Damn right it’s about the money!

So maybe our interest in contract negotiation business is about money after all. Last week, I read two different figures in such different contexts that at first I didn’t think to put them together. First, while sorting out some papers I was listening to an old lecture by Jeffrey Sachs from the middle of the last decade, when he was making the case for a massive increase in aid to poor countries, and in particular Africa.

I remembered it well because I was working in development at the time and we all thought, Go Jeff! Sachs’s point was that there wasn’t more aid because publics were jaded, and in any case vastly overestimated the amount of money they thought already went to aid – in the USA, for instance, one poll showed the median estimate for how much money the US government spent on aid was 20 percent of the federal budget, when the real figure at the time was about 20 times less at 1 percent. And also, they thought that all developing countries were corrupt and all aid was wasted whereas the evidence showed that simply wasn’t the case, and that Africa was poor for a whole host of reasons in addition to problems around corruption. In the course of this argument, Sachs said that aid to Africa was about $50 billion a year in total. It may have gone up since then, but only marginally.

The second figure was in a summary of a report by the Africa Development Bank produced by a civil society group in Niger. It said that last year the continent produced natural resources of a value of about a trillion dollars, and that governments got about $110 billion of that – 11% of market value (the percentage of profit of course will be higher, possibly a lot higher, depending on terms of contracts and allowable expenses which for the most part are invisible to us).

Put those two together and you get something like this: if African governments were able, on average, to increase their take of market value by just one percent, that would be the same as increasing development funds by 20 percent. If they were able to increase their take by five percent, that would be the same as doubling the entire international assistance budget. Let me repeat that – increasing African government takes on their natural resource industries by five percent would have the same effect in terms of money coming in as doubling the entire aid budget.

So yes it’s about the money. This is perhaps where we come to Paul Collier’s thesis that most natural resource wealth in Africa and other parts of the developing world has yet to be discovered. And also to the issue of Lack of Resource Curse. Our business is all about Resource Curse – trying to minimise it, maybe even prevent it, as it happens now to a greater or lesser extent in four dozen countries across the planet, Dutch Disease and corruption and rent-seeking at all levels of government and society, trying to find synergies between these complex issues and three other global issues that somehow always seem to considered in separate boxes, climate change, energy security and access to energy. But in Bottom Billion countries they have Lack of Resource Curse as much as they may have Resource Curse.

I lived in Afghanistan for three years and have many Afghan friends. Now I am trying to persuade them absolutely that they should seek transparency around the oil and mining deals that are taking place in their country. But that if that gets translated into rejectionism pure and simple, the deriding of any and all deals with foreign investors, the country will lose its only chance to have an economy, and a government, not based on foreign aid, which is going away anyway, and drugs, which isn’t. You don’t have to like the fact that the copper mines in Aynak and the Tajik Basin and other concessions for now represent Afghanistan’s only shot at economic independence, and therefore some kind of real sovereignty and existence as a nation state. But you will have to live with it anyway, and you might as well try and work with it. I mention it because it’s also a country where an oil bid round failed, and took two years to resurrect, essentially over a simple misunderstanding over bid structures that could have been cleared up in 20 minutes.

In Africa, too, nothing else offers the same mix of public revenues, economic investment and technology transfer as extractives right now. The challenges involved in managing extractives in these kinds of contexts are fearsome – the ease with which rent can be appropriated, directly and indirectly, in a thousand different ways (such as a crumbling concrete bungalow in Luanda costing $20,000 a month to rent), the Treacle Down of relatively huge amounts of money that never make it down to the people in any significant form, and get stuck in elite enclaves, the fact that these industries are so capital intensive they are terrible employers quantitatively, and it will always take smart government intervention to create an economy which doesn’t divide society sharply into the haves who are connected to those industries or the government which preys on them, and the have-nots who aren’t, by the right investments in training and infrastructure as well as regulatory environment.

But in order to get to that, you need to have to have generated the funds in the first place. Increasing government take by five percent in Africa would have the same effect in terms of revenues as doubling the aid budget.

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