Many resource-rich nations negotiate complicated contracts to regulate mining, oil, and gas projects. But, despite the importance of these deals to a country’s economy, governments of developing countries face obstacles during the negotiation process. Specifically, these hurdles can manifest as a lack of preparation, power imbalances, or corruption.
February produced developments in this area as two resource-rich African countries challenged legacy agreements they no longer believe to be in their country’s interests.
First, Botswana’s President Mokgweetsi Masisi warned that if talks to renegotiate an existing sales agreement fails, his country may cut ties with South African diamond giant De Beers.
Later that month, Congo’s state auditor also demanded an additional $17 billion from a 2008 infrastructure-for-minerals deal with Chinese investors, which is currently being renegotiated.
De Beers Group has been associated with diamonds for a large part of its 134-year history. From mining to retail, the company has grown to become the world’s fourth largest diamond corporation. However, the company’s success is also built on its one-of-a-kind collaboration with the government of Botswana, which is home to the world’s richest diamond mines.
Masisi warned at a rally in his hometown of Moshupa, “If we don’t reach a win-win situation, each side will have to pack up and go home.” De Beers earned 90% of the diamonds produced under the 2011 agreement, while Botswana, Africa’s biggest diamond supplier, received 10%. Botswana’s percentage was improved to 25% in 2020.
Both sides are still engaged in discussions.
The drive for fairer treatment also saw the Democratic Republic of Congo’s (DRC) government reevaluate an opaque deal signed by former President Joseph Kabila. In exchange for development aid, a commitment to improve infrastructure, public medical centres, schools, and hospitals, Chinese corporations were given access to mining concessions under the agreement.
After finding significant breaches in the 2008 agreement, the DRC’s government watchdog demanded a complete overhaul of the country’s $6.2 billion minerals-for-infrastructure deal with China.
Over 14 years, the Chinese partners have only disbursed about $822 million in infrastructure
funding, according to a summary of the watchdog’s findings published on its website on Feb. 15.
“For the most part, these works have remained without visible impact for the population,” it said.
Negotiators for the state-owned China Railway Engineering Corporation (CREC) reached an
agreement with the DRC government on February 21 to pay for $500 million in new
infrastructure this year, far less than the 17 billion recommended in the watchdog report.
Paradoxically, some of the world’s poorest countries are also some of the richest in natural
Resources. Botswana and the DRC fit this bill, as they both suffer from what economists and policy makers call “resource curse” – the fact of natural resources, simultaneously being a source of economic development and a cause of political instability and corruption.
Furthermore, talks between governments and overseas investors reveal cultural disparities as well as differing negotiation styles and capabilities, all of which can cause a power imbalance and affect outcomes.
In fact, the recent spate of agreements between Chinese investors and African governments have revealed many such imbalances. One key factor of this disparity is that the side that is better prepared has a competitive edge over the other.
In an interview, Martin Ndende, senior regional advisor at the Economic Commission for Africa (ECA), noted that African countries have a fatalistic approach when it comes to natural resources. “They act as if they were not holders of their resources,” he remarked. He did, however, emphasise that the type of contract produced is also determined by the global economic and political climate at the time of the discussions.
To address this issue, fifteen African negotiators from West and Central Africa involved in deals with China convened for the first time in 2020 in Cotonou, Benin, to exchange ideas and sketch major characteristics of Africa-China negotiations, at the invitation of the University of Oxford’s Global Economic Governance Program. Participants highlighted several best practices and lessons that can help African nations achieve more value from negotiations with their Chinese counterparts.
Ideally, countries with abundant natural resources should attempt to replicate the Alaska model. Alaska’s economy, like that of certain African countries, is primarily reliant on the extraction of natural resources. Every Alaskan has received an equal part of the profits to the Alaska Permanent Fund (APF), a publicly held investment portfolio funded by the state’s oil profits, since 1982. These payments take the form of a Permanent Fund Dividend (PFD), which distributes an annual dividend of around $1,200 to each man, woman, and child who meets the residence criteria. The PFD is the only instance of an extensive economic strategy that combines resource taxation and unrestricted payout of the earnings to all resident owners.
Although it is too soon to tell whether Botswana and DRC have established a trend, African governments are gradually emphasising preparedness before negotiation.
Resource-rich nations stand to benefit greatly from ensuring equitable economic growth, which
combines a favourable environment for creating wealth with efficient management and equitable
redistribution of natural resource profits.