RWI Advisory Board Chair Joe Bell has been at the forefront of RWI's and the International Senior Lawyers' Project's efforts to help resource rich countries get a more equitable deal for their mineral riches through pro-bono technical assistance to governments. This June, he spoke with RWI about this work.
What does it mean for a country to get a better deal?
Getting a better deal has a number of dimensions. The most obvious one is making sure a country gets a fair share of the value of its resources. But just getting more revenue isn't the full job. We're also very concerned that resource development be utilized for social development, both for communities effected by resource production and groups outside.
People in power today are greatly concerned about today's revenues, and new governments may have very intense, short-term needs. But you can make some very bad tradeoffs for short-term benefits.
How did you start doing this work?
The first two contract renegotiations I did were in Liberia, for the International Senior Lawyers' Project (ISLP). It was just when President Ellen Johnson Sirleaf was elected. She inherited a number of transactions put in place by the transitional government and wanted two key contracts, with ArcelorMittal and Firestone, looked at again. Of course it could be done by paid lawyers if they were available and the country was able to afford them. But Liberia had no money and needed to move right away.
ArcelorMittal was not yet working in Liberia and was very anxious to get in. Liberians were very concerned that the contract appeared to give ownership of the port and rail to ArcelorMittal. But there were other problematic aspects dealing with social and fiscal provisions. Some areas remained to be resolved after our renegotiation, but there was no question that the share of revenues that accrued to Liberia was increased and and the transaction was made much more transparent.
Firestone, on the other hand, has been in Liberia since 1926. If you talk to some Liberians, everything that's wrong in Liberia is because of Firestone; talk to some others, and maybe the few things that were right were because of Firestone. The Firestone contract was much better than Mittal, but still it was not providing a full return to the government. The biggest losses were in transfer pricing. That's something that's difficult for the U.S. to handle well, and it's practically impossible for Liberia to handle because of their weaker administrative capacity. We made a breakthrough and got the first contract that I know of that publicly tied the price of the commodity sales directly to what the price was on the Singaporean and Malaysian markets.
What happened next?
After Liberia, we became involved in other contracts, and Revenue Watch, working with ISLP, began to engage in negotiations in Sierra Leone and to provide critiques elsewhere, for instance Mongolia.
There were many technical improvements in the contracts. We began to require the investor to identify all the beneficial owners of the investing entiry—not just who owns the immediate entity, but all the way up the chain. One of the big problems in West Africa is there are a lot of bad actors in this industry. It’s one thing to get disclosure of contracts; we wanted disclosure of ownership. We got that, and now other people are picking up the concept. RWI and ISLP made the argument that good, legitimate companies have no reason to worry about disclosure of ownership, and it became the norm.
How does technical assistance compare in different countries?
There are differences and similarities between countries like Liberia and Mongolia. There were 14 years of terrible civil conflict in Liberia. People left the country, schools were interrupted. It was terribly destructive of human resources. You can do a lot of training, but people need to already have some experience. Obviously Mongolia is a wealthier, more technically advanced society. The potential human resource base is much larger. But still, within the government, many of the same problems remain.
There is the general tendency in many countries to want to get your money right away because you have immediate political needs. In Mongolia, the politicians promised a fixed amount to every citizen. The only way they could do that was to borrow from Rio Tinto against future revenues. In Liberia, we had a contract of a totally different scale, but there was a shortfall in the budget. Liberia couldn't borrow, so it negotiated with the Chinese to get an early payment in exchange for very favorable terms. So this problem of short- versus long-term benefits is a real political problem. But it's easy for me to take the longer view, because I'm not governing. In Liberia, if the government falls apart, the country could fall apart. It's an extraordinarily serious responsibility.
How can we balance technical assistance to governments with civil society capacity building?
For these agreements to be stable, you have to have strong public support. And that means that you have to have a strong public understanding of the issues, in the good times and the bad. Right now everyone is flush and prices are high, but when commodity prices went down very briefly, countries like Zambia panicked and abandoned their plans.
We're a failure if what we do amounts to what we always joke about Angola, which is that it's wonderful at maximizing revenue, but that only maximizes the amount that's available to steal. If resource development is done right, it means more money for schools, better health services, better roads, business dynamics that may be better. You have to bring in the revenues, but even more importantly, you have to spend them intelligently.
At the end of the day you have to have an educated public in order to get the revenues and then to continue to insist that they are spent and delivered in a way that actually delivers a benefit to ordinary citizens and causes the country to grow.
