We should exert local control of Africa's natural resources
Jul 04, 2017
The resources of a nation are owned by its peoples who entrust the control of such resources to their governments.
By Jimmy Senteza Ph.D.
Recent comments by President Yoweri Kaguta Museveni during the Tana Forum in Ethiopia echo the mindset that our African bureaucrats ought to take to international investments contracting especially where natural resources are concerned.
According to the Uganda Media Center website, the President is quoted as saying "On issue of mineral resources, my question is who owns the minerals. With petroleum we have production sharing agreements (PSA) … it is not clear what the case is with other minerals including where companies own minerals but governments have royalties." Exerting both ownership and control of the continent's natural resources extraction by African nations are strategically and fundamentally core to these nations' full realization of the emergent benefits that accrue of the resources and long term prospects for economic transformation. Below I use a simple hypothetical case to illustrate this point.
Imagine you own a lease on 300 acres of land that due to its natural aesthetics including weather, terrain, etc. is home to bees that produce some of the most sought after honey in the world. You own and operate a small-scale undertaking that harvests, processes, and markets the honey around East Africa but demand from beyond the region has grown exponentially over the last few years. Recently you were approached by a large international honey processing and packaging company seeking ways to join efforts in developing and marketing the honey. The firm offers you a 20% stake in a new Uganda incorporated entity that would buy your old entity out. The lease would be taken over by the new undertaking but you would retain ownership of the bees due to legal restrictions on ownership of Uganda natural resources by foreigners. The proposed arrangement presents an opportunity of a lifetime, one that will give your firm access to global markets much faster than you could ever dream of. But, at what price, you ask?
At the time of reviewing this offer, your firm's processes are relatively dated but have offered consistent employment to many locals for decades as well as tax revenues to the local and central governments. You are the largest employer in the area hiring hundreds of locals in various capacities in your enterprise abetting the country's employment opportunities. Your firm has sponsored several employees' further education as you seek to build an educated manpower base that will advance current operations but also ascertain the future sustainability of your operations. Two of your sponsored employees asked and you provided seed funding for a research and development facility to support potential improvements in the company's operations. The R&D facility in collaboration with a local university has been instrumental in providing short-term process improvements and skills development workshops for your current and prospective employees. Some trained people have moved on to work in the industry with similar but smaller operations. As the operations have grown, the town adjacent to your firm has grown as well, businesses have moved in and the government has put up schools and hospitals to serve local needs. There is a local soccer team that is named after your firm and one that your firm has supported annually.
What would you do? The answers to this question might be easier for an individual entrepreneur, suppose, however, the bees are on public land just like wildlife at national parks, would you decide differently? What set of interests would you devoutly protect if you were to negotiate the takeover? Several extensions can be made to this hypothetical illustration, ultimately one can intimate quite clearly the direction the new undertaking would take should ownership change hands and you ended up with a 20% stake. This storyline has featured several times across the continent in discussions regarding the extraction of Africa's natural resources such as copper, diamonds, crude oil, cobalt, name it.
Unfortunately time and time again the negotiations have been carried out as if we were being done a favour, thus even though nations retain ownership of the minerals below the ground, control is relinquished at the point of dislodging the ores in amounts at the whim of the extractor. The ore can be shipped in raw form and processed elsewhere and then shipped again as if it were property of the extracting firm. It could be stored in-country until markets are lucrative or sold off to a secondary firm all the while with no role played by the country of origin. The extracting firm can seek a partner; sell its stake off leaving the minority owner with a new unscreened and unknown co-owner.
The DRC, arguably the most natural resource endowed nation in sub-Saharan Africa, has been in international court most recently fighting to have say in co-ownership changes in the joint venture Tenke Fungurume SARL, the world's largest copper mine. At only 20% ownership (down from 40% around 2003), the DRC's minority stake via its national entity Gecamines had limited say in selecting Tenke's new co-owners when US based Freeport-McMoRan (56%) and Canadian Lundin Mining (24%) entered deals to sell their stakes in Tenke Fungurume. Looking at the ownership levels of copper mining firms in the DRC's Katanga Province by western firms (Australian, North American, and European) is sobering exercise worth everyone's indulgence!
The resources of a nation are owned by its peoples who entrust the control of such resources to their governments. This is consistent with UN resolution 1803 (XVII) of 1962 which provides for "the right of people and nations to permanent sovereignty over their natural wealth and resources … exercised in the interest of their national development …" The resolution further provides that "the exploration, development and disposition of such resources, as well as the import of the foreign capital required for these purposes, should be in conformity with the rules and conditions which the peoples and nations freely consider to be necessary or desirable with regard to the authorization, restriction or prohibition of such activities".
Thus ownership of the natural resources in itself is insufficient and must be coupled with control or the ability to direct the activities around the extraction, processing and marketing the resources for sovereign nations to reap the utmost benefits from them. Two other resolutions ratified by the UN in 1974 declare a new economic order in which the elements ownership and control are further emphasized - the Declaration on the Establishment of a New International Economic Order and the Programme of Action on the Establishment of a New International Economic Order A/RES/3201 & 3202 (S-VI)). Perhaps the gravest abuse of these sovereign ownership and control occurred during each state's colonial era.
At times the nationalistic decision is to simply to walk away from a bad deal than to make one at all. As President Museveni put it: "We discovered petroleum about 12 years ago but up to now we have not exploited it because I could not agree with those companies. They wanted to cheat us. I said no, the petroleum has been in the ground for the last many years it can stay there until we agree. That is because in my view, minerals should belong to the country."
The writer is an Associate Professor of Finance and Chair of the Department of Economics and Finance College of Business and Public Administration at the Drake University