According to Dr Jason Hickel, an anthropologist at the London School of Economics, the per-capita income gap between global north and global south has roughly tripled since the 1960s. “Globalisation...is just not working for the vast majority of humanity,” he said recently, promoting his book, The Divide: A Brief Guide to Global Inequality and its Solutions.
For IC readers, the argument seems academic. But for those London-listed companies that seek return on capital in the global south, this imbalance presents the risk that policymakers take corrective actions.
A case study is provided by the 2013 documentary film Big Men, which follows Kosmos Energy’s (KOS) struggle to commercialise Ghana’s oil resources; before it listed in the US, and more recently in the UK. It is akin to an arm wrestle between the company and the incoming administration of President John Atta Mills over the pioneering Jubilee oilfield.
Local commentators looked east along the Gulf of Guinea to all the problems and violence in the Niger Delta, and questioned what ills the discovery could bring, such as exploitation or local corruption. In one scene, a dignitary from Norway gives a lecture on how the country had sought to retain as much long-term value as possible from its own fields.
Time has settled matters. For Tullow Oil (TLW), a partner for Kosmos at Jubilee and at the parallel TEN field, a more pressing concern is the border dispute with Côte d'Ivoire on the latter asset. But the documentary expertly reports the setting of the crucial terms on which capital can flow in and out.
For a live example, consider the case of Tanzania, on the other side of the continent. This week, Petra Diamonds (PDL) was the latest to be pulled into the mining sector crackdown under the administration of President John Magufuli. “We must benefit from our God-given minerals and that is why we must safeguard our natural resource wealth to ensure we do not end up with empty mining pits,” he said at a rally in July.
A parcel of Petra’s diamonds have been seized, and employees questioned (see this week’s Tip Updates), but its problems pale in comparison to those of gold miners Acacia Mining (ACA) and Shanta Gold (SHG) as a result of levies, royalties and, for Acacia, a punitive tax claim. The Tanzanian government has also signed a law requiring the government to own a minority stake in mining projects.
One argument for globalisation is that an offshore field such as Jubilee would not have been discovered in the first place without the risk appetite and long-term investment timeframe of Kosmos’s private equity backers. But if offshore oil exploration is at the tricky end of the resources scale, perhaps the risk and reward for Mr Magufuli is a different matter.
If we can hop continents for a minute, Peru-based VI Mining (VIM), the NEX Exchange newbie that Alex Newman has analysed in this week’s News Spotlight, takes a different tack. It is using private capital to build processing plants for local artisanal miners and, in so doing, formalising an informal, semi-legal industry.
It seeks to improve the lot of locals via improved commercial terms, geological and technical support, as well as funding local public services. For the cynic, these might appear as flowers on the chain, but it will be interesting to see how VI’s focus on “creating tangible benefits for those whose lives our operations touch” fares.
Rebels in the global south may need to contend with bondholders, and find equity finance for new projects. But when it comes to Africa, there is another source of capital: China. Tanzania, for example, has enjoyed billions of dollars for infrastructure from its new friend, and just last month a Chinese fleet stopped at Dar-es-Salaam, Tanzania's largest city. The balance of power can always tip.
Ian Smith is companies editor
