How to Run the World

by Parag Khanna

  Just as every company once rushed to create a “China strategy,” then an “India strategy,” today thousands of multinationals are demanding to know “What’s our Africa strategy?” Despite the global economic slowdown, the circle of globalization has continued to grow, from the transatlantic economic expansion of the late Cold War era into the Far East and Latin America, to the rise of China, India, and the Persian Gulf over the past two decades—and now to Africa. Singaporean, Korean, and Indian investors are all over the continent, eager to replicate their own successes there.

  China certainly is as well. In 2008, The Economist ran a cover story depicting a crew of diplomats and sentries riding camels across the African desert—with a giant Chinese flag waving in front. While G-8 countries’ overall aid to Africa has diminished, China’s has doubled in the past five years—as has China-Africa trade, which now reaches $100 billion per year. China bundles aid and investment in packages in ways Western donors abhor, but they have no say over China. The country has already hosted the largest summit ever of African leaders, with fifty-two showing up in Beijing in 2006. Unlike the World Bank, China imposes no environmental or human rights restrictions on investments, making it much more efficient to cut deals with China than negotiate strings-attached agreements in Washington.

  If you didn’t know that China has become Africa’s top investor, alongside the United States and the European Union, you still wouldn’t. There are no big CARE packages or sacks of grain painted with Chinese flags. Yet when one World Bank representative arrived in Guinea-Bissau in the early 1990s, he quickly found out that China was already there in a big way. It was Mao Tse-tung who initiated the current phase of outreach to Africa. The Chinese built Kinshasa’s national assembly building in the 1970s and soccer stadiums in other countries through the 1990s. It has given $4 billion in aid and loans to Ethiopia, and established itself strongly in Addis Ababa to build relations with the AU diplomats based there—not least by building the new headquarters for the African Union itself.

  Diplomats on both sides like to say “What’s good for China is good for Africa.” But is the reverse also true? It’s not hard to decipher China’s motivations, given that 85 percent of Africa’s exports to China come from just five energy- and mineral-rich countries: Angola, Equatorial Guinea, Nigeria, Congo, and Sudan.4 Western diplomats accuse China of bringing indebtedness and resource dependency back to Africa just when the West has finally offered debt relief and is encouraging political and economic transformation. China counters that Westerners only forgave debt in order to issue new loans, and is fearful of a new provider bringing competition to the continent. And, no less ironically than Western powers, China supports African peacekeeping efforts while selling weapons en masse to the continent’s unprofessional and often rapacious armies. For Africa to benefit from China’s presence, Africans will have to manage China better than they did the Europeans. China claims it is helping African nations find their niche: Zambia is China’s “metals hub,” Mauritius its “trade hub,” and Dar es Salaam in Tanzania its “shipping hub.” For better or worse, the cobalt and copper needed to manufacture everything from jet engines and cell phone batteries are found in anarchic African countries. Like European companies, Chinese corporations are willing to work through warlords to get tin ore, copper, cobalt, coltan, and zinc. Shutting down the mines—which is frequently attempted but always fails—doesn’t do away with rebel armies and hurts workers who depend on them. Congo’s mining minister denounces Chinese “exploitation,” but if African leaders could take advantage of growing Chinese investment, they themselves could take over.

  Rather than maligning China’s presence in Africa, both Westerners and Africans should embrace the new competitive dynamic and make the most of it. Nigeria and Angola have explicitly devised oil-for-service barter agreements with China, awarding oil contracts to Chinese companies in exchange for infrastructure.5 The giant road and rail projects China is building, as well as the free health clinics and doctors the country funds, are all opportunities for Africans to leverage new infrastructure and learn new skills. The Chinese may seem in control now—bringing in their own labor and refusing to teach the locals—but roads and railways can spark new jobs for Africans for decades to come, and competent African regimes can confidently ensure that they do.

  This, too, is in China’s long-term interest. Investors know that their assets won’t be protected by states that don’t exist. Negotiating with local warlords, criminal gangs, and protestors to secure facilities will be a permanently tenuous state of affairs unless China actually helps stabilize African states. In other words, China has become a part of African governance whether it wants to or not. That’s why Hafsat Abiola of Nigeria has launched the China-Africa Bridge, an NGO that consults Chinese companies and diplomats on a case-by-case basis to boost the benefits of Chinese activity for Africans. If China doesn’t get the message, there is still the power of shame. Thanks to the Internet and mass media, Africans are watching China with far greater scrutiny than they were ever able to monitor European colonizers. In Zambia, China is already so exposed that one party ran for parliament on the platform that it would recognize Taiwan. If China doesn’t adapt, it could transition from being welcomed to resented faster than the amount of time it has taken for most of the world to even realize China was there. People are watching.

  The list of countries where China, capital, and crude are coming together is growing—a trend that demonstrates how globalization can make implementing global norms harder, not easier. When Canadian-based Talisman Energy pulled out of Sudan, Chinese (and Malaysian) oil companies were happy to pick up the slack. If America and Europe want to stop China’s cutting of exclusive, no-strings-attached trade deals across Africa, they will have to make their case in Africa, not Paris. One way would be to massively boost their investments in Africa, competing with but also setting a good example for China. Ironically, with newly built (often Chinese) infrastructure, there has rarely been a better time for African countries to pitch themselves as a manufacturing alternative to the increasingly expensive China. If Western donors and multilaterals can coach on environmental standards, while China continues investing in raw materials but hires more local labor under pressure from African governments, then the renewed great power interest in Africa can finally mean a race to the top, rather than to the bottom.

  Reversing the Resource Curse

  Were it not for De Beers, Botswana could very well have wound up like Sierra Leone. Like other postcolonial African states, Botswana is landlocked and suffered turbulent governance during its early independence years. But rather than engaging in a “blood diamond”–fueled civil war, Botswana’s government auctioned off resource rights to get the best price for them, taxes corporate revenues rather than accepting personal bribes, and invests some of its profits in worthwhile national development projects. De Beers has been essential to Botswana’s strategy of controlling diamond-export volumes to maintain a high price (which they split fifty-fifty with the government) and has also supported a domestic distribution plan for diamond wealth. Botswana president Festus Mogae now refers warmly to the “development diamonds” that account for 50 percent of the national budget and 70 percent of the country’s exports. When you buy that diamond for your loved one, Botswana thanks you as well.

  Sadly, Botswana is unique in Africa. Elsewhere, properly managing natural resources seems a hopeless task. Equatorial Guinea, one of the world’s top oil producers, is often called “Africa’s Kuwait,” yet more than half the population lacks access to safe drinking water. Exxon pumps most of the country’s oil, and the country’s dictator siphons most of the profits for himself and his cronies. In Chad, Exxon attempted to make the largest single investment in Africa ever: $3.7 billion to develop an oil field and a six-hundred-mile pipeline to Kribi in Cameroon. The World Bank hoped to put a buffer between oil profits and the tin-pot regime of Idriss Déby by creating a panel of citizens who would steer the money toward health
care, education, rural development, and a fund for future generations. What began as a model public-private partnership, however, quickly devolved into diplomatic disaster when Déby fabricated accusations that Exxon wasn’t paying taxes so that he could threaten nationalization and cut a deal with a Chinese company that wouldn’t scrutinize his spending: $30 million to buy weapons and a fleet of Maybach Mercedes.

  Oil and mining companies want what’s in the ground, not to interfere in what goes on above it, but over the past decades they have grudgingly become an integral part of the very governance of resource-rich African countries—corporate patrons are as vital a lifeline as superpowers were in the Cold War. But blaming oil companies for dictatorships is like blaming the future for the past. Many consider foreign investment in the extractive sector to be “bad FDI” (foreign direct investment) because it can skew economies and fuel civil wars. But there is no such thing as “bad FDI,” only badly managed FDI. Keeping oil in the ground doesn’t help Africa, especially since it presently accounts for 13 percent (and growing) of global oil output and represents a major energy exploration frontier.

  Sir Mark Moody-Stuart is the best example of how African oil has turned corporate executives into CEO-statesmen. When he took over as Royal Dutch Shell’s managing director in 1991, one of his main qualifications was a doctorate in geology, not political science. But in 1995, when Nigeria’s maligned and disenfranchised Ogoni tribe of five hundred thousand in the Niger Delta region grew tired of protesting the military government’s squandering of oil wealth, they turned their attention to Shell, which generated 15 percent of its global oil production in the country. Ken Saro-Wiwa, a noted Nigerian author, led peaceful mass protests with people chanting, “The flames of Shell are the flames of hell.” Amnesty International, Greenpeace, and Friends of the Earth joined the Ogoni cause, but governments said nothing as the Nigerian military began a brutal crackdown. Even Nelson Mandela didn’t intervene. After a 1993 coup that brought General Sani Abacha to power, Saro-Wiwa and eight other Ogoni were sentenced to death and hanged. Shell had already pulled its personnel out of the Delta, but its reputation was damned.

  Today, Moody-Stuart has a new mantra: “If it is a problem for society, it is a problem for business.” He made Royal Dutch Shell the first energy firm to combine its social and financial reports in one, believing that investors should see the full picture of the company’s performance.

  When Shell returned to Nigeria, it convinced the Nigerian government to spend more than 10 percent of its oil revenues on the communities in oil-producing regions. The Nigerian state of Akwa Ibom has been a prime beneficiary of this policy, its governor steering funds into job-creating infrastructure projects such as hotels, housing, and airports. But Nigeria isn’t hovering around the bottom of Transparency International’s corruption rankings for nothing—its kleptocrats work hard to maintain that dubious distinction. Since 1980, about $300 billion in donor aid—as well as half the country’s oil revenues—have vanished, and rampant poverty and banditry mean that an estimated 10 percent of Nigeria’s oil output is siphoned from pipelines and either locally consumed or sold on black markets each year. In 2009, Shell had to lend the cash-strapped Nigerian government $3 billion to help it sustain its commitment to oil-producing communities, beyond which Shell also funds schools—from buildings to textbooks and teacher training to adult literacy programs—and awards one thousand annual university scholarships. Since Nigeria remains Shell’s second largest source of oil and gas after the United States, Shell needs Nigeria, and Nigeria needs Shell.

  Many hope that Angola could serve as a better model for Africa’s new energy powers. After three decades of civil war in which a half-million people were killed, the country’s infrastructure destroyed, and the countryside littered with land mines, Angola is becoming the Nigeria of sub-Saharan Africa and even a potential export hub rival to South Africa. The country’s unemployment rate still hovers at 50 percent, its infant mortality rate is still among the world’s highest, and dreadful slums surrounding Soviet-like block apartments tell the story of Angola’s ideological history. Yet today Luanda is considered Africa’s Dubai: flashy cars, cranes and construction, and new bank branches opening daily as oil and diamond money seems to spill onto the streets, as it does in Baku on the Caspian Sea. China has won big infrastructure contracts and is a major oil buyer; Portuguese, Dutch, and Brazilian companies run flourishing financial and retail businesses; and agribusiness giants are negotiating to gain access to the country’s fertile soil to produce coffee, bananas, and sugar. An estimated one hundred thousand Portuguese have moved to their former colony in the last five years for high-paying jobs. Gun buyback programs have collected more than one hundred thousand AK-47s, giving people some confidence that the country is getting safer.

  Because so much rides on Angola’s success, the government can’t be left to its own devices. Instead, the country is becoming a vital test case for the Extractive Industries Transparency Initiative (EITI), which brings together NGOs, the World Bank, donors such as the United Kingdom’s Department for International Development, and the government to make public and monitor the spending of resource revenues. EITI also brings in the expertise to coach governments in setting up futures funds (like Norway’s or Kazakhstan’s) and other vehicles that ensure that oil money isn’t squandered the moment it comes in. Given the country’s legacy of civil war, Chevron has partnered with USAID and the conflict-resolution group Search for Common Ground to work in oil-producing areas to satisfy community needs. It will take all of these efforts and more to ensure that Angola doesn’t return to its own bloody past or Nigeria’s present scenario of constantly kidnapped police and oil workers.

  The conditions for a Magna Carta–style revolt of barons against the king aren’t visible in most African states, but the people of Angola, Chad, and Nigeria shouldn’t have to wait for the day their countries become democracies to enjoy the bounty under their soil. Where governments can’t be trusted to represent their people, investors and donors can require multi-stakeholder committees to submit aid requests and budget proposals. If governments don’t play along, the only solution might be to halt production or even pursue direct distribution schemes that challenge the government itself. When poor and corrupt countries can’t govern their own resources well, companies will have to play a part in doing it for them.

  That is certainly the case in the mining industry, where the next great finds of uranium and other minerals are in places such as the Andes Mountains and Siberia, regions so poorly governed—or simply ungoverned—that mining companies might make more reliable governors than governments. Indeed, in Bolivia, citizens are accustomed to lobbying multinational corporations for services their governments don’t provide. But rather than return to the nineteenth-century mining town model, Newmont Mining and Barrick Gold locate their staff directly in mining communities to coach local mayors in fiscal management (since the average mayor in Peru has about a sixth-grade education). They also hire part-time workers to spread the wealth to more citizens, source drinking water locally, and train locals to operate the mines.

  Not surprisingly, companies are often mistaken for governments—or at least are held responsible for what governments should do. To whom should the Kalahari turn when African governments threaten to cut off their water and send militias to intimidate them if they don’t vacate their land? What about the Tuareg of northern Niger, who remain destitute while the army seizes the uranium supplies on their land? It is very often NGOs who fight to turn resource curse into resource cure. Taking advantage of legal instruments such as the U.S. Alien Tort Claims Act, the International Labor Rights Fund sued Unocal in the 1990s on behalf of impoverished Burmese villagers for abuses committed by the ruling junta during the construction of the $1.2 billion Yadana pipeline, where villagers were paid little or nothing, and shot if they moved too slowly.

  While legal tactics have evoked reflex benevolence from companies, NGOs also actively lobby the same c
orporations to reshape their policies on the ground prior to getting sued. Rather than continuously publishing damning reports on blood diamonds, Global Witness decided to sit down with De Beers to forge what became known as the Kimberly Process for monitoring and certifying the origin of diamonds being sold worldwide. Now more than one hundred diamond companies, monitoring groups, and regional organizations are involved. The worldwide governance of natural-resource wealth is now emerging through such public-private networks.

  Naming and shaming can stop bad practices, but nothing works better to promote good ones than globalization. Ninety percent of the world’s private sector is made up of small- and medium-sized enterprises and state-owned firms that lack sophisticated management and are rarely subject to scrutiny—and have the worst track records of inefficiency and pollution. The UN’s Global Compact—which has eleven companies and six NGOs on its board—reaches this deeper, thicker layer of business worldwide by setting up national business chapters and workshops to promote sustainable supply chains the way Transparency International does for corruption. Long before most governments figure out how to regulate multinational corporations, multi-stakeholder programs such as the Global Compact are improving the state of their nations for them.