In a recent issue of Mining Journal, editor Chris Hinde wrote of the emerging industry consensus on the centrality of Chinese metals consumption in driving future growth in the global mining industry.
He also reflected that, at present, Africa receives only a small proportion of Chinese investment in global mining assets, echoing the view of the World Bank’s Paulo de Sa that “Africa hasn’t seen anything yet”. This may well be the case.
However, from the African perspective, the arrival of Chinese investment capital to exploit the continent’s mineral resources has already been significant, no more so than in triggering a revision of opinion among the wider investment community about Africa’s suitability as an investment destination.
What is less frequently acknowledged is the effect of growing, multi-polar competition for access to Africa’s mineral endowment on political dynamics in many resource-rich African countries.
Just at the point that industry appetite for African risk appears to be growing, the political-risk profiles of many prospective African countries are undergoing significant transformation. This is in no small part a result of the increasingly congested competitive landscape.
Rio Tinto has been present in Guinea since 1998, exploring the massive and unexploited deposits at Simandou; UC Rusal arrived in 2001. ArcelorMittal has been in Liberia since 2005 and Tata Steel in Ivory Coast since 2007.
However, over the past 18 months or so, the scale and pace of this penetration has ramped up considerably, with a range of players seeking to enhance or consolidate their position in what has been described elsewhere as “the most profitable franchise on earth” – the seaborne iron-ore trade.
This has in part been facilitated by greater stability and openness in Sierra Leone and Liberia. However, the same cannot be said of Guinea – a country whose defining dynamic since the death of President Lansana Conté in 2008 has been uncertainty.
Indeed, in normal circumstances (if demand for the sub-region’s iron-ore resources were not subject to such competition) it would be difficult to imagine that many major mining companies would be prepared to risk the economic and reputational capital that so many have in agreements with this military-led regime.
New competitive dynamics have clearly stoked companies’ appetite for political risk, given how high the stakes have become.
China’s refusal to remain a price-taker for its strategic minerals and its consequent preference to take control of resources at source has changed the risk-reward equation for its competitors.
With China a substantial competitor in production, as well as being the most important end-market, failure to make a move on untapped resources of the scale available in Guinea could result in lost market-share for the seaborne iron-ore trade’s biggest players (BHP Billiton, Rio Tinto and Vale) and the erosion of their bargaining power with Chinese customers.
However, his idea applies equally (if not more so) to large-scale foreign investors, whose impact on their host country goes beyond the economic, social and environmental to the political, both directly and indirectly.
The money, prestige and infrastructure that foreign mining companies bring to countries such as Guinea frequently change the balance of power among the political leaders they interact with.
Guinean Mines Minister Mahmoud Thiam, a former banker in the US, had arguably shallow political roots in Guinea, but in eighteen months has risen to become the most significant player in the country’s government as a result of his role as a broker of deals between the state and foreign mining companies.
By increasing the options available to political leaders, foreign competition for local resources also has the potential to promote changes in political behaviour. For example, political leaders may become less beholden to the ethnic or religious communities from which they would otherwise derive support.
Attitudes to foreign investors are also liable to change. It is perhaps no coincidence that the start of Rio Tinto’s ongoing difficulties in Guinea (culminating in the government’s revocation of two Simandou blocks in August 2008) coincided with the opening of discreet talks between the government and various Chinese mining interests.
However, when a number of companies are prepared to take a similar gamble the dynamics inevitably change, since each necessarily has a different view of what an appropriate outcome would look like.
Those who have signed agreements with Mr Thiam during the transition period (Vale and the CIF among them) will be most exercised by the importance of his retention after the elections, while those (such as Rio Tinto and Rusal) who have struggled under his ministry may be interested in a different resolution.
For this reason, and others, there is a fair chance that companies will end up pitted against one another. Vale’s decision to invest in the northern Simandou blocks claimed by Rio Tinto and the latter’s co-option of Chinalco in defence of its claims both seem designed to influence the government’s decision on which partners it prefers.
This is not to suggest that demand for African mineral resources is likely to produce a new period of neo-colonial control by remote commercial interests, where political outcomes in Africa are pre-programmed from boardrooms overseas.
The military overthrow of Nigerien President Mamadou Tandja in February 2010 was justified by the putsch leaders as a move against Mr Tandja’s efforts to modify the constitution and maintain power.
However, it was intimately connected to the 2007 spurt of Chinese investment in Niger’s oil and uranium resources, which encouraged Mr Tandja to believe that he could afford to overlook a wave of popular opposition to constitutional meddling.
Likewise, the commitments of foreign companies, designed to obtain high-level buy-in to their investment programmes, may also unleash unintended political consequences, sometimes with negative implications for security of tenure.
Niger may also be something of a special case, given its history of military intervention, its sudden opening-up to competitive investment dynamics and its robust civil society. Even so, the changing pattern of global demand for African mineral resources has had political consequences elsewhere.
Over the past few years, with commodity markets embarking on a long bull-run, the industry has witnessed an increasing reluctance on the part of numerous governments in sub-Saharan Africa to uphold the terms of agreements reached with mining companies.
In some cases (most notably Madagascar) government threats of licence cancellation have been rooted in fundamental political instability. However, threats to security of tenure, in particular, contractual reviews and changes to mining legislation and fiscal terms, have emerged in less ostensibly unstable countries too, including Tanzania, Zambia and more recently Ghana.
Interestingly, the characteristics of these moves have tended to follow country-specific dynamics, from the bureaucratic tentativeness of the Tanzanian government’s review of contracts and the regulatory framework, to the Zambian government’s ultimately unsuccessful attempt to overthrow the fiscal and regulatory regime in 2008.
The Democratic Republic of the Congo (DRC) government’s exhaustive case-by-case review of some 61 joint venture agreements from 2007-09 clearly had its genesis in the administration’s preference for bilateral ‘backroom’ engagement with mining companies.
Nevertheless, despite these differences, most were motivated by their governments’ desire to capture greater benefits from higher natural resource prices.
Moreover, in some cases the spectre of Chinese usurpation of assets was a central element in the breakdown of trust between foreign mining companies and the government, with the former concerned that the review would be used to facilitate the entry of preferred Chinese investors.
That this did not generally materialise does not detract from the fact that it informed negotiating calculations on both sides, stoking government frustration towards its ‘intractable’ western partners and increasing industry suspicions about the administration’s real intentions.
As in the case of Guinea, this nexus of interests points to a potentially disturbing conclusion – that in a newly competitive environment, the individual and cumulative political impacts of mining companies’ engagements are becoming an increasingly important source of political risk in sub-Saharan Africa.
Mining companies already give extensive consideration to their social and environmental impacts as a way of meeting their obligations to host communities and reducing their risk exposure.
Consideration is also given to political issues, but most often as part of a broader strategy to achieve short-term commercial objectives (most often market entry).
However, mining investments can transform the local and national political landscape as much as they do the physical environment. Despite this, less consideration is typically afforded to the longer-term political implications of any given project and those of other companies operating in the same space.
Political risk is often seen as something that emanates from the operating environment, but in locations where external actors are numerous and have divergent objectives, they will inevitably have a greater influence over local political outcomes, as the cases of Guinea, Niger and the DRC illustrate.
In addition to underlining the potential importance of pursuing collaborative relations with competitors across the geopolitical divide, these dynamics also point to an emerging need for responsible mining companies to enhance their understanding of their own impact on the political environments in which they operate.In a recent issue of Mining Journal, editor Chris Hinde wrote of the emerging industry consensus on the centrality of Chinese metals consumption in driving future growth in the global mining industry.
He also reflected that, at present, Africa receives only a small proportion of Chinese investment in global mining assets, echoing the view of the World Bank’s Paulo de Sa that “Africa hasn’t seen anything yet”. This may well be the case.
However, from the African perspective, the arrival of Chinese investment capital to exploit the continent’s mineral resources has already been significant, no more so than in triggering a revision of opinion among the wider investment community about Africa’s suitability as an investment destination.
What is less frequently acknowledged is the effect of growing, multi-polar competition for access to Africa’s mineral endowment on political dynamics in many resource-rich African countries.
Just at the point that industry appetite for African risk appears to be growing, the political-risk profiles of many prospective African countries are undergoing significant transformation. This is in no small part a result of the increasingly congested competitive landscape.
Rio Tinto has been present in Guinea since 1998, exploring the massive and unexploited deposits at Simandou; UC Rusal arrived in 2001. ArcelorMittal has been in Liberia since 2005 and Tata Steel in Ivory Coast since 2007.
However, over the past 18 months or so, the scale and pace of this penetration has ramped up considerably, with a range of players seeking to enhance or consolidate their position in what has been described elsewhere as “the most profitable franchise on earth” – the seaborne iron-ore trade.
This has in part been facilitated by greater stability and openness in Sierra Leone and Liberia. However, the same cannot be said of Guinea – a country whose defining dynamic since the death of President Lansana Conté in 2008 has been uncertainty.
Indeed, in normal circumstances (if demand for the sub-region’s iron-ore resources were not subject to such competition) it would be difficult to imagine that many major mining companies would be prepared to risk the economic and reputational capital that so many have in agreements with this military-led regime.
New competitive dynamics have clearly stoked companies’ appetite for political risk, given how high the stakes have become.
China’s refusal to remain a price-taker for its strategic minerals and its consequent preference to take control of resources at source has changed the risk-reward equation for its competitors.
With China a substantial competitor in production, as well as being the most important end-market, failure to make a move on untapped resources of the scale available in Guinea could result in lost market-share for the seaborne iron-ore trade’s biggest players (BHP Billiton, Rio Tinto and Vale) and the erosion of their bargaining power with Chinese customers.
However, his idea applies equally (if not more so) to large-scale foreign investors, whose impact on their host country goes beyond the economic, social and environmental to the political, both directly and indirectly.
The money, prestige and infrastructure that foreign mining companies bring to countries such as Guinea frequently change the balance of power among the political leaders they interact with.
Guinean Mines Minister Mahmoud Thiam, a former banker in the US, had arguably shallow political roots in Guinea, but in eighteen months has risen to become the most significant player in the country’s government as a result of his role as a broker of deals between the state and foreign mining companies.
By increasing the options available to political leaders, foreign competition for local resources also has the potential to promote changes in political behaviour. For example, political leaders may become less beholden to the ethnic or religious communities from which they would otherwise derive support.
Attitudes to foreign investors are also liable to change. It is perhaps no coincidence that the start of Rio Tinto’s ongoing difficulties in Guinea (culminating in the government’s revocation of two Simandou blocks in August 2008) coincided with the opening of discreet talks between the government and various Chinese mining interests.
However, when a number of companies are prepared to take a similar gamble the dynamics inevitably change, since each necessarily has a different view of what an appropriate outcome would look like.
Those who have signed agreements with Mr Thiam during the transition period (Vale and the CIF among them) will be most exercised by the importance of his retention after the elections, while those (such as Rio Tinto and Rusal) who have struggled under his ministry may be interested in a different resolution.
For this reason, and others, there is a fair chance that companies will end up pitted against one another. Vale’s decision to invest in the northern Simandou blocks claimed by Rio Tinto and the latter’s co-option of Chinalco in defence of its claims both seem designed to influence the government’s decision on which partners it prefers.
This is not to suggest that demand for African mineral resources is likely to produce a new period of neo-colonial control by remote commercial interests, where political outcomes in Africa are pre-programmed from boardrooms overseas.
The military overthrow of Nigerien President Mamadou Tandja in February 2010 was justified by the putsch leaders as a move against Mr Tandja’s efforts to modify the constitution and maintain power.
However, it was intimately connected to the 2007 spurt of Chinese investment in Niger’s oil and uranium resources, which encouraged Mr Tandja to believe that he could afford to overlook a wave of popular opposition to constitutional meddling.
Likewise, the commitments of foreign companies, designed to obtain high-level buy-in to their investment programmes, may also unleash unintended political consequences, sometimes with negative implications for security of tenure.
Niger may also be something of a special case, given its history of military intervention, its sudden opening-up to competitive investment dynamics and its robust civil society. Even so, the changing pattern of global demand for African mineral resources has had political consequences elsewhere.
Over the past few years, with commodity markets embarking on a long bull-run, the industry has witnessed an increasing reluctance on the part of numerous governments in sub-Saharan Africa to uphold the terms of agreements reached with mining companies.
In some cases (most notably Madagascar) government threats of licence cancellation have been rooted in fundamental political instability. However, threats to security of tenure, in particular, contractual reviews and changes to mining legislation and fiscal terms, have emerged in less ostensibly unstable countries too, including Tanzania, Zambia and more recently Ghana.
Interestingly, the characteristics of these moves have tended to follow country-specific dynamics, from the bureaucratic tentativeness of the Tanzanian government’s review of contracts and the regulatory framework, to the Zambian government’s ultimately unsuccessful attempt to overthrow the fiscal and regulatory regime in 2008.
The Democratic Republic of the Congo (DRC) government’s exhaustive case-by-case review of some 61 joint venture agreements from 2007-09 clearly had its genesis in the administration’s preference for bilateral ‘backroom’ engagement with mining companies.
Nevertheless, despite these differences, most were motivated by their governments’ desire to capture greater benefits from higher natural resource prices.
Moreover, in some cases the spectre of Chinese usurpation of assets was a central element in the breakdown of trust between foreign mining companies and the government, with the former concerned that the review would be used to facilitate the entry of preferred Chinese investors.
That this did not generally materialise does not detract from the fact that it informed negotiating calculations on both sides, stoking government frustration towards its ‘intractable’ western partners and increasing industry suspicions about the administration’s real intentions.
As in the case of Guinea, this nexus of interests points to a potentially disturbing conclusion – that in a newly competitive environment, the individual and cumulative political impacts of mining companies’ engagements are becoming an increasingly important source of political risk in sub-Saharan Africa.
Mining companies already give extensive consideration to their social and environmental impacts as a way of meeting their obligations to host communities and reducing their risk exposure.
Consideration is also given to political issues, but most often as part of a broader strategy to achieve short-term commercial objectives (most often market entry).
However, mining investments can transform the local and national political landscape as much as they do the physical environment. Despite this, less consideration is typically afforded to the longer-term political implications of any given project and those of other companies operating in the same space.
Political risk is often seen as something that emanates from the operating environment, but in locations where external actors are numerous and have divergent objectives, they will inevitably have a greater influence over local political outcomes, as the cases of Guinea, Niger and the DRC illustrate.
In addition to underlining the potential importance of pursuing collaborative relations with competitors across the geopolitical divide, these dynamics also point to an emerging need for responsible mining companies to enhance their understanding of their own impact on the political environments in which they operate.
He also reflected that, at present, Africa receives only a small proportion of Chinese investment in global mining assets, echoing the view of the World Bank’s Paulo de Sa that “Africa hasn’t seen anything yet”. This may well be the case.
However, from the African perspective, the arrival of Chinese investment capital to exploit the continent’s mineral resources has already been significant, no more so than in triggering a revision of opinion among the wider investment community about Africa’s suitability as an investment destination.
What is less frequently acknowledged is the effect of growing, multi-polar competition for access to Africa’s mineral endowment on political dynamics in many resource-rich African countries.
Just at the point that industry appetite for African risk appears to be growing, the political-risk profiles of many prospective African countries are undergoing significant transformation. This is in no small part a result of the increasingly congested competitive landscape.
Ore without borders
Over the past year, this multifaceted trend has been most evident in the startling rush by mining companies from all corners of the globe to secure control over iron-ore assets in west Africa’s Mano River region (Sierra Leone, Liberia, Ivory Coast and Guinea).Rio Tinto has been present in Guinea since 1998, exploring the massive and unexploited deposits at Simandou; UC Rusal arrived in 2001. ArcelorMittal has been in Liberia since 2005 and Tata Steel in Ivory Coast since 2007.
However, over the past 18 months or so, the scale and pace of this penetration has ramped up considerably, with a range of players seeking to enhance or consolidate their position in what has been described elsewhere as “the most profitable franchise on earth” – the seaborne iron-ore trade.
This has in part been facilitated by greater stability and openness in Sierra Leone and Liberia. However, the same cannot be said of Guinea – a country whose defining dynamic since the death of President Lansana Conté in 2008 has been uncertainty.
Indeed, in normal circumstances (if demand for the sub-region’s iron-ore resources were not subject to such competition) it would be difficult to imagine that many major mining companies would be prepared to risk the economic and reputational capital that so many have in agreements with this military-led regime.
New competitive dynamics have clearly stoked companies’ appetite for political risk, given how high the stakes have become.
China’s refusal to remain a price-taker for its strategic minerals and its consequent preference to take control of resources at source has changed the risk-reward equation for its competitors.
With China a substantial competitor in production, as well as being the most important end-market, failure to make a move on untapped resources of the scale available in Guinea could result in lost market-share for the seaborne iron-ore trade’s biggest players (BHP Billiton, Rio Tinto and Vale) and the erosion of their bargaining power with Chinese customers.
The political marketplace
In a recent article in the London Review of Books, Alex de Waal wrote that “all forms of international intervention influence the functioning of the marketplace”. He was referring to the “political marketplace” in which leaders buy and sell loyalty (sometimes, literally) and, specifically, to the unintended consequences of the state-building interventions of the international community.However, his idea applies equally (if not more so) to large-scale foreign investors, whose impact on their host country goes beyond the economic, social and environmental to the political, both directly and indirectly.
The money, prestige and infrastructure that foreign mining companies bring to countries such as Guinea frequently change the balance of power among the political leaders they interact with.
Guinean Mines Minister Mahmoud Thiam, a former banker in the US, had arguably shallow political roots in Guinea, but in eighteen months has risen to become the most significant player in the country’s government as a result of his role as a broker of deals between the state and foreign mining companies.
By increasing the options available to political leaders, foreign competition for local resources also has the potential to promote changes in political behaviour. For example, political leaders may become less beholden to the ethnic or religious communities from which they would otherwise derive support.
Attitudes to foreign investors are also liable to change. It is perhaps no coincidence that the start of Rio Tinto’s ongoing difficulties in Guinea (culminating in the government’s revocation of two Simandou blocks in August 2008) coincided with the opening of discreet talks between the government and various Chinese mining interests.
Many first-movers
In fragile and unstable countries, first-mover advantage is often obtained by a company prepared to take a reasoned bet that a return to stability is just around the corner.However, when a number of companies are prepared to take a similar gamble the dynamics inevitably change, since each necessarily has a different view of what an appropriate outcome would look like.
Those who have signed agreements with Mr Thiam during the transition period (Vale and the CIF among them) will be most exercised by the importance of his retention after the elections, while those (such as Rio Tinto and Rusal) who have struggled under his ministry may be interested in a different resolution.
For this reason, and others, there is a fair chance that companies will end up pitted against one another. Vale’s decision to invest in the northern Simandou blocks claimed by Rio Tinto and the latter’s co-option of Chinalco in defence of its claims both seem designed to influence the government’s decision on which partners it prefers.
This is not to suggest that demand for African mineral resources is likely to produce a new period of neo-colonial control by remote commercial interests, where political outcomes in Africa are pre-programmed from boardrooms overseas.
The military overthrow of Nigerien President Mamadou Tandja in February 2010 was justified by the putsch leaders as a move against Mr Tandja’s efforts to modify the constitution and maintain power.
However, it was intimately connected to the 2007 spurt of Chinese investment in Niger’s oil and uranium resources, which encouraged Mr Tandja to believe that he could afford to overlook a wave of popular opposition to constitutional meddling.
Likewise, the commitments of foreign companies, designed to obtain high-level buy-in to their investment programmes, may also unleash unintended political consequences, sometimes with negative implications for security of tenure.
Contracts and competitors
Of course, there is something quite unique about Guinea – in particular, the convergence of the most significant political juncture since the country’s independence in 1958 with a period of unprecedented strategic importance for its natural resources.Niger may also be something of a special case, given its history of military intervention, its sudden opening-up to competitive investment dynamics and its robust civil society. Even so, the changing pattern of global demand for African mineral resources has had political consequences elsewhere.
Over the past few years, with commodity markets embarking on a long bull-run, the industry has witnessed an increasing reluctance on the part of numerous governments in sub-Saharan Africa to uphold the terms of agreements reached with mining companies.
In some cases (most notably Madagascar) government threats of licence cancellation have been rooted in fundamental political instability. However, threats to security of tenure, in particular, contractual reviews and changes to mining legislation and fiscal terms, have emerged in less ostensibly unstable countries too, including Tanzania, Zambia and more recently Ghana.
Interestingly, the characteristics of these moves have tended to follow country-specific dynamics, from the bureaucratic tentativeness of the Tanzanian government’s review of contracts and the regulatory framework, to the Zambian government’s ultimately unsuccessful attempt to overthrow the fiscal and regulatory regime in 2008.
The Democratic Republic of the Congo (DRC) government’s exhaustive case-by-case review of some 61 joint venture agreements from 2007-09 clearly had its genesis in the administration’s preference for bilateral ‘backroom’ engagement with mining companies.
Nevertheless, despite these differences, most were motivated by their governments’ desire to capture greater benefits from higher natural resource prices.
Moreover, in some cases the spectre of Chinese usurpation of assets was a central element in the breakdown of trust between foreign mining companies and the government, with the former concerned that the review would be used to facilitate the entry of preferred Chinese investors.
That this did not generally materialise does not detract from the fact that it informed negotiating calculations on both sides, stoking government frustration towards its ‘intractable’ western partners and increasing industry suspicions about the administration’s real intentions.
The way ahead
Unsurprisingly, given the lack of resources and the absence of a clear mandate, the DRC review process was quickly taken over by vested interests within government and politically-connected mining companies keen to consolidate their control over some of the world’s most important underexploited copper and cobalt deposits.As in the case of Guinea, this nexus of interests points to a potentially disturbing conclusion – that in a newly competitive environment, the individual and cumulative political impacts of mining companies’ engagements are becoming an increasingly important source of political risk in sub-Saharan Africa.
Mining companies already give extensive consideration to their social and environmental impacts as a way of meeting their obligations to host communities and reducing their risk exposure.
Consideration is also given to political issues, but most often as part of a broader strategy to achieve short-term commercial objectives (most often market entry).
However, mining investments can transform the local and national political landscape as much as they do the physical environment. Despite this, less consideration is typically afforded to the longer-term political implications of any given project and those of other companies operating in the same space.
Political risk is often seen as something that emanates from the operating environment, but in locations where external actors are numerous and have divergent objectives, they will inevitably have a greater influence over local political outcomes, as the cases of Guinea, Niger and the DRC illustrate.
In addition to underlining the potential importance of pursuing collaborative relations with competitors across the geopolitical divide, these dynamics also point to an emerging need for responsible mining companies to enhance their understanding of their own impact on the political environments in which they operate.In a recent issue of Mining Journal, editor Chris Hinde wrote of the emerging industry consensus on the centrality of Chinese metals consumption in driving future growth in the global mining industry.
He also reflected that, at present, Africa receives only a small proportion of Chinese investment in global mining assets, echoing the view of the World Bank’s Paulo de Sa that “Africa hasn’t seen anything yet”. This may well be the case.
However, from the African perspective, the arrival of Chinese investment capital to exploit the continent’s mineral resources has already been significant, no more so than in triggering a revision of opinion among the wider investment community about Africa’s suitability as an investment destination.
What is less frequently acknowledged is the effect of growing, multi-polar competition for access to Africa’s mineral endowment on political dynamics in many resource-rich African countries.
Just at the point that industry appetite for African risk appears to be growing, the political-risk profiles of many prospective African countries are undergoing significant transformation. This is in no small part a result of the increasingly congested competitive landscape.
Ore without borders
Over the past year, this multifaceted trend has been most evident in the startling rush by mining companies from all corners of the globe to secure control over iron-ore assets in west Africa’s Mano River region (Sierra Leone, Liberia, Ivory Coast and Guinea).Rio Tinto has been present in Guinea since 1998, exploring the massive and unexploited deposits at Simandou; UC Rusal arrived in 2001. ArcelorMittal has been in Liberia since 2005 and Tata Steel in Ivory Coast since 2007.
However, over the past 18 months or so, the scale and pace of this penetration has ramped up considerably, with a range of players seeking to enhance or consolidate their position in what has been described elsewhere as “the most profitable franchise on earth” – the seaborne iron-ore trade.
This has in part been facilitated by greater stability and openness in Sierra Leone and Liberia. However, the same cannot be said of Guinea – a country whose defining dynamic since the death of President Lansana Conté in 2008 has been uncertainty.
Indeed, in normal circumstances (if demand for the sub-region’s iron-ore resources were not subject to such competition) it would be difficult to imagine that many major mining companies would be prepared to risk the economic and reputational capital that so many have in agreements with this military-led regime.
New competitive dynamics have clearly stoked companies’ appetite for political risk, given how high the stakes have become.
China’s refusal to remain a price-taker for its strategic minerals and its consequent preference to take control of resources at source has changed the risk-reward equation for its competitors.
With China a substantial competitor in production, as well as being the most important end-market, failure to make a move on untapped resources of the scale available in Guinea could result in lost market-share for the seaborne iron-ore trade’s biggest players (BHP Billiton, Rio Tinto and Vale) and the erosion of their bargaining power with Chinese customers.
The political marketplace
In a recent article in the London Review of Books, Alex de Waal wrote that “all forms of international intervention influence the functioning of the marketplace”. He was referring to the “political marketplace” in which leaders buy and sell loyalty (sometimes, literally) and, specifically, to the unintended consequences of the state-building interventions of the international community.However, his idea applies equally (if not more so) to large-scale foreign investors, whose impact on their host country goes beyond the economic, social and environmental to the political, both directly and indirectly.
The money, prestige and infrastructure that foreign mining companies bring to countries such as Guinea frequently change the balance of power among the political leaders they interact with.
Guinean Mines Minister Mahmoud Thiam, a former banker in the US, had arguably shallow political roots in Guinea, but in eighteen months has risen to become the most significant player in the country’s government as a result of his role as a broker of deals between the state and foreign mining companies.
By increasing the options available to political leaders, foreign competition for local resources also has the potential to promote changes in political behaviour. For example, political leaders may become less beholden to the ethnic or religious communities from which they would otherwise derive support.
Attitudes to foreign investors are also liable to change. It is perhaps no coincidence that the start of Rio Tinto’s ongoing difficulties in Guinea (culminating in the government’s revocation of two Simandou blocks in August 2008) coincided with the opening of discreet talks between the government and various Chinese mining interests.
Many first-movers
In fragile and unstable countries, first-mover advantage is often obtained by a company prepared to take a reasoned bet that a return to stability is just around the corner.However, when a number of companies are prepared to take a similar gamble the dynamics inevitably change, since each necessarily has a different view of what an appropriate outcome would look like.
Those who have signed agreements with Mr Thiam during the transition period (Vale and the CIF among them) will be most exercised by the importance of his retention after the elections, while those (such as Rio Tinto and Rusal) who have struggled under his ministry may be interested in a different resolution.
For this reason, and others, there is a fair chance that companies will end up pitted against one another. Vale’s decision to invest in the northern Simandou blocks claimed by Rio Tinto and the latter’s co-option of Chinalco in defence of its claims both seem designed to influence the government’s decision on which partners it prefers.
This is not to suggest that demand for African mineral resources is likely to produce a new period of neo-colonial control by remote commercial interests, where political outcomes in Africa are pre-programmed from boardrooms overseas.
The military overthrow of Nigerien President Mamadou Tandja in February 2010 was justified by the putsch leaders as a move against Mr Tandja’s efforts to modify the constitution and maintain power.
However, it was intimately connected to the 2007 spurt of Chinese investment in Niger’s oil and uranium resources, which encouraged Mr Tandja to believe that he could afford to overlook a wave of popular opposition to constitutional meddling.
Likewise, the commitments of foreign companies, designed to obtain high-level buy-in to their investment programmes, may also unleash unintended political consequences, sometimes with negative implications for security of tenure.
Contracts and competitors
Of course, there is something quite unique about Guinea – in particular, the convergence of the most significant political juncture since the country’s independence in 1958 with a period of unprecedented strategic importance for its natural resources.Niger may also be something of a special case, given its history of military intervention, its sudden opening-up to competitive investment dynamics and its robust civil society. Even so, the changing pattern of global demand for African mineral resources has had political consequences elsewhere.
Over the past few years, with commodity markets embarking on a long bull-run, the industry has witnessed an increasing reluctance on the part of numerous governments in sub-Saharan Africa to uphold the terms of agreements reached with mining companies.
In some cases (most notably Madagascar) government threats of licence cancellation have been rooted in fundamental political instability. However, threats to security of tenure, in particular, contractual reviews and changes to mining legislation and fiscal terms, have emerged in less ostensibly unstable countries too, including Tanzania, Zambia and more recently Ghana.
Interestingly, the characteristics of these moves have tended to follow country-specific dynamics, from the bureaucratic tentativeness of the Tanzanian government’s review of contracts and the regulatory framework, to the Zambian government’s ultimately unsuccessful attempt to overthrow the fiscal and regulatory regime in 2008.
The Democratic Republic of the Congo (DRC) government’s exhaustive case-by-case review of some 61 joint venture agreements from 2007-09 clearly had its genesis in the administration’s preference for bilateral ‘backroom’ engagement with mining companies.
Nevertheless, despite these differences, most were motivated by their governments’ desire to capture greater benefits from higher natural resource prices.
Moreover, in some cases the spectre of Chinese usurpation of assets was a central element in the breakdown of trust between foreign mining companies and the government, with the former concerned that the review would be used to facilitate the entry of preferred Chinese investors.
That this did not generally materialise does not detract from the fact that it informed negotiating calculations on both sides, stoking government frustration towards its ‘intractable’ western partners and increasing industry suspicions about the administration’s real intentions.
The way ahead
Unsurprisingly, given the lack of resources and the absence of a clear mandate, the DRC review process was quickly taken over by vested interests within government and politically-connected mining companies keen to consolidate their control over some of the world’s most important underexploited copper and cobalt deposits.As in the case of Guinea, this nexus of interests points to a potentially disturbing conclusion – that in a newly competitive environment, the individual and cumulative political impacts of mining companies’ engagements are becoming an increasingly important source of political risk in sub-Saharan Africa.
Mining companies already give extensive consideration to their social and environmental impacts as a way of meeting their obligations to host communities and reducing their risk exposure.
Consideration is also given to political issues, but most often as part of a broader strategy to achieve short-term commercial objectives (most often market entry).
However, mining investments can transform the local and national political landscape as much as they do the physical environment. Despite this, less consideration is typically afforded to the longer-term political implications of any given project and those of other companies operating in the same space.
Political risk is often seen as something that emanates from the operating environment, but in locations where external actors are numerous and have divergent objectives, they will inevitably have a greater influence over local political outcomes, as the cases of Guinea, Niger and the DRC illustrate.
In addition to underlining the potential importance of pursuing collaborative relations with competitors across the geopolitical divide, these dynamics also point to an emerging need for responsible mining companies to enhance their understanding of their own impact on the political environments in which they operate.