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Do two things at once

by Hans Dembowski

In depth

Worker in Angola’s oil sector

Worker in Angola’s oil sector

A few weeks ago, Argentina’s President Cristina Fernández de Kirchner announced the renationalisation of the oil industry. The international business press immediately predicted failure, but was less eager to point out that Repsol, the Spain-based multinational that had most benefited from the privatisation policies of a former president, did not contribute much to improving the lot of Argentina’s people. By Hans Dembowski

Yes, the new policy devised in Buenos Aires may fail, but that remains to be seen. When Bolivia’s President Evo Morales announced he would renationalise extractive industries, the financial media were up in arms too. In the meantime it has become obvious, however, that international investors were not driven from Bolivia. Instead, the way Morales renegotiated deals with multinational corporations improved his country’s public finances and stabilised what was long considered a fragile state.

Business journalists in rich nations tend to see commodities only as marketable goods. But these resources mean much more to the people of developing countries, who consider them the lifeblood of their economies, the national treasure – and the cause of collective traumas. Colonialism was a system of brutal repression geared to providing dominant powers with commodities. Small elites became very rich, while masses slaved away in mines and on huge plantations with no hope of ever escaping poverty. ­Policy was made by foreign leaders. To some extent, members of indigenous elites were co-opted, but for everyone else, there was no chance for upward mobility. National independence, unfortunately, often only further em­powered local elites without changing much else.

Even today, resource abundance remains a curse for many countries. Oil-exporting nations, for instance, are more likely than others to be under authoritarian rule. As long as a regime controls the military, it can exploit the natural wealth without much concern for the fate of its people, so it sees no need to develop human resources.

Small scale mining of diamonds, gold and other precious goods spells
trouble too. Desperately poor people are digging and panning in remote ­forests and mountains where nobody enforces the law. All too often, they are exploited by local mafias or militias. In these areas, civil strife often goes on for years, and keeps simmering even after peace is declared.

Global demand for natural resources and agricultural commodities has been rising for years. One reason is the developmental success of many emerging markets. More competition means rising commodity prices. Advocacy groups, for good reason, point out that this trend is not only creating economic opportunities – it serves exploitative elites and criminal gangs too.

Global challenges, however, must be tackled at the local level. The best way to improve matters in the commodities sector is to improve governance in resource rich countries. It’s no iron law that abundant natural wealth must always lead to poverty and strife. Botswana, for instance, took a better path and succeeded in establishing a healthy regulatory context for its mining industry. Today, well-governed Botswana is much more prosperous than most sub-Saharan countries. Its example proves that it makes sense to do two things at once: ensure profitable business is viable, and design legislation that allows the entire nation to benefit from successful industries.