African Natural Resources: Solving the great conundrum
African Natural Resources: solving the great conundrum. It is now generally accepted that Africa is the richest continent in the world by natural resources but the poorest by bank balance. This “great conundrum” has been made possible by a skewed world economic and political order that ensures that African resources are exploited for a song by multinational companies which leave very little back in Africa for the development of the continent, so little that there is never enough to run the African economies without foreign aid. This month we probe the hows and whys of the great African puzzle of abundant resources in the midst of poverty, and how the continent can rewrite the world economic order by employing a revolutionary way in owning its resources. This lead piece, in our multi-part cover story, is written by New African editor, Baffour Ankomah.
How does it happen – a rich man, super rich in fact in all the resources that create wealth, who is yet poor, living in abject poverty, who, without the grace of alms liberally begged from abroad, which are sometimes stingily given, cannot make ends meet? The richest poor man – how does it happen? The first instinct is to say such a man does not exist, in fact has never existed! But he does! In our era! In the shape of an African continent which, above all continents, is the most richly blessed with the strategic resources that the world economy needs to turn on its axis.
That is the great conundrum of the modern era that Africa will have to collectively solve if there should be any hope for the continent and its future generations.
By dint of Africa’s colonial and post-colonial history, and the refusal of the metropolitan powers to help the continent in a massive way to recover from the horrors of colonialism, as those powers have helped other countries since the Second World War, the continent does not have the requisite capital – human, financial, machinery, and knowhow – to exploit its own natural resources, and thus relies on multinational companies to extract those resources on its behalf – if it is on its behalf.
And this is where the problem lies. Because of the lack of Africa’s own capital to exploit these resources, the multinational companies use the muscle of their capital to bamboozle individual African countries to grant them concessions that, in effect, give the companies a disproportionate, and some say unconscionable, share of the proceeds that accrue from the African resources.
The great sinners in this massive rip-off have been companies in the extractive sector. They use their negotiating skills, honed over decades and centuries, and sometimes with the help of the political and economic muscle of their home countries, to browbeat African governments to sign away mining concessions that ensure that Africans get very little for their God-given resources.
The hows and whys
Take the petroleum sector as an example. Not more than 10% (sometimes as low as 5%) is the average royalty that new African oil producers are given by foreign oil giants who come to exploit the petroleum resources of Africa. The rationale is that the oil giants need that much money (as much as 90% or 95% of the business) over so many years, sometimes two or three decades, in order to recoup the initial financial investment they put into exploration, drilling and production. So though an African country may be seen to be producing oil, only a tiny fraction of the proceeds ever come to the country in the form of royalties and taxes.
This is the situation that so riled The Gambia’s former president, Yahya Jammeh, that he ordered a representative of an American oil giant out of his country and threatened to arrest him if he ever set foot in the country again. As Jammeh explained to New African: “Some of the crimes I am supposed to have committed are to say we are not going to accept 5% from our petroleum resources, and the rest going to the foreign oil companies exploiting our resources.
“But they tell me that other African countries have accepted the 5%, and in fact no African country, except three, gets more than 3% from its minerals. So if other African countries have accepted that ridiculously low percentage, then you must be in the wrong not to accept the same ludicrous deal. To me, any talk about our countries taking a 3% or 5% royalty to exploit our resources is an insult.”
The Gambia’s former president for 19 years went on: “So, they expect me to have diamonds in The Gambia and I go to my people and tell them, ‘Oh don’t worry, we are getting only 5% of what God has given us, and a Western company is getting 95%.’ No, I can’t say that. And so, this is the crime I am supposed to have committed. It’s not only the minerals but also oil.
“But if you look at Dubai in 1990 and the Dubai of today, it’s very different, and the change has come from their oil and gas resources. If you look at Qatar when I went there in 1996 and the Qatar of today, it is completely changed. But you look at some of the oil producing countries in Africa, I won’t name them, it’s a sad story. In fact the irony is that African countries are the richest in mineral resources, but our citizens are the poorest in the world. No, this state of affairs must change.”
This quite revolutionary thought is worth considering and could even be what might bring sanity into the way the foreign companies treat Africa, a treatment that has so far bordered on a mixture of condescension and greed, as Jammeh narrated to New African: “Somebody told me,” he said, “Oh little Gambia, I will give you $400m a year, but that’s too much for a small country. I said, ‘Are you going to give it to me for free’. He said, “No, of course, the oil, your oil’. I said, ‘You want to exploit our oil, and you tell me that giving us $400m a year is too much for The Gambia?’
“The surveys already carried out show that this country has maybe four or five billion barrels of oil and they want to give us only $400m a year, by calculation of a 5% royalty, and even that they say is too much for The Gambia. So who is he to tell us that? The oil belongs to the Gambian people and then he tells me that he is going to give us just 5%. He thought he was doing me a favour, but I told him to go to hell. He didn’t like it, but I told him that if he ever set his foot on Gambian soil again, he would regret it.”
But not many African leaders can say this when offered such paltry percentages for their countries’ resources. Yet when it comes to getting a better deal for natural resources, according to Jammeh, the solution lies in African leadership. “There are some leaders who really fight for their people, and there are those who just say ‘yes sir, yes sir’ to foreign powers,” Jammeh said. “These are the type of leaders we never hear being criticised by the Western media. These are their people!” Now it may not be physical colonisation, but it may be in the exploitation of our mineral resources or whatever, and I find the deals they are offering us insulting. And if you stand up to them, they turn against you and call you a dictator. But it is better to fight for the rights of your people and be called a dictator than being a puppet they will discard when they don’t have any need of you.”
Recalcitrant leaders?
Jammeh’s story is not different from what Liberia’s former president, Charles Taylor, experienced while negotiating for the production of Liberia’s oil. Two years after coming into office in 1997, Taylor ordered a comprehensive aerial survey of Liberia’s mineral resources to be done. The results were quite promising, giving the government the advantage of knowing what minerals the country had, where exactly they were located, and in what quantities.
A few years later, an American oil giant with levers in the top echelons of George W. Bush’s administration came by, wanting to exploit Liberia’s oil, but offering the country 5 cents in every dollar from the proceeds of the oil resources. President Taylor refused to accept the deal but the company pushed and pushed until Taylor was indicted in 2004 to stand trial at the Special Court for Sierra Leone for supporting rebels there.
The American oil giant then offered a carrot to Taylor. “If you give us the rights to exploit Liberia’s oil, we shall protect you from standing trial,” they told him. It was a tempting deal. Taylor’s trial was being pushed from behind the scenes by the US and Britain to get him out of power. He knew it. But the oil deal, at 5 cents in every dollar, was a bad one for the country, so despite his personal liberty now being at stake, Taylor still rejected the oil deal. “Then we can’t help you, Mr President, we can’t protect you,” the American oil giant told him.
In 1997, a not too dissimilar fate had befallen President Pascal Lissouba of Congo Brazzaville. When he came into office in 1992, having been democratically elected, he felt he had the mandate of the people of Congo Brazzaville to renegotiate the oil deal that Western oil giants had given the country under the previous government headed by a military leader.
The country was getting 15% from its oil resources. President Lissouba wanted this to be increased to 33%. All the oil companies were happy with the 33% except one French oil giant, which rushed to Paris and leaned on the government of President Jacques Chirac in a bid to force Lissouba to bend the knee.
In an interview in London in April 1998, President Lissouba told this writer that Jacques Chirac called him from Paris and ordered him to appoint the ex-military leader of the previous government as his vice president and head of the armed forces. This was, however, in contravention of the country’s constitution, and also Lissouba deduced that Chirac wanted to use the ex-military leader to checkmate him in the interest of the French oil company.
When Lissouba told Chirac that the constitution of Congo Brazzaville did not allow for what he was asking for, Lissouba said Chirac, now shrill on the phone, told him point-blank: “Chuck your bloody constitution in the dustbin!”
A few weeks later, Lissouba’s government was no more, overthrown in a “mini civil war” in which the rebel soldiers, allied to the former military leader, he told me, were supported by boats and other logistics offered by the French oil company. It came as no wonder that the rebels brought back the ex-military leader to head the new government, which went on to reduce the 33% oil deal that Lissouba had pressed the multinational companies to pay to 20%. Case closed!
Of course the official reason for the coup was corruption, but if you believe that, you might also believe that pigs can fly! Today, Niger is still producing uranium ore, which is still mined and purchased by the French, but the country has remained one of the poorest in Africa. A classic poverty-in-the-midst-of-plenty situation! This is why President Jammeh of Gambia says he has such a huge problem with the deals being given to Africa by the foreign oil giants. “Of course I do,” he said. “I used to tell the Emir of Qatar that I was competing with him because our countries were both small, but I didn’t know that they had such massive gas deposits which they are now exploiting, and using to improve their lives.
“But we, African leaders, deprive our people of benefiting from their God-given resources because we accept ridiculous deals that prevent us from earning enough to improve the lives of our people. This is the problem. Because if they come and give us 5%, and tell us how much the president is going to get, we agree! But the oil resources do not belong to the president, [they] belong to the people of the Gambia. So I will not accept 5% or 10% on behalf of the Gambian people. If I do accept that ridiculous percentage, what am I going to tell them? That we have 10% and they take 90%?”
Jammeh then did the sums and showed how unfair the 5% deals are. “Today,” he said, “in the case of oil, we know the cost per barrel is $100. So now if you tell me that there are, say, one billion barrels of oil in The Gambia, and you multiply one billion barrels by $100 per barrel, you have $100 billion. And what you used to drill your well and whatever, all the capital expenditure is less than $2bn, so why do you expect me to accept 10% or 5% when it is $2bn you need in maybe five or six years to recoup your capital expenditure. Why would they want me to accept 5% for 35 years, do you understand?”
The other Africa
Unfortunately, not all African leaders have the same perspicacity as Jammeh. In fact sometimes African countries themselves, whether through sheer laziness, corruption, soft-headedness, or pure criminality, just hand over their natural resources to the foreign companies through bad national mining laws that should never be on any country’s statute books.
An example of this was recently “discovered” in Ghana – of all places! In September 2013, Ghana’s parliament suddenly woke up to the fact that the country’s mining law in force since 2003 allows some foreign companies to retain virtually all their earnings in Ghana in offshore accounts.
The Ghana case is so important to the discourse on how Africa can own its resources that it deserves to be retold here at some length. In fact, Dr Tony Aidoo was not the only one stung by the “discovery” of the rip-off. Mike Allen Hamah, Ghana’s former minister for lands and natural resources, blamed the 2003 law, which was an amendment to the country’s Mining and Minerals Law passed in 1986 by the military government headed by Flt-Lt Jerry Rawlings, for “the naked rape of Ghana’s resources”. The question then arose as to why Hamah did nothing about the 2003 law during his tenure as minister for lands and natural resources?
But worse was to come. The Public Accounts Committee (PAC) of Ghana’s Parliament expressed “shock” after “discovering” that mining agreements signed by various Ghanaian governments in the past and ratified by parliament itself were heavily tilted in favour of foreign mining companies. “As much as 100% of earnings from gold mined in Ghana by some foreign companies,” the PAC discovered, “are lodged in offshore accounts. And all this is backed by Ghanaian law!” So, people asked, where was parliament when all this was going on? Surprise, surprise, it is parliament that ratifies the mining agreements before they become law!
The scandal forced the chief executive of Ghana’s Minerals Commission, Ben Aryee, to explain that the situation had arisen because the country’s 1986 Minerals and Mining Law made it possible for a “retention account agreement” to be signed by, and between, the Ministry of Finance and the Bank of Ghana on the one hand, and an applicant mining firm on the other hand.
Ten years after the 1986 law came into force, the “retention agreements” were found to be so distasteful that the “civilian” government of President Rawlings (he had now won democratic elections in 1992 as a retired soldier) was compelled to amend them in 1996 to force, in some cases, 20% of earnings of foreign mining companies to be kept in Ghana. Of all the retention agreements “discovered” in September 2013, one stood out like a sore thumb – and it was with a Canadian mining giant. The agreement allowed the company to keep a full 100% of its earnings in Ghana abroad!
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As one newly elected MP put it: “One of the ‘discovered’ retention agreements, signed on 17 December 2003, was ratified by parliament on 23 December 2003 – in a mere five days! This is curious, because under the parliamentary system, [the] ratification of laws should not happen in five days.”
If this could happen in Ghana, a country said to have grown firm democratic roots in the past 20 years, during which three governments have been changed peacefully in six elections, imagine what goes on in the African countries that do not have Ghana’s “democratic” credentials.
Which makes it imperative that Africa, as a collective, should find an alternative way to control its natural resources. And so far, no better “alternative” way surpasses what Zimbabwe is trying to do via its indigenisation programme, which is aimed at giving the people of Zimbabwe control over their God-given natural resources.
The Zimbabwe example
There is no doubt that if Zimbabwe succeeds in pushing indigenisation to its logical conclusion, it will have a huge impact on how Africa in general does business with its natural resources in the future. Africa can even rewrite the principles of a world economy that has grown fat on cheap resources sourced from Africa and elsewhere in the developing world.
This makes the former South African president, Thabo Mbeki’s recent admonition to Africa not to let Zimbabwe fail in the implementation of its indigenisation programme all the more important. Because of the critical place Zimbabwe’s example has for the future of Africa, it is crucial that we quote liberally here from an Mbeki speech given on 23 August 2013.
He said: “I think we should ask ourselves the question: Why is Zimbabwe such a major issue for some people? Zimbabwe is a small country by any standard; there is no particular reason why Zimbabwe should be a matter to which The New York Times, the London Guardian and whoever else … why are they paying so much attention to Zimbabwe?”
Mbeki answered the question himself by telling a story: “Towards the end of last year [2012],” he said, “they asked me to speak at a conference on Zimbabwe diamonds. So I went, and what surprised me about the conference held at Victoria Falls was that everybody and anybody who has anything to do with diamonds in the world was there. From America, from Israel, from India, from Brussels, everybody! It was not about diamonds in the world, it was about Zimbabwe diamonds! So I was puzzled, saying, but why have they all come?
“Maybe two hours before we left the conference to come back, we sat in a session which was addressed by one of the Indian diamond people. In the course of his presentation, he explained why. He gave an answer to this query in my head. He said in a few years’ time, Zimbabwe would account for 25 per cent of world production of diamonds. So I said, ‘I now understand. I understand why everybody is here’.”
Mbeki also understands well the resistance from the metropolitan powers when a country like Zimbabwe tries other ways to own its resources. According to him, “powerful players” say openly that the Zimbabweans “have set a bad example [with land reform] which we don’t want anybody else in Africa and the rest of the world to follow. So they must pay a price for setting a bad example.”
But bad example for whom? Mbeki responds: “Bad in the instance of the interests of these other people; not bad in terms of the interests of the people of Zimbabwe! So I think this is part of the reason that there is so much attention, globally, on a country in a continent which is actually in itself – never mind the diamonds – not particularly important, but it is important because it is setting in the minds of some a bad example which must be defeated.”
Mbeki then came to the crux of the matter, which has so much bearing on how Africa can own its resources: “I am using all of this talk about Zimbabwe,” he said, “as an example about our continent because [with] all of these things I am saying relating to Zimbabwe, you can find the same [or] similar examples [of] on the continent, but we are not challenging it as intellectuals. We are not challenging a narrative, a perspective about our continent which is wrong and self-serving in terms of the interests of our people.
“The Zimbabweans are now talking about indigenisation and I can see that there is a big storm brewing about indigenisation. But what is wrong about indigenisation? What is wrong with saying: ‘Here we are, as Africans, with all our resources, sure we are ready and very willing to interact with the rest of the world about the exploitation of all these resources, but what is the indigenous benefit from the exploitation of this, and even the control?
“You have seen examples of this, all of us have, when Chinese companies, in terms of all this theory about free markets, have sought to acquire US firms [and] they got prohibited. ‘No, [it is] indigenisation of US intellectual property! We can’t allow it to be owned by the Chinese, so no!’
“So when the Africans say ‘indigenisation’, why is this a strange notion? And yet when we talk about solutions to Africa’s development, one of the issues that we have to address is exactly this indigenisation. How are we utilising our resources to impact positively on African development? I am saying this because I can see that there is a cloud that is building up somewhere on the horizon when Zimbabweans say ‘indigenisation’. But we have to, as intellectuals and thought leaders, address that and say: ‘Yes, indeed as Africans we are concerned about our own renaissance, our own development, and we must as indigenous people make sure that we have control of our development, our future, and that includes our resources. And therefore indigenisation is correct.’ We must demonstrate it even intellectually, which I am quite sure we can.”
If only Africa could have 100 people with the clarity of Mbeki!
Indigenisation the answer
So what is Zimbabwe trying to do? In 2007, President Robert Mugabe, after 27 years in power, suddenly discovered, like the Ghanaian parliament, that the huge natural resources of the country, especially in the mining sector (Zimbabwe is said to be sitting on a “Persian Gulf of strategic minerals of our earth”, in all about 68 known strategic minerals), had been exploited for over a century by foreign-owned companies but very little benefit was accruing to the people. It was the classic African conundrum of poverty in the midst of plenty. Mugabe’s answer to this was an indigenisation and economic empowerment policy in which Zimbabwe as a country would take an active, as opposed to the hitherto passive, participation in the exploitation of its natural resources. This meant Zimbabwe would now take a joint-venture interest in every non-indigenously-owned company in the country with a net value of $1m, by taking 51% shareholding in the companies while the “foreign partners” keep 49%.
The above resources then become the “capital” with which the Zimbabwe nation uses to negotiate for the 51% shareholding in companies, especially in the mining sector, in which “non-indigenous” (or foreign) investors are interested. Thus, instead of the traditional way of allowing foreign-owned companies to exploit the natural resources and pay a royalty to the nation, the Zimbabwean state now takes an active part in the business as a joint partner, in fact the majority-shareholder.
The country then divides the proceeds coming out of its 51% shareholding as follows: 10% goes to the community in which the business (say a mining company) is located. A further 5% goes to the workers in the company, and the remaining 36% goes into a sovereign national fund to be used for the total development of the country, especially the areas which have no companies based there. The communities getting the 10% shares decide what projects are needed in their areas and how to spend the money on the projects. Of course their activities are monitored by two government ministries – the ministries of indigenisation, and environment. The workers who get the 5% shares in their companies are encouraged to put them in pension and other funds, so that from time to time they will get a lump sum each from that investment. So far, the communities that have had money released from their 10% shares are doing well on projects such as building new school blocks, clinics, roads, irrigation schemes, repairing dams, drilling boreholes etc, while big companies like Schweppes and Mikles have given 51% of their shareholding to their workers.
It has been a good start overall, especially in the extractive sector where existing companies have either complied with or are about to comply with the indigenisation law. If Zimbabwe does not relax or get distracted, as African governments are wont to do, and pushes indigenisation to its logical conclusion, in a decade or two from now the business landscape in the country will have changed drastically and other African countries will have a good example to draw on.
In fact, there is a huge potential for indigenisation to become a liberating force not only for Zimbabwe but also for the whole of Africa. This must be what drove ex-President Mbeki to make the passionate plea to Africans everywhere to defend the developments in Zimbabwe. In effect, Mbeki was saying: “Don’t let Zimbabwe fail, because there is something in it for all of us and our future generations.”
And Africa had better listen. Because throughout history, societies have changed through big ideas held and implemented by a few people at the micro level, which later became the norm. Such ideas were usually implemented on a pilot scale before being employed generally. In this context, Zimbabwe has unwittingly become
Africa’s laboratory and sacrificial lamb; and the continent had better not look a gift horse in the mouth.
The challenges
All said and done, Africa must not expect anything to be easy on the “alternative” course. There is bound to be resistance and spoiling tactics by the metropolitan powers and their multinational companies, which have grown used to getting African resources on the cheap. They will do everything in and outside the book to prevent Africa freeing itself from the shackles of the current world economic order.
Which should inspire the Africans to question the motivation of these powers in helping countries such as Germany, Japan, South Korea, Taiwan, Singapore, Malaysia and the others to rise from the ashes of the Second World War and the Cold War, while at the same time frustrating African attempts to be a Japan, South Korea, Germany, Taiwan or even miniature forms of them. Why do they resist or kill African attempts to be like these countries?
At the moment, there is stiff resistance by the metropolitan powers to indigenisation in Zimbabwe. A hefty $1 billion was taken out of the country by investors before the recent elections, which is now making government finances difficult to handle. This is exactly what the Henry Kissinger-inspired American national security memorandum, NSSM 200, of 1974, recommended.
That document, whose aim was to check a so-called uncontrollable growth of the world population from 4 billion to 13 billion by 2000, clearly states that as the West lives off the resources of Africa and other developing countries, a large population in Africa would lead to the Africans controlling their natural resources, and this would have implications for American national interest in the form of the Africans asking for better terms of trade for their resources or using them for themselves. And, this had to be fought!
Thus, if Africa should embark on an “alternative” way, it should not be surprised to find multinational companies refusing to invest or threatening to pull out of Africa, a horror that orthodox economists and other like-minded Africans will recommend that the continent should avoid, especially in this day and age where capital has many places to fly to. But if Africa collectively stands its ground and acts in the manner suggested by President Jammeh and Dr Tony Aidoo of Ghana – namely, letting the resources remain in the ground – the multinational companies will come willy-nilly, if indeed the majority of the world’s natural resources are in Africa. Besides, the current generation of Africans will have to learn to sacrifice for the economic emancipation of the continent and its teeming generations yet unborn. After all, if the resources are exploited today at a 3% royalty, we get basically nothing and remain poor; and if they are not exploited we get nothing, but at least we will know that there is some capital in the ground to be inherited by our sons and daughters who will some day be able to exploit them.
This is why Africa will have to listen to ex-President Mbeki about the metropolitan resistance to African progress. He said on 23 August 2013: “As you can see, I get very, very agitated about Zimbabwe, because it’s very, very clear that the offensive against Zimbabwe is an offensive against the rest of the continent…
“That offensive is not in the first instance about Zimbabwe, it’s about the future of our continent. So the Zimbabweans have been in the frontline in terms of defending our right as Africans to determine our future, and they are paying a price for that. I think it is our responsibility as African intellectuals to join them, the Zimbabweans, to say ‘No’! We have a common responsibility as Africans to determine our destiny and are quite ready to stand up against anybody else who thinks [otherwise]. We stand up as Africans to say [there must be] an end, and really an end, to [the] contempt for African thought! We have to. If we don’t, Africa will never be able to own its own resources.”
Source: New African|| By Baffour Ankomah
Originally appeared in New African Magazine. Read the original article here
This is really good and important for all African States. I recommend indigenisation for all African States.