Chinese lending to developing countries has come under sharp focus since the release of several reports that have reshaped the debate. Unsurprisingly, ... many news reports, like the BBC’s “China: Big spender or loan shark?” are ringing alarm bells. But these reports should rather prompt new thinking on how to establish a more efficient and sustainable lending regime.
It has been a period of reckoning for some of the world’s biggest resource companies in Africa and the governments they make deals with.
It started on 22 January when Geneva’s Tribunal Correctionel handed down a five-year prison sentence to Franco-Israeli magnate Beny Steinmetz on charges of grand corruption and money laundering.
Presiding judge Alexandra Banna concluded that “Steinmetz was the main beneficiary” of a criminal operation to secure mining rights in Guinea and that “all important decisions were taken with his agreement”.
Then the following day, a call came through from Washington DC: “You won’t believe this, but Trump just gave Dan Gertler a waiver on his Global Magnitsky sanctions.” The Global Magnitsky Act allows the US government to sanction people suspected of corruption and human rights abuses outside of the US.
What the startled caller explained was that five days before Donald Trump was due to evacuate the White House, Andrea Gacki, a career official in the Treasury Department’s Office of Foreign Assets Control, signed a licence suspending the Global Magnitsky Act sanctions on Gertler and his sprawling assets in the US and the Democratic Republic of Congo. The department sent a confidential letter to Gertler on the issue.
Gacki’s letter to Gertler, leaked by a dissident spirit in the Treasury, refers to “information submitted” to the office. But it offers no further reason why the department had decided to suspend the ban on Gertler transacting any business in US dollars for a year.
When the US Treasury sanctioned Gertler on 21 December 2017, it characterised him as an “international businessman and billionaire who has amassed his fortune through hundreds of millions of dollars’ worth of opaque and corrupt mining and oil deals in the Democratic Republic of Congo”.
That is a view based on its assessment that between 2010 and 2012 alone, the DRC “lost over $1.36bn in revenues from the under-pricing of mining assets that were sold to offshore companies linked to Gertler”.
As the sanctions locked the Gertler empire out of its US-dollar operations, he hired a phalanx of lawyers and lobbyists to get them lifted, having loudly professed his innocence and the perfidy of those activists who investigate his companies.
It leaves open the question of whether Janet Yellen, incoming Treasury secretary under President Joe Biden, will cancel the licence granted to Gertler. Such a move could trigger another round of lawsuits.
Glencore gets its turn
Then on 27 January, it was the turn of Gertler’s erstwhile partners in DRC, commodity trading giant Glencore, to be targeted in yet another international probe into corporate malfeasance.
This time, the British government is to act on a complaint of environmental damage and human rights abuses, as defined in the Organisation for Economic Cooperation and Development’s corporate guidelines, committed by Glencore at the Badila oilfield in southern Chad.
The complaints submitted by Raid, a London-based corporate watchdog, report that a toxic wastewater spill at Badila under Glencore’s management had poisoned drinking and bathing water causing burns, lesions, sickness and diarrhoea for more than 50 local residents. Glencore denies responsibility, arguing there is no evidence linking the people’s ailments to its operations
Glencore is also facing investigations in the United States, Brazil, Nigeria and in Britain in cases of money laundering and grand corruption. As institutional investors took in the implications of this, Glencore has lost more than half its value on the international capital markets.
All these cases, including the last one in Chad, complicate the company’s leadership transition this year, when long-serving CEO Ivan Glasenberg quits, handing over to his dauphin and fellow South African, Gary Nagle.
Glencore’s heavy investments in coal mines also raise questions about the company’s fate in an era of green energy transitions. Both Glasenberg and Nagle rose to business prominence as coal traders.
‘Big Oil’ in the Niger Delta
Then early on Friday, 29 January, Big Oil had its turn when the Dutch appeals court in Amsterdam ruled that it was holding the Nigerian affiliate of Royal Dutch Shell responsible for environmental despoliation caused by oil leaks in the Niger Delta. The company will have to pay damages.
This case, pursued by green lobbyists Friends of the Earth, has been snaking its way through the judicial system in the Netherlands for 12 years. At a later hearing, the court says it will determine the size of the damages, which will include the costs of fixing the environmental damage caused by the oil spills but also compensating farmers and fishermen and women for lost income due to the poisoning of their land and rivers.
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In the wake of the Dutch ruling, more environmentalists will be encouraged to claim against Shell and other Big Oil companies in Nigeria. A parallel case on environmental damage in the Niger Delta is already being heard in Britain.
Shell is also fighting charges, alongside Italy’s Eni, of grand corruption when they bought the OML245 oil block, one of Africa’s biggest, for a bargain price a decade ago.
Fixing the damage can be as contentious as allocating legal responsibility. Shell is said to have contributed hundreds of millions of dollars to an environmental clean-up in Ogoniland, monitored by the UN. But locals say little has improved.
Oil damage in Ogoniland is said to be worse than the Deepwater Horizon spill in 2010, for which BP was ordered to pay the US authorities more than $65bn in compensation.
Regardless of how these courtroom dramas play out – and all the companies and individuals in question have vowed to fight the charges of grand corruption and despoliation – they raise questions about finance and corporate responsibility as people in developing economies struggle to recover from the Covid-19 pandemic.
The race for revenue is already on
Reeling from a tsunami of capital flight last year, the frontier and emerging markets are hunting for funds.
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Crashing export revenue and falling investment means more governments in Africa are trying to rein in the $100bn the continent loses each year in illicit financial flows, often in opaque resource deals.
Companies and governments will come under pressure on all fronts in the coming months as the pandemic’s economic effects bite harder:
- Steinmetz is appealing against the guilty verdict and the sentence, but the Geneva tribunal is linking him directly, and not just his company, to the corrupt securing of the world’s biggest iron ore reserves in Guinea sets a precedent.
- It also reinforces a judgment won in New York by a rival mining house, Brazil’s Vale, that ordered Steinmetz’s company to pay $2bn in compensation.
- Vale is trying to scoop up assets they have linked to Steinmetz. The Geneva ruling could also reopen the deal between Steinmetz and Guinea’s President Alpha Condé, bizarrely mediated by France’s former president Nicolas Sarkozy. Guinea had already won a case against Steinmetz at the International Commercial Court in Paris but agreed to forgo compensation if Steinmetz started work on another mine in the country.
- Gertler’s position is still more complicated. Few lobbyists and lawyers in Washington DC think the Biden administration will let the Gertler waiver stand. It would send a message of weakness on corporate probity. Gertler’s friends, lawyers and lobbyists in the US capital – such as Trump’s lawyer Alan Dershowitz, former chief of the FBI Louis Freeh and Jared Kushner, son in law of the former president – will have little influence on the Biden administration.
- More threateningly for Gertler, his business partner and Congo’s former president, Joseph Kabila, is losing power in Kinshasa.
- The national assembly has been sacking Kabila’s allies: first it voted out speaker Jeannine Mabunda and, this week, it voted out prime minister Sylvestre Ilunga Ilunkamba. Now President Félix Tshisekedi wants to form his own government, with this new-found parliamentary support, free to strike its own security and mining deals.
- The question for Gertler, not the best of friends with Tshisekedi, is will those deals include him. Gertler’s companies, not the government, currently collect royalties from three of the richest cobalt mines in the country – that accounts for about half of the world’s production of this vital metal.
- Glencore, which has vainly tried to untangle itself from its business relationship with Gertler, is destined for another makeover this year. In its last restructuring, it grouped operations that would stand scrutiny into a public listed company, then hived off its more opaque affiliates. More radical changes are likely this year after Glasenberg steps down.
- Glencore remains a global giant and the political changes in the DRC might work out to its advantage. But should its new management decide to break up the conglomerate, the vultures would quickly circle.
- Shell also faces existential choices, along with every big oil and gas company. Losing legal judgements in Europe’s courts just advance the decision time. Nigeria’s oil services and production, once the second-biggest profit centre in Shell’s empire, are forcing the company to rethink its future.
- For 20 years, Shell has been selling its onshore assets in Nigeria and apart from the mega – and disputed – OML245 block, it shows little enthusiasm for new investment.
- A former Shell employee tells The Africa Report that international oil companies have a 10-year horizon, as Western economies prepare to phase out petrol and diesel vehicles.
- “For big investments, we’re going to see only projects that can be up and running in a couple of years and ones without legal complications ….that really narrows down the field,” adds the source.
As these companies work out their next moves, this week in the mid-pandemic era may prove to be a turning point in how such companies do business – and in some cases whether they do business at all.
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