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Public Procurement Reform and Governance in Africa pp 51–73Cite as

Palgrave Macmillan

Why Do Some African Countries Negotiate Unfair Natural Resource Contracts?

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Part of the book series: Contemporary African Political Economy ((CONTAPE))

Abstract

This chapter revisits the literature on resource curse, or the phenomenon whereby natural resource abundance yields poor development outcomes, and the role of unfair government contracts in underwriting poverty in Africa. The chapter takes issues with governance approaches and interventions biased toward transparency on rent appropriation and argues that attention be paid to the bargaining process, the negotiation stage where abuse of authority and corruption often occur. Thus, within the “law-politics-business” matrix it is not the legality of contractual agreements that is put into question, but their substantial value for sustainable development.

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Notes

  1. 1.

    See Richard Auty, Sustaining Development in Mineral Economies: The Resource Curse Thesis (New York: Routledge, 1993). Jeffrey Sachs and Andrew Werner, “Natural Resource Abundance and Economic Growth” rev. ed. Institute for International Development, Development Discussion Paper no. 517a, Cambridge, Harvard, 1995.

  2. 2.

    Botswana and Norway are popular examples of countries that have evaded the resource curse.

  3. 3.

    The focus of this paper is on the governance explanation. There are other explanations such as the Dutch Disease. The theory posits that the resource boom leads to appreciation of the exchange rate, rendering non-oil commodities uncompetitive, which then leads to economic stagnation. See Auty, R M (ed) 2001. Resource abundance and economic development. Oxford: Oxford University Press. Sach, J and Warner, A 1995, Natural resource abundance and economic growth. NBER Working Paper 5398. Cambridge, Mass: National Bureau of Economic Research.

  4. 4.

    For information, see ChriatianAid “Sierra Leone at the crossroads: Seizing the chance to benefit from mining” available at http://www.christianaid.org.uk/Images/sierra-leone-at-the-crossroads.pdf.

  5. 5.

    This breaches OECD Guidelines for multinational enterprises, which stipulate that “enterprises should refrain from seeking or accepting exemptions related to taxation, not contemplated in the statutory framework.

  6. 6.

    Cancellation of contract certainly increases the perception of investment risk.

  7. 7.

    These contracts are unfair because they overwhelming favor multinational companies and they are inefficient because they deprive governments of the resources they need to invest in the infrastructure, build linkages with other sectors, and enter higher value-added areas of production.

  8. 8.

    The value of unfair natural resource is more than the flow of aid to Africa. During 2008–2010, Africa received $62.2 billion through aid and foreign direct investments but lost $38.4 billion in trade mispricing.

  9. 9.

    See Sarah Anderson & John Cavanagh, “Top 200 – The Rise of Corporate Global Power” (London: Institute for Policy Studies, Dec. 4, 2000) at “Key Findings” (based on corporate sales and countries GDP), online: Institute for Policy Studies http://www.ips-dc.org/reports/top200text.htm. See also UNCTAD, World Investment Report 2003: FDI Policies for Development: National and International Perspectives (Geneva: United Nations, 2003) p. xvi and online: UNCTAD, Press Release 2003 http://www.unctad.org/Templates/webflyer.asp?docid=2426&intItemID=2079&lang=1 (based on gross domestic product (GDP) for countries and value added for multinational corporations, resulting in 29 of the world’s largest economic entities being multinational corporations).

  10. 10.

    See the following capacity support programmes: African Legal Support Facility (ALSF), African Center for Economic Transformation (ACET); International Development Law Organization(IDLO); International Senior Lawyers Project (ISLP); Norad—Oil for Development (OfD); Pan African Lawyers Union (PALU); Revenue Watch Institute (RWI); UNDP—Regional Project for Capacity Development for Negotiation and Regulation of Investment Contracts and World Bank—Extractive Industries Technical Advisory Facility (EITAF).

  11. 11.

    It should be noted that the independent variable might have a diminishing return quality because too long of a tenure brings other issues and will consequently have detrimental effects on host countries.

  12. 12.

    For discussion on who owns natural resource, see Jorge E. Viñuales article, “The Resource Curse: A Legal Perspective” (2011) 17 Global Governance 197 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1652739.

  13. 13.

    This is a generalization and might not in all cases reflect reality of complex relations on natural resource management. People and government are not homogenous unit of analysis. For example, people could constitute diverse interests in a natural resource project, which range from municipalities, cities, adjacent communities, states/provinces/federal government, ethnic backgrounds, indigenous interests.

  14. 14.

    For similar thinking on political survival and development outcomes, see Bueno de Mesquita, B. and A. Smith Political Survival and Endogenous Institutional Change, in: Comparative Political Studies Vol. 42 no. 2, (2009): 167–197.

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Authors and Affiliations

  1. UNDP, Addis Ababa, Ethiopia

    Chrysantus Ayangafac, Dassa Bulcha & Sehen Bekele

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  1. Chrysantus Ayangafac
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  2. Dassa Bulcha
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  1. Clarkson University, USA, Bangor, United Kingdom

    S.N. Nyeck

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Ayangafac, C., Bulcha, D., Bekele, S. (2016). Why Do Some African Countries Negotiate Unfair Natural Resource Contracts?. In: Nyeck, S. (eds) Public Procurement Reform and Governance in Africa. Contemporary African Political Economy. Palgrave Macmillan, New York. https://doi.org/10.1057/978-1-137-52137-8_3

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