Copyright The Independent
Monday, 16 November 2009
For the past few months Guinea has been ruled by a young army captain who led a
successful coup. Not that you’d necessarily know about it: the regime has only
hit the world news twice. The first time was for shooting 150 pro-democracy
demonstrators: international protest at this abuse has now escalated into an
arms embargo. The second time was when the regime signed a $7bn
resource-extraction deal with the Chinese. This infusion of money has made a
mockery of international pressure.
But to grasp the deeper affront, the sheer scale of the deal must be
appreciated. Guinea is currently a no-go area for reputable resource-extraction
companies and so the Chinese faced no competition. If under these conditions
they are prepared to pay $7bn for the rights to resource extraction, it is
reasonable to suppose that they are worth much more. Yet the national income of
Guinea is only $3bn. These natural assets, vast relative to its income, were the
society’s lifeline out of poverty. They have been disposed of in haste by a
regime without legitimacy.
Guinea is an extreme instance, but the disregard of the Chinese for standards of
governance in winning resource-extraction contracts has become a leitmotif. The
result has been not only a scramble for Africa, but a race back to the bottom.
After decades of shaming behaviour, by the Millennium the major
resource-extraction companies of the OECD were being pressured into decency.
New legislation across the OECD ensured that if they bribed, they committed a
criminal offence within their home country. They became subject to scrutiny
from NGOs. New awareness among young people ensured that employees expected
their companies to behave in a socially responsible manner.
The Extractive Industries Transparency Initiative (EITI), launched in 2003,
rapidly gained over 30 signatories from governments and companies committed to
transparent reporting of their activities. China is not party to the EITI and
so has a massive competitive advantage over firms constrained by honesty.
Yet Chinese involvement in African resource extraction can be a force for good.
They have provided a welcome infusion of competition, raising prices for
African resources and reducing prices for the construction projects on which
many Chinese firms now bid. The Chinese innovation of offering a package of
infrastructure in return for extraction rights can also be socially useful. It
ensures that the natural assets are replaced by some other asset instead of
being used exclusively for consumption.
Resource extraction in Africa has been problematic because of the way in which
the rights to extract natural resources have been sold, and because African
governments have not been sufficiently accountable to their citizens. Wherever
rights are sold through secret bilateral negotiations, the outcome is suspect
due to problems of agency and asymmetric information. The agency problem is
that the citizens who are the rightful owners of the rights to natural assets
cannot adequately control their political representatives who conduct the
negotiation. The information problem is that companies know far better than
governments what extraction rights are worth. There is a simple solution to
these problems: auctions between informed bidders, properly verified, are not
subject to corruption and reveal fair value.
Addressing the lack of accountability of government to citizen is more
difficult. Elections are not enough: typically in resource-rich countries they
work very badly as politicians divert resource revenues to finance the
patronage systems that keep them in power. Citizens need to understand the
chain of decisions involved in harnessing natural assets for development. New
technology has made the information problem less daunting.
Historically, Africa’s natural resources have been plundered. The few have
stolen from the many, and the present has stolen from the future. The foreign
companies and governments that extract Africa’s resources in circumstances in
which the revenues are unlikely to benefit ordinary people, alive and to come,
connive at plunder. By any reasonable assessment that is what the Chinese have
done in Guinea. In all African societies there are brave people struggling for
change: 150 of them were just murdered in Guinea. The international community
has a responsibility to ensure that their bravery is not in vain.
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Copyright The Independent