a bigger stake in extractive projects. In the short term, such moves are ostensibly alarming. In the longer-term, when the state (and workers or communities) have a stake in a firm's success it can help stabilise the whole investment, grounding and legitimising it; the state then becomes a partner in the project in a more meaningful way, and when faced with local demands the firm can point locals to the government for answers, rather than dealing with creeping high expectations alone.
So when executives react to the state making noises about, say, a 'free' 10% stake in new exploration projects as indicating 'political risk', I sometimes wonder whether it isn't more risk-laden to believe one can enter on easy terms only to wake up three to five years into a project with the state demanding it all be renegotiated.
I often think that mining executives who 'high-five' each other for securing a good deal from an African mining jurisdiction might be unaware that there is such thing, in my mind, as a deal that is too good. If its terms seem very favourable but insufficiently match the local public interest, it seems almost inevitable that there'll be pressure to revisit the whole deal structure. Predictability is of high value in mining. In the longer term, a 'good' deal may be one that makes it very hard for even a populist government to justify alterations.
That is, one cannot guarantee everything and prevent every eventuality; but one can safeguard longer-term moves by narrowing the grounds on which host publics and governments can claim to not be getting a fair deal. Fairness may sound like tree-hugging in the hard world of mining. But a clear-eyed view of risk will often tell one that it is implicit in bargaining. Even Zimbabwe's self-interested ministers find it hard to sustain demands that are unfair for firms; but firms feel very exposed without being able to point to fair terms.
Renegotiation of terms can provide opportunities for firms (and others) to promote revenue transparency or tie further payments to improving social or national infrastructure -- perhaps providing greater insulation from accusations of extracting without truly investing.
Practical, country-specific manifestations of broader 'resource nationalism' ideas and trends are a big part of my 'day job', but also at the heart of what it means for the private sector to operate in an increasingly public world...
Wednesday, 7 December 2011
Who regulates who?
This is a lazy post in that it merely draws together three recent posts made elsewhere. They have in common the question of who takes the lead on developing standards and future directions - government, industry or civil society?
The most recent concerns the future of the Kimberley Process in regulating human security and human rights issues in global diamond supply chains. Its short -- here. Concern about the KP can obscure how even if arrangements involving governments fail or fall short, it remains open for buyers, jewelers and others to set more demanding standards (and for consumers to insist on compliance). Not all the regulation that works or matters comes 'top down' from state bodies. Braithwaite and Drahos (2000) convincingly showed how historically much regulation began with guilds and industry associations, and was only subsequently incorporated as legislation -- for example, maritime safety standards were developed by marine insurers in London long before the state became involved. Of course its not that simple in regulating 'conflict' or 'blood' diamonds; for one thing, buyers and consumers are not all equally discerning when it comes to the origin of stones, and collective action problems remain.
The second post -- here -- reflected on South African industry seeking clarity from government on proposed CO2 emissions regulation. Its easy to be naive, but in the tone of some SA business leaders' recent speeches is a sense that industry is not necessarily opposed to regulation, but craves policy certainty to enable long-term transitions to a greener economy -- and the opportunities it may bring. Whether they will self-regulate beyond the minimum required by government is a different question, raising difficult issues of competitiveness for firms -- and the country.
The third post -- here -- deals with this theme only indirectly; but it did try make the point that while much analysis of prospects for growth and development in sub-Saharan Africa focus on the inadequacies of the state, much of what is positive on the continent happens despite -- not because -- of what governments do or don't do.
None of this is to suggest that we be naive about whether business can or will develop adequate social standards without education, encouragement, supervision or sanction; but I thought the three posts touched on a common idea -- government is not the only 'regulator' capable of influencing outcomes, and opportunities are missed by a mentality that waits for its lead.
The most recent concerns the future of the Kimberley Process in regulating human security and human rights issues in global diamond supply chains. Its short -- here. Concern about the KP can obscure how even if arrangements involving governments fail or fall short, it remains open for buyers, jewelers and others to set more demanding standards (and for consumers to insist on compliance). Not all the regulation that works or matters comes 'top down' from state bodies. Braithwaite and Drahos (2000) convincingly showed how historically much regulation began with guilds and industry associations, and was only subsequently incorporated as legislation -- for example, maritime safety standards were developed by marine insurers in London long before the state became involved. Of course its not that simple in regulating 'conflict' or 'blood' diamonds; for one thing, buyers and consumers are not all equally discerning when it comes to the origin of stones, and collective action problems remain.
The second post -- here -- reflected on South African industry seeking clarity from government on proposed CO2 emissions regulation. Its easy to be naive, but in the tone of some SA business leaders' recent speeches is a sense that industry is not necessarily opposed to regulation, but craves policy certainty to enable long-term transitions to a greener economy -- and the opportunities it may bring. Whether they will self-regulate beyond the minimum required by government is a different question, raising difficult issues of competitiveness for firms -- and the country.
The third post -- here -- deals with this theme only indirectly; but it did try make the point that while much analysis of prospects for growth and development in sub-Saharan Africa focus on the inadequacies of the state, much of what is positive on the continent happens despite -- not because -- of what governments do or don't do.
None of this is to suggest that we be naive about whether business can or will develop adequate social standards without education, encouragement, supervision or sanction; but I thought the three posts touched on a common idea -- government is not the only 'regulator' capable of influencing outcomes, and opportunities are missed by a mentality that waits for its lead.
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