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Commentary

A Fair Deal for Africa’s Resources

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WINDHOEK – Namibia is a resource-based economy that has embarked on an ambitious development program. Our vision is to turn Namibia into a knowledge-based, diversified economy by 2030.

One of the major principles upon which this vision is based is the idea of “partnerships” – a major prerequisite for the achievement of dynamic, efficient, and sustainable development. Partnerships between governments and foreign investors are at the core of the sound management of natural resources. But such partnerships can’t be taken for granted on a continent where the quest for natural resources has fueled decades of violent conflict.

Genuine partnership is difficult to achieve when resource-rich countries view foreign mining and drilling companies only as adversaries, seeking unfair and inequitable contracting agreements. From the perspective of companies, partnership is unattractive when they are forced to incur large losses owing to project disruptions and contract renegotiations.

By contrast, partnerships are strengthened if companies and governments recognize their shared interest in durable, mutually beneficial contracts that ensure stable revenue streams from projects. This requires a framework that takes into account, among other things, developmental possibilities, environmental concerns, labor conditions, and community interests, and that is adaptable to changing circumstances.

For governments, contracts are more likely to be durable if they are negotiated in a way that enables countries to receive fair and predictable long-term revenues. For developing countries, this source of income can be substantial over several decades, and is needed by governments for investment in infrastructure, health care, education, etc.

On the other hand, poorly conceived and negotiated contracts not only prevent countries from enjoying the full long-term benefits of their natural resources, but also help to entrench poverty, corruption, and even conflict, particularly when governance systems are inadequate.

For companies, contracts are more likely to be durable if they are negotiated in a way that continuously rewards firms for risky and capital-intensive investment in terms of the net present value of their earnings. Companies also want, of course, contracts that won’t be repudiated by the next government. Indeed, poorly negotiated contracts are a recipe for adverse business outcomes, such as reduced security of mining titles, increased likelihood of operational disruptions from targeted civil protests, and greater risk of revisions to tax and other conditions.

Many governments in Africa simply don’t have the capacity to negotiate complex contracts that require a wide range of in-depth knowledge of law, finance, geology, economic modeling, etc., while firms typically do. As a result, the contracts that are negotiated often do not meet the criteria described above – to the disadvantage not only of governments, but also of firms interested in durable contracts. In the absence of conditions for equitable negotiations, governments often deem the resulting contracts unfair – thus dooming them to be breached at some point.

In these circumstances, there is an urgent need for a facility that allows governments of poor countries to negotiate on a par with foreign investors to reach contracts that are as fair as possible under the given circumstances. The outcome of such negotiations can be expected to be – and to be perceived to be – more balanced, more transparent, more stable, and therefore more sustainable.

The time has come to establish such a facility – in the interest of a mutually beneficial partnership between governments and foreign investors.

Nahas Angula is Prime Minister of the Republic of Namibia.

Copyright: Project Syndicate, 2010.
www.project-syndicate.org

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