The need for change in law and policy

The preceding section shows that the countries studied have substantial policy and legislative regimes with which to regulate foreign investment, and that by China in particular. But our studies show that one factor which limits Chinese investment’s contribution to development is that improvements in law and policy are still needed.

Claude Kabemba's picture

Director of the Southern Africa Resource Watch (SARW)

October 11th, 2012

The preceding section shows that the countries studied have substantial policy and legislative regimes with which to regulate foreign investment, and that by China in particular. But our studies show that one factor which limits Chinese investment’s contribution to development is that improvements in law and policy are still needed.

There is an urgent need for African governments to improve their regulatory frameworks and policies for business, investment, environmental protection, and labour relations. China is simply pursuing its national interest and is acting rationally and pragmatically in seeking business and investment opportunities where these exist. It cannot be held accountable for the absence of appropriate regulatory mechanisms and administrative systems in Africa. As Chris Alden puts it, the ‘China problem’ in resources can be more accurately folded into a larger set of concerns around the shortcomings of African governance in managing foreign investors in the mineral commodities sector, ‘rather than any particular Chinese strain of malfeasance.’ It is the responsibility of African governments to monitor Chinese business practices by, for example, ensuring that there are competition laws and policies in place to prevent the abuse of market dominance and uncompetitive practices of which many Chinese companies stand accused. Moreover, strategic sectors such as energy, infrastructure, fisheries, forestry, and mining require extra vigilance in management and governance practices. At the country level, there is a growing need for African-initiated research and analysis to better understand what China is doing, to build local research competencies, and to stimulate public debate.

In Angola, the influence of multi-nationals means that there are insufficient regulations promoting competition in the petroleum or diamond sectors. The Angolan model is different from that in Norway. Norwegian Petroleum Management, which regulates all petroleum operations in the country and controls all petroleum companies including the state-owned Statoil Hydro, is an independent body and is not directly owned by the government, as is its equivalent in Angola. In Norway, there is sound competition between all companies, since all are regulated by one independent body. A change in the law is necessary but not sufficient for ensuring reasonable extraction of natural resources in a manner beneficial to all Angolans, guaranteeing the sustainable development of the country. It is necessary to review Angolan legislation to get its primary concessionaries in the mining sector (Sonangol and Endiama) to become only players and not referees as well. It is also important to ensure that the Revised Mining Code is concluded to provide a single document including all the laws relating the mining sector.

A recent study by Deborah Brautigam of American University (Dragon´s gift, indicates that the money from China never gets to Angola in cash form. This reduces the chances of misappropriation of funds, a very common practice in a country that has being rated by Transparency International as the tenth most corrupt country out of 178 countries. But it also limits the social benefits and suggests that different terms would be more helpful to developing Angola’s economy.

In the DRC, failure to negotiate adequate terms with Chinese and other foreign interests has ensured that a minerals joint venture (Sicomine) does not adequately protect Congolese interests. The Congolese stand to lose most in this contract from China’s vertical integration formula of investment, project operation and business conduct. In terms of this formula, all inputs – management, project design, labour, material, components and technology – originate from China, with little or no local content.

In Mozambique, the policy framework is vague and without clear strategic vision for forestry’s economic and environmental sustainability. Under these circumstances, forestry is being ruthlessly exploited with little effort geared towards its industrialisation and its sustainable management for the benefit of local communities. The government’s policies, strategies and planning instruments are designed to guide the leadership in the long-, medium-, and short-terms, and in daily activities and decisions. There are different documents covering these periods. Ideally, these instruments should be inter-linked, and policy-making should flow from long-term policies to annual plans of activities. Their design should be participatory, with inputs from civil society organisations and citizens. In practice, though, policy-making processes are often referred to the ministerial level, sometimes with inputs from donor partners and civil society organisations, with final approval from the cabinet (the Council of Ministers). Long-term (and sometimes, medium-term) development policies may be more participatory, with greater public consultation and specific drafting arrangements (committees and fora, for example) that bring together different government structures and civil society organisations.

While several countries have imposed a ban on the export of logs (or of logs from certain species of trees), trying to both reduce the rate of deforestation and create incentives for the growth of a national timber industry, in Mozambique, until recently, most forest species could be felled and their timber exported as logs. Currently, the export of unprocessed timber is not illegal, although the government has tried to reduce the amount of logs exported by banning the export of certain species of wood. For several reasons, this ban has not significantly reduced the amount of logs exported from the country, although it has had some impact on the growth of the exports of sawn wood. Policies and strategies exist, but are loosely related and do not provide a coherent vision for government officials and companies. A strong and sustainable timber industry does not seem to be an important part of the country’s development strategy.

In South Africa, the most notable problem has been the failure to negotiate an agreement with China which adequately protects local jobs. The agreement which was negotiated provided only limited and marginal protection to its textile industry without improving access to China’s market. Clothing manufacturers were forced down the value chain, as the quota had the effect of China exporting higher-priced products. Logistically, the agreement is impossible to enforce, while the exclusion of Chinese exports from (or via) Hong Kong provides a massive loophole. In effect, the agreement provided minimal protection to an industry that had already suffered massive job losses. Moreover, the agreement simply opened the door to a flood of imports from other countries, with buyers switching to Pakistan, Malaysia, Mauritius and Vietnam to source products. A new network of foreign suppliers has replaced China, without any revival of South Africa’s textile industry. In effect, negotiations with China gained no concessions (such as preferential entry into the Chinese market), and a broad strategy for revival of the local industry was not implemented.

There is wide agreement that a carefully negotiated Free Trade Agreement (FTA) with China (based on the Australian and New Zealand models) would be immensely beneficial to South Africa and would help to correct the obvious trade imbalances which have grown over the last ten years. (The reduction of trade barriers has resulted in a twelve-fold increase in global trade since 1995, to more than US$4,5 trillion in 2006.) Without a detailed FTA or Economic Partnership Agreement (EPA), the imbalance of trade will continue to shift from the less competitive (South Africa) to the more competitive economy (China) in accordance with the unwritten rules of globalisation and free trade. Ron Sandrey’s analysis concludes that an FTA would help in increasing exports to China and thus promote job creation in South Africa. Athe same time, there are still bureaucratic impediments to accelerated Chinese mining investment. These are under adjustment, creating the expectation of a significant wave of new investments once global demand recovers.

In Zambia, there are doubts as to whether the new tax regime ensures that the nation as a whole receives a fair share of natural resource rents, while maintaining a globally competitive mining industry. There is also consensus that the legal and administrative framework for managing the extractive sector is disjointed. Equally, the secretive nature of the development agreements signed between the Zambian government and mining investors is seen as a root cause for the many challenges in the mining industry. The development agreements are not disclosed, and in most cases are agreed to without the full involvement and examination of the technocrats – they are mostly driven by political decisions. Amongst the many implications of concern and controversy is uncertainty about what kind of incentives the new owners of the Luanshya mine (for example) have been given. Some have speculated that, because of the terms in the development agreements, there is more tolerance of mistakes made by Chinese firms than those by other investors. The government, as principal gate-keeper for Chinese investment, has often come to the defence of Chinese companies, even when they have flouted the regulations. Since government has become a major player in all this, it is difficult to enforce the law.

In Zimbabwe, national environmental regulations are undermined by the lack of similar protections at the local level. While rules and regulations at national level require that companies provide information on production and other related issues, licenses from local authorities do not require these. It can be concluded that as a result there is rampant smuggling of the minerals, short-changing the country in the process, as these avoid the sole marketing channel (the Minerals Marketing Company of Zimbabwe, MMCZ). Those who are caught in this web are small-scale investors, as the big corporations tend to go about their business according the book. However at one point, even the operations of Sino-Zim in the Midlands province had to be suspended until they complied with the environmental requirements.

Stakeholders have suggested  a two-pronged approach to the revision of mining law to encourage small-scale mining:

·      The setting up of an appropriate minimum work requirement – the Ministry of Mines and Minerals Development can work with industry to set minimum work that should be conducted in six months to a year to enable one to maintain a mining title. These requirements should be demanding enough to encourage effective utilisation of land under title, but should not be a deterrent.

·      Government must have effective structures to monitor the conducting of work on the ground. Merely charging US$100 per Ha will drive away genuine small-scale miners, as a standard block of 10ha will cost US$1000.

Concern has been expressed that Zimbabwe concluded co-operation agreements with China when the economy was at its lowest point, hardly a good basis for negotiating a win-win outcome. The Memorandum of Understanding (MoU) signed with the Chinese was basically driven by the Reserve Bank of Zimbabwe, concerned as it was with short-term stabilisation issues in the absence of funding from traditional western donors and multilateral institutions. Secrecy surrounds the mortgaging of resources for loans. This was a recurring theme in interviews with mining industry players.

About the author(s)

Claude Kabemba is the Director of the Southern Africa Resource Watch (SARW). In 2006, the Open Society Initiative for Southern Africa (OSISA) asked him to spearhead the formation of SARW. He holds a PhD in International Relations (Political economy) at the University of the Witwatersrand (Thesis: Democratisation and the Political Economy of a Dysfunctional State: The Case of the Democratic Republic of Congo). Before joining SARW, he worked at the Human Sciences Research Council and the Electoral institute of Southern Africa as a Chief Research Manager and Research Manager respectively. He has also worked at the Development Bank of Southern Africa and the Centre for Policy Studies as Policy Analyst. Dr. Kabemba’s main areas of research interest include: Political economy of Sub Saharan Africa with focus on Southern and Central Africa looking specifically on issues of democratization and governance, natural resources governance, election politics, citizen participation, conflicts, media, political parties, civil society and social policies. He has consulted for international organizations such Oxfam, UNHCR, The Norwegian People’s Aid, Electoral Commissions and the African Union. He has undertaken various evaluations related to the work of Electoral Commissions and civil society groups interventions in the electoral process in many African countries. He is regularly approached by both local and international media for comments on political and social issues on the continent. His publication record spans from books (as editor), book chapters, journal articles, monographs, research reports, and newspaper articles.

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