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sharing in governance of extractive industries

The European Investment Bank (EIB) has frozen loans to Glencore, following complaints by NGOs and some members of the European Parliament over the company's alleged tax evasion and poor environmental governance in Africa. This could be the first step in the EIB freezing the financing of all mining projects in Africa. Analysts predict that this is an opportunity for the Chinese, Indians and Russians to move in. Is this a net positive for the African host countries?

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The Freezing of loans to extractive companies that have questionable records of tax evasion, allegations of bribery, fueling conflicts and poor environmental governance is a welcome move. It will help in reining in errant companies and those that act with impunity.

However, the gap created by taking out some of the naughty companies is not all good news, because it offers entry of players that are not accustomed to the culture of transparency and accountability to the overall masses. For example, many Chinese, Indian and Russian companies are accustomed to working with governments and the associated officials and have never considered that civil society or the general public have anything to offer to their effective operations. This has resulted in several abuses including bribery of government officials, fueling of political feuds where the sitting government is construed as having failed to toe the "correct political and business" line, supported assasinations of activists that challenge the status quo, etc.

 

Such freeze could be effective, if the other players in the extractive industry can also be brought to book as the Glencore case.

 

African governments need to ensure that there are effective, efficient and strong policy, legal and institutional mechanisms in place to govern the extractive sector. Such mechanisms should be free of political influence peddling. However, what we see on the African continent is the opposite.  Could the problem be the ineptness of Africa leaders or a collusion between industry and government offficials to have weak or failed regulatory systems in place? Should there always be political change as a result of armed conflict in Africa? What can Africa do to avoid the syndrome of dictators as soon as high value natural resources are discovered?

Henry - Well said about the need for the proper policy, legal and institutional mechanisms. 

In the interest of fairness, it is my understanding that the allegations of tax evasion by Glencore are not proven. 

What I find particularly interesting about this case is that the pressure to freeze the loans to Glencore came from civil society and the governments of Glencore's home country/continent. I think we both agree that such checks and balances are desirable; therefore, do such potent pressures exist in the home countries of of the Chinese, Indian and Russian firms which are likely to replace the European countries under such circumstances? 

I don't have the answer to that, but it is an important calculation to make even as we pursue good intentions of punishing errant companies. Of course, the frameworks that you mention--and their enforcement!--will be the ultimate solution. 

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