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Archive for the 'Foreign Direct Investment' Category

Liberia’s Efforts to Avoid the Resource Curse

Posted in Africa, Democratic Development, Education, Foreign Direct Investment, Liberia. Oil Industry, Rule of Law with tags , , , on December 10, 2012 by michaelkeating

 

 

 

by

Tara Conklin

Earlier this month, Robert Sirleaf, son of Liberian President Ellen Sirleaf, came forward to defend his appointment as head of Liberia’s nascent oil industry. Admonishing critics for their charges of nepotism and corruption, Robert declared that he has the competence and experience necessary for him to serve as Chairman of the National Oil Company of Liberia (NOCAL), adding, “I owe Liberia me.”

If it seems suspect to you that President Sirleaf could find no other competent, experienced individual to serve as NOCAL Chairman, (perhaps someone less related to her?) you are not alone. The appointment of her son has raised eyebrows in Liberia and throughout the international community. She no doubt exacerbated the situation by appointing to another top NOCAL spot someone currently being prosecuted for fraudulent transactions of $2.5 million USD.

These recent appointments are just the tip of the iceberg. Liberia’s oil industry has been plagued by charges of bribery, corruption, and fraud since its inception, with companies paying off legislators and their staff for votes on oil contracts. Since these allegations were brought by Liberia’s main auditing and watchdog organization, the General Auditing Commision (GAC), no one has been prosecuted, no bribes were returned, and the deals that the GAC recommended be invalidated have remained in place. (Read details about the allegations here.) Just last month, amidst the appointment of a controversial new Auditor General, NOCAL has become embroiled in a scandal at GAC, where massive layoffs have just taken place. Allegedly, NOCAL played an instrumental role in the dismissal of GAC staff in an attempt to thwart the ongoing audit of the oil sector.

While these reports are disconcerting, it is important to note that the Sirleaf administration has been ostensibly dedicated to fighting corruption and improving accountability, vowing to improve life in the country currently ranked 182 out of 187 by increasing greater transparency. By some accounts, the administration’s anti-corruption policy stance has been widely successful. This apparent contradiction hints at the complex history of Liberia, and begs the question: how did things get this way? Perhaps more importantly, what are the steps to making the oil industry translate to development in Liberia?

Liberian citizens and officials are well aware of the “resource curse”, the paradox through which countries with an abundance of natural resources tend to do worse economically and developmentally than countries without natural resources. Discussions on how to avoid becoming the “next Nigeria”, where oil has caused conflict and stagnated development, take place often in government circles. However, it is immensely difficult to overcome a past history of corruption, resource dependence, and conflict. With natural resources including iron ore, gold, diamonds rubber, and timber, Liberia’s economy is already lacking diversification and is too heavily reliant on these resources, none of which have led to development. Under the presidency of William V.S. Tubman (1944-1971), the iron ore industry propelled Liberia to being one of the fastest growing economies in the world. This growth, rivaled at the time only by Japan, was purported to be a miracle, but in reality it did little for the vast majority of Liberian citizens. In fact, this growth without development set the stage for continued political and social instability, contributing to a bloody 14-year civil war that ended in 2003.(1) The timber trade is said to have helped finance Charles Taylor’s regime, and in recent months, renewed reports of corruption and mismanagement with the country’s timber industry have sparked environmental, economic, and governmental concerns.

With pervasive corruption, an institutionalized culture of wealth grabs, and an economy overly reliant on natural resources, it is high time to ensure that the oil industry not follow in the footsteps of the timber and iron ore industries. Entrenched politicians and powerful private interests are key players in the future of the country’s oil business, so strong political will from the top is necessary to curb “business as usual”. President Sirleaf must fulfill her campaign promises and live up to her reputation as a recent Nobel Prize winner by getting tough on corruption. To do this, watchdog organizations like the GAC and the Anti-Corruption Commission must be fully funded and fully staffed. Abuses discovered must be followed up and prosecuted by the judicial branch. The culture of impunity for elected officials must become a thing of the past. Prosecution and conviction of government officials found guilty of corruption would send a powerful message. In addition, a code of conduct for elected officials must be passed into law delineating job descriptions and methods of performance assessment.

Though Liberia is already part of the Extractive Industries Transparency Initiative (EITI), reporting is delayed and spotty. Independent audits should be conducted to ensure accountability and revenues from the resource should be put into dedicated funds, perhaps a sovereign wealth fund (like Botswana’s Pula Fund, or perhaps more ideally, Norway’s SWF) to reinvest in other industries in Liberia and encourage diversification in the country’s economy. In addition, Liberia should utilize good judgment when deciding which companies to grant oil concessions. Companies with a reputation of transparency and based in countries that will hold them accountable back home with strong foreign anti-corruption laws are good choices.

Some measures are currently being undertaken. In November, NOCAL put forth a competitive tender for general audit of its operations, seeking a “reputable international firm”, with bids from Deloitte & Touche, Ernest & Young, and Pricewaterhouse Coopers being reported. Dr. Paul Collier, expert on the resource curse and its contribution to a country getting stuck in the “Bottom Billion”, was in Liberia in September, where he observed some promising aspects of Liberia’s oil industry. These rays of hope provide a path for Liberia to break the cycle of corruption, move past its troubled history, and dodge the “resource curse”. The administration and legislature, private sector, and watchdog groups in civil society must remain vigilant if they want Liberia’s oil wealth to make a positive change for the country. There is a way, but it will require political will that we have yet to see. Here’s hoping for a transparent, accountable, and prosperous 2013 in Liberia.

Tara Conklin is a graduate student in International Relations at the University of Massachusetts Boston.

Land Grabbing and Development Models

Posted in Ethiopia, Foreign Aid, Foreign Direct Investment with tags , , on November 1, 2012 by michaelkeating

Marc Dubois is an international development consultant.

Since the 2007 spike in global food prices, the international media and myriad international organizations have picked up on a new phenomenon in globalization: ‘land grabs’. ‘Land grabs’ is the highly negative term given to purchases of agriculturally productive land in developing countries by, most often, foreign multinational agricultural firms. Since 2007, LDCs have rented or sold an acerage of farmland equal to 1.14 times the size of France, usually leased at between 3 and 10 dollars per hectare per year. The most common story behind the land purchases is thus: a developed country that has declining agricultural output, such as China, or population growth set to outpace domestic food production, like India, will financially support one of its agricultural firms to purchase cheap land in a developing country in order to produce foodstuffs or biofuel for export back to the home country. This phenomenon has occurred all across the globe, but most often in Africa.
There is a fierce debate in the development community over the value and the effects of this practice. In general, the investors purchase large areas of land, bringing with them the modern tools and techniques necessary for factory farming. Large-scale farming requires developed infrastructure, such as electricity, roads, and irrigation. In theory, developing countries that allow land grabs to happen will benefit from this introduction of advanced farming techniques and a productive partner in building up rural infrastructure.
However, some stakeholders in the international community, most notably civil society organizations that support peasant groups, argue that land grabs are detrimental and should be avoided for two reasons. The first is that the agricultural investors do little to develop the regions they inhabit. Indeed, there are persistent allegations that the Ethiopian government is actually breaking down rural society by forcing its rural citizens into villagization programs that free up land for investment. The second reason fundamentally challenges the basis of agricultural development: large-scale farms are less productive than small-scale farms. This debate erupted recently in a row between the Food and Agriculture Organization of the United Nations, which has recently come out in favor of large scale farming, and civil society groups that favor small-scale agricultural development.
There is no hard answer as to which agricultural technique is better for fostering economic development. But it behooves the international community to identify several fundamental truths regarding the argument. The first is that it is important for the development community to disregard their inclination to interpret African governments as hapless victims of wealthy international agricultural firms. Most of the time, LDC governments have well-developed reasons for allowing foreign agricultural firms to purchase their land at rock-bottom rates. They are not strong-armed into allowing land grabs due to international economic pressures; they genuinely seek infrastructure and economic development from the foreign firms.
The second truth is that while the jury is out on whether large-scale farming is more productive, it is almost certainly more ecologically damaging. Fertilizers, mass deforestation, and monocropping are all associated with large-scale farming, and all are environmentally harmful. With LDCs among some of the highest countries at risk for environmental catastrophes, environmental practices cannot be neglected. In evaluating development plans, it is important to remember that economic growth is not a goal in and of itself, and must be accompanied by environmentally sustainable economic activity. Small-scale farming is more adaptive to climate change, and generally requires fewer environmentally damaging inputs.
A third and final truth is that development programs regarding agriculture require input from the communities they impact. For example, in order to determine whether large-scale farming will work, the community near the prescribed site of the farm should be consulted on a variety of issues. If, for example, they cannot expect employment at the large farm, is there a city near by with the capacity to absorb those who choose to leave? If the city is at social and economic capacity, it might be best to work on developing small-scale agricultural productivity through land ownership grants and technology transfers, that way more food is produced for the nearby city and the rural population remains employed.
Whether land grabs are useful or harmful will ultimately be decided by how and where they are applied. The development community must respond to this reality and adapt development projects to account for rising international land sales.

Salmon Fishing in the Yemen : Build It and They Will Spawn

Posted in Democratic Development, Foreign Direct Investment, Middle East, NGO with tags , , on March 12, 2012 by michaelkeating

 

 

It isn’t often that romantic comedy and economic sustainability show up on the same screen but that’s what’s on offer in Salmon Fishing in the Yemen by the Swedish director Lasse Halstrom.

Here are some thoughts from the perspective of development theory. They are not meant to spoil the fun, which this film truly is, but to just raise a few questions. (Attention! Spoiler alert!)

The project in question is a water management scheme in Yemen that will have the secondary benefit of providing recreation and tourism in the form of fly-fishing for salmon. All of this is the brain-child of a mysterious and fabulously wealthy fly-fishing fanatic with the somewhat unimaginative name of Sheik Muhammed (Amr Wakend). The  Sheik is also something of an Anglophile which might explain the several huge estates he has bought himself in Scotland to pursue his passion, as well as his interest in hiring Fred (Ewan McGregor), a U.K. Government Fisheries expert, and Harriet (Emily Blount) a private investment counselor to bring his brain-child to life.

So far the project is a public-private partnership writ large. The problem is that the Sheik lives in a country that has a lot of people who do not want western influences and probably resent his jet-setting life style. Despite warnings, the sheik pours tens of millions into the project only to see it disappear down the drainage ditch. Literally.

But this is where development theory comes into the script. After the large grandiose project is foiled by local politics, Fred and Harriet, who by this time have predictably become romantically entangled, vow to start over again (presumably with even more of the Sheik’s money) but this time to get ‘local buy-in’ and to get the locals to adopt the project ‘as their own.’ It’s not clear how this trio of idealists is going to overcome the deep political divisions that beset Yemen and it is also unlikely that they are going to get buy-in to a fly-fishing scheme from the well armed crew that upset their plans in the first place but in place of this skepticism, the film, through the words of Sheik Muhammed, asks us to have ‘faith’ that the project will succeed.

Despite the billions he has at his disposal to pursue an over-the-top life-style the Sheik, you see, is a deeply religious and philosophical man. For him fly-fishing is not so much a sport but a grand metaphor for the relation between man and the universe. His faith in the success of the project turns out to be much stronger than the forces aligned against it. Development projects fail not because they are ill conceived but because their authors simply do not have enough faith that they will succeed. In other words, they do not trust the universe.

In addition, we learn early on in the film not to jump to conclusions about specific countries and geographies. When he is presented with the project, Fred’s initial reaction is complete disbelief that it will work ‘because salmon need water and there isn’t any water in the desert!’ But as it turns out, this is a wrong assumption (but one probably shared by 99% of the people in the world when they think about Yemen.) We are told that this particular part of Yemen is different from the rest of the Arabian peninsula because it has a yearly rainy season and many underground water sources. Who knew?

The point that the filmmaker is trying to make is that we need to test our assumptions about people and places because much of what we have in our heads is simply wrong. Point well taken!

One of the other delights of the film is the performance by Kirsten Scott-Thomas as Patricia Maxwell the acerbic, Blackberry addicted  Press Officer for the British Prime Minister. Not interested in the social benefits of the project at all, she views the whole scheme simply as a ‘good story coming out of the Middle East’ that can offset all the dreary news coming from Iraq and Afghanistan. In this view, development assistance on the part of Western countries is simply a public-relations scheme that is intended to keep people’s minds off other things.

Since DFID, the UK’s well funded and very generous development agency, is not mentioned in the film (and as they would likely be involved in such a project in real life) it is fair to say that the film is a bit misleading in how development assistance really works. It is also unfair to the British tax-payer to suggest that their development assistance dollars are paying for little more than infomercials for British political ambitions.

As light entertainment, Salmon Fishing in the Yemen succeeds admirably. As an exploration of how development works in the real world it’s a bit fishy.

Sorry, I was just casting about for slippery end!

Michael Keating

 

Foreign Direct Investment Promises Often Unkept

Posted in Education, Foreign Direct Investment with tags , , on March 3, 2012 by michaelkeating

 

The deals look great on paper. A large mining, energy or agriculture investor pulls into an impoverished country offering cash, jobs, schools,  and clinics. There is a ribbon-cutting ceremony where the President of the country and the Chief Executive of the company beam for the cameras, native dancers perform, and a long list of benefits are read out to the grateful populace.

Fast forward a few years however and the picture never looks as good as that day when the media caravan rolled into town.

In the developing country I am most familiar with, Liberia, that caravan has been rolling on a pretty consistent basis during the first term of President Ellen Johnson Sirleaf. Communities throughout Liberia have seen the CEOs of iron ore, palm-oil, rubber, and more recently oil companies pull up in their Land Cruisers — or descend in their helicopters —  only to disappear once the ink is dry on the contract.

Thankfully researchers have followed up on some of these deals and the news is not always good. In a just published report entitled “Smell- No- Taste: The Impact of Foreign Direct Investment in Liberia,” researchers from the Center of International Conflict Resolution at Columbia University concluded that FDI deals in Liberia just aren’t working the way they were supposed to and are sowing the seeds for future conflict.

Here are the five main conclusions from the report:

1. The marginalization of indigenous communities during concession negotiations and project implementation has resulted in high tensions around a number of FDI projects. This tension has occasionally led to violence and other forms of social unrest, which could feasibly lead to conditions that might threaten peace in the country.

2. Compensation rates for loss of land and crops are outdated, low and inconsistently applied across concessions. Unless directly hired by the concessionaire, members of PACs (Project Affected Communities) experience little improvement to living standards as a result of FDI. In some cases, the shift in land use priorities are producing enhanced food insecurity for PACs.

3. Job creation and industrial economic diversification are challenged by the structural characteristics of the sectors, low human capacity levels and high energy costs. While FDI has produced jobs, they have so far not been of a scale that addresses the extremely high unemployment rate in the country, and it is difficult to imagine how this will change even when the projects become fully operational.

4. Government corruption and financial mismanagement have compromised the good intentions of concessionaire-financed Social Development Funds (SDFs) and contributed to a rising mood of distrust and hostility regarding some concessions.

5. Institutions lack the full ability to effectively monitor compliance of concession agreements and penalize infringements. A rush to sign new deals and fast track economic growth has overwhelmed the government’s ability to ensure that concessionaires act responsibly and are subjected to sound oversight.

There are certainly no quick fixes for issue of improving governance or reducing corruption but NGOs on the ground can do a better job of monitoring the situation  and bringing  issues like these to the attention of the media and to international human rights and humanitarian groups.

In Liberia most of the national media is in the capital Monrovia and they simply don’t have the funds to travel out to investigate the concession areas where abuses might be occurring or where promises are not being kept.

Assisting in building capacity for local watchdogs will be much more effective in the long-run than reports from foreign academics, but this report is certainly a useful and hard-hitting start to what hopefully will be an on-going process of discovery and reportage.

 

Michael Keating