Resource Governance in the 21st Century: A Position Paper

A position paper by Chandran Nair

The relationship between China and the developing world, especially Africa, has the potential to be one of great benefit to all parties. But there is a historical precedent that the Chinese, with their investment capital and desire for the energy and resources to help drive their growth that African nations have, must break.

Thabo Mbeki, South Africa’s President, is on record warning African nations that they must guard against falling into a “colonial relationship” with China. At the same time, Hu Jintao, China’s President, has given assurances that Beijing will not monopolise Africa’s resources as its influence across the continent grows with its loans, investments, technology, skills and personnel transfers, and increasing trade. For their part, African nations are positive about China’s investment:

• China’s help is “a good opportunity for full co-operation and meaningful engagement … to realise objectives of [rejuvenation and development].” (Ethiopia’s Ambassador Haile-Kiros Gessesse, at the Forum on China-Africa Co-operation in Beijing, November 2006). 
• The characterisation of the Africa-China nexus as “immoral”, “corrupt”, “greedy”, and “evil” (by the likes of Paul Wolfowitz, World Bank President, and other hawks) completely disregards the historical record.

Regarding resource governance in Africa this century, some of my positions are pointed, but offered as a means of having a more honest discussion on the issues. They chiefly relate to what many view as western hypocrisies, inconsistencies, and attempts at taking the moral high ground in the context of their own histories, especially in Africa and towards emerging and developing nations:

• It may be that over half of the world’s resource-rich countries are not democratic and many are slipping further towards autocracy as the elite ruling classes buy off their opponents with the surging oil profits, but there is a need to acknowledge that this is fuelled by demand in the West and emerging economies and most profits are being made by the major resource (oil, gas, mineral) companies, most of which are western. These elite ruling classes of resource-rich countries are doing business with governments and companies of the West and emerging economies such as China and India. 
• Civil wars in resource-rich countries are linked fundamentally to weak institutions and geo-political issues that are often rooted in historical realities that result in perverse incentives propped up by a global economic order that has not restructured to create fairer playing fields for former colonies.
• In spite of rhetoric about developing Africa and reducing debt burdens, there are strong vested interests in sub-Saharan Africa that have little use for such societal and economic development since it would jeopardise the status quo.
• Existing mechanisms in Africa – institutional, economic, social, and political – are failing; new initiatives are needed but they need to be bold and this will challenge the status quo. They will need to be devoid of preaching to Africans, not setting conditions but at the same time built on honest, equal partnership. Included in this is the necessity of strengthening a weak civil society in Africa. The harsh reality is that Africa needs to start to help itself too, and see to model itself around some of the Asian “tigers” that also overcame colonial rule and backwardness. Africa has to stop using its colonial history to explain away its current predicament.

As for the resource sector, its five interrelated challenges of growing demand, competition for resources, of a resource curse, of environmental and social impacts, and climate change are all tied to a global order that is not attuned to new realities. This is an order in which old-world groupings want to retain their privileges, while at the same time appearing to seek to help the disadvantaged, and in a way, the G8 is part of that:

• Concerns about long-term supply and prices are merely the point of view of those purchasers that have for years cornered the market and built their economies on “unfair prices” in a world where the majority are left behind.
• It fallacious to argue that increased competition for resources – in particular from emerging nations China, India and Brazil – is endangering peace and stability in the region: this has been the case since the earliest days of colonialism, and it is the former colonial masters that are feeling unease that their commercial dominance is being threatened.
• Arguing that to best manage the resources all parties’ “legitimate interests” need to be recognised is a positive departure from the past, but if they are to be heeded, new rules will be needed and China, India, Brazil and other emerging countries will need to be convinced that these are not being imposed by the West to retard their own development. At the same time legitimate leaders from Africa must ensure Africa benefits from the new deal. 
• Inherent disadvantages imposed by the global dominance of certain economies and corporations make it difficult for resource-rich states to add value to their resources, one of the agreed ways to fight poverty, create jobs, widen the prosperity net, and reduce corruption. While natural resource extraction may well fund armed conflict, many of these conflicts stem from geo-political struggles, and there is a long record of the grave human rights violations that are part of this being disregarded by those with vested interests – trade partners in the West and emerging economies.
• Well-managed resource extraction is not always destructive, though any extraction of resources is obviously an intrusion on the environment. But the environmental injustice that results from this is a matter not only of profits in a few hands but also one of poor governance and mismanagement: Africa needs to exploit its own resources but how will it manage impacts (extraction, conversion, transfer, and use) and spread benefits? It must learn to do this well and not rely on others to set the agenda just like many in Asia have done to various degrees of success.
• The extraction and use of resources is intimately linked to human-threatening climate change. Yet, the reality is that resource exploitation will continue as the West’s unsustainable model of resource-intense development and consumption has become the norm and is unfortunately being foisted on the rest of the world and which is being followed by most. The challenge is to affect a practice of efficiency and restricting use; the growing conflict of priorities between the G8 and emerging powers is very real.

Efforts against corruption and to establish good governance through vehicles like the Extractive Industries Transparency Initiative (EITI) must take great care in the perception of their underlying assumptions:

• EITI faces challenges because it is seen as a western-led initiative. This and the underlying assumption that corruption is only to be found in third world countries breeds resentment.
• Revenues from extractive industries flow not only to the governments of the resource-rich countries but also to those in the developed economies through value-added services, like oil refining, and taxation on resource companies.
• It is vital that all parties’ access to natural resources is transparent but more important is the question of “ownership” and how profits are created and where they are realised.
• What is to be done about the rigged international business practices such as transfer pricing that ensure the bulk of profits reside with western companies?
• Resolving the issue of the role of the international finance system in being an enabler of these business practices will take great political will from the G8 and resisted by strong vested interests with close connections to the political elite.
• There is a hypocritical approach to legal and ethical standards, and this is tied, among other things, to “resource security”. Especially, proper and full accountability is vital, as in the case of the US’s and Britain’s invasion of Iraq to secure valuable oil supplies: if they are not held accountable for an illegal invasion related to resource-driven conflict, then how are others to be? And what hope is there for standards etc., to prevent and reduce conflict?
• If EITI is to lead in fighting corruption, it must attract China and India, both major consumers of energy and other natural resources with 40% of the world’s population and 60% of its poor, with the right incentives, not more western interests couched in moral terms. It must bear in mind that these countries are at completely different stages of development, and it is their potential that makes them critical elements in the energy-resources equation.
• There must be a change to the poor level of representation of developing countries at any forum addressing issues within their own sovereignty that brings together governments, the private sector and civil society.

There is too much rhetoric and not enough (if any real) action when it comes to conflict resources:

• The “great powers” act to address conflict arising from competition for resources only when they feel their interests are at stake. There is a great deal to be done by all to challenge the “great powers” and build trust so as to enshrine the principles of fair shares for all.
• The comparative spending by the United Nations on peacekeeping in countries ripped apart by resource conflict and the US in prosecuting its own interests in Iraq, for instance, is instructive: UN in Sierra Leone, US$2.8 billion in all; the US in Iraq, US$4.5 billion a month (Defence Department figures 2006) and rising.
• Most OECD countries do and will find it hard to proactively address the trade that underlies resource-related wars, in spite of their own rhetoric. A classic example is the participating countries’ refusal to fund the Kimberley Process, and the World Diamond Council blocking the publication of production and trade data.
• The buyers of conflict resources are not Africans – the timber and diamonds of Liberia almost certainly ended up in the West and the East, where intermediaries make handsome profits as they sell on to people who can afford these luxuries.
• The UN Security Council may well impose arms embargoes on armed groups operating in war-ravaged African nations, but where do the arms come from?
• The UN Security Council represents the interests of the old world order, and this is reflected in its permanent membership, with the exception of China. Even the General Assembly has voted for change but it is unlikely in the short term.

On the growing Africa-China relationship, there are issues of sustainability at stake – raw materials, energy, trade, and inter-generational considerations – and the proper development and resolution of them need to be scrutinised in the unfolding and developing relationships.

China’s challenge is to live up to its pledges – to “jointly safeguard the legal interests of developing nations and make contributions to the construction of a harmonious world”, (President Hu Jintao). It can do this by:

• Open and fair trade, but with a rigorous regime of compliance with legislation and regulations agreed with its African partners, that preclude corruption, promote transparency and ensure an equitable disbursement of what is owed to whom.
• Giving something back to those countries that are helping build its wealth: it can use its increasing influence to change the conversation about the needs of Africans; it can listen to Africans; it may turn some of its huge foreign reserves towards reducing poverty there. These would be mutually beneficial, as China needs Africa as much as Africa needs China.