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Thursday, May 4, 2017

ANALYSIS/OPINION:

The global commodity meltdown, a consequence of the Chinese economic slowdown, has affected many a raw material-producing country around the world. But the largesse of an insatiable customer such as China was back in the boom times tends to mask underlying corruption and inefficiencies. With China now mired in its own titanic struggle for growth, these internal flaws are causing havoc for corrupt and incompetent governments that failed to anticipate the end of the boom.


Want a good case study? Consider Botswana.

The landlocked southern African nation had been seen as a model of success and prosperity on the continent, as the metals and commodity market boomed over the past decade. Literacy rates were high, HIV patients were receiving drugs, the national debt was low, and the government enjoyed an investment-grade credit rating.

But then collapsing prices for diamonds and other raw materials, coupled with apparent rampant corruption among government officials, tarnished the country’s reputation and threatened its economic future.

It is now obvious that the Botswana mining industry has been massively mismanaged in recent years, with executives and ministers siphoning money from the national cash cow for personal gain.

“It’s our turn to eat,” the former secretary general of the Botswana Democratic Party, Mpho Balopi, declared to The Voice newspaper in 2013. Multiple reports and investigations of government officials benefiting financially from their positions have surfaced.

Red tape and bureaucratic inefficiencies also have scared away foreign investors, Chinese firms have turned to rival nations for raw materials, including neighboring Zimbabwe. Government funds have been used to provide contracts for well-placed companies with ties to those in power. Fraud is rampant, and even nickel, which has strategic importance in communications and power generation, has been affected.

Norilsk Nickel, a London-listed miner, having acquired LionOre Mining International Ltd. in 2014, decided to sell its share of the Nkomati nickel and chrome mine in Mpumulanga, South Africa, to BCL, the Botswana state-owned mining company. The transaction was approved by financial regulators in September and was supposed to close a few days later. However, Botswana made no effort to complete the transaction. BCL was placed into liquidation in October, with Botswana officials declaring they did not have the funds to go ahead with the purchase and bankruptcy was the only option.

Norilsk Nickel Africa CEO Michael Marriott was, understandably, furious.

“BCL has failed to honor its obligations under the sale agreement concluded in October 2014,” he said in a statement, according to the news website Buzzfeed. “The failure of BCL to abide by its obligations under the sale agreement is unacceptable in any business transaction.”

Mr. Marriott warned that the closure of BCL “will have a devastating effect on the livelihoods of thousands of people, and a negative impact on the regional economies which rely on the BCL smelter. Botswana has an excellent reputation internationally as a country with a sound investment climate. These actions by BCL could jeopardize that reputation.”

Norilsk Nickel is reportedly preparing to sue Botswana’s government. Thousands of locals will lose their jobs.

Norilsk Nickel is not alone. International companies are fleeing the country. The exodus began in earnest in 2010 when BP decided to depart. Last year, South Africa-based Anglo American PLC, one of the world’s largest mining concerns, got rid of its coal assets in Botswana. Alrosa, the key competitor of De Beers in the global diamond market, is likely to think twice before taking on any projects in the country after the BCL scandal.

It all adds up to a cautionary tale when a country puts too many eggs in one get-rich-quick basket.

Botswana has failed its people miserably by mismanaging its economy, not preparing for and not knowing how to handle a slump in commodities markets when one inevitably comes along. The only way out now is to seek out foreign expertise to resolve the mess and to make foreign investors whole. Otherwise, the fraud and stupendous greed of the ruling elite will transform Botswana from a poster child of development in Africa back into the poor and arid land it was 50 years ago.

L. Todd Wood is a former special operations helicopter pilot and Wall Street debt trader, and has contributed to Fox Business, The Moscow Times, National Review, the New York Post and many other publications. He can be reached through his website, LToddWood.com.


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