By Dr. Kariuki Muigua, PhD (Leading Environmental Law Scholar, Policy Advisor, Natural Resources Lawyer and Dispute Resolution Expert from Kenya), Winner of Kenya’s ADR Practitioner of the Year 2021*
Natural resources have been exploited in many countries around the world and used to boost economic development in these countries through the revenue derived from these endeavours. However, the exploitation of Africa’s natural resources is normally carried out by foreign Multi-National Corporations (MNCs) which have shown almost no regard for the impact of their actions on people in Africa. Although there are advantages associated with MNCs, they have also been vilified because in some cases they take a country’s natural resources, paying but a pittance while leaving behind environmental and social disasters.
Many MNCs activities have had the result of destruction of the environment and livelihoods of local populations and caused widespread pollution and even war, with the desire to control economically profitable natural resources being the reason behind several conflicts in Africa, especially in Congo DRC. MNCs have contributed greatly towards conflicts and taken advantage of the occurrence of conflicts to continue exploiting these resources. This scenario is not unique to DRC Congo only but is a reflection of what is happening across Africa. MNCs usually enter into negotiations with governments for the exploitation of mineral resources and thereafter are usually awarded contracts to exploit these resources.
When entering into these negotiations, these corporations usually aim at ensuring maximum profits from the undertakings which in most cases is done at the expense of the host State. The concession contracts are usually drawn in a manner that ensures that the companies have unlimited rights to the natural resources leaving no room for future amendments by the host state. This makes the host states to lose out on revenue, where there are changes in the fiscal regime in the future. Some of the contracts and deals are concluded in questionable manner mostly influenced by high level corruption as recently evidenced in the Kenyan case of Cortec Mining Kenya Limited, Cortec (Pty) Limited and Stirling Capital Limited v. Republic of Kenya.
The contract involved investments in the Kenyan mining sector, including a 21-year mining license for the extraction of rare earths at the Mrima Hill project, southern part of the country. However, there arose a dispute and claims out of the Government’s allegedly unlawful revocation of claimant’s mining license, following the discovery of new rare earths deposits by the claimant. The investor filed a case against Kenya before the International Centre for Settlement of Investment Disputes (ICSID) claiming USD 2,000 Million. However, Kenya argued that the contracts were awarded irregularly and were marred with corruption and the process did not follow the laid out legal requirements.
Although the corruption allegations did not stand, the Tribunal concluded that the Claimants’ failure to comply with the legislature’s regulatory regime governing the Mrima Hill forest and nature reserve, and the Claimants’ failure to obtain an EIA licence (or approval in any valid form) from National Environment Authority (NEMA) concerning the environmental issues involved in the proposed removal of 130 million tonnes of material from Mrima Hill, constituted violations of Kenyan law that, in terms of international law, warrant the proportionate response of a denial of treaty protection under the BIT and the ICSID Convention. The case was thus dismissed with costs. This is just one of the many examples of irregular contracts that are signed between developing countries, in Africa and elsewhere, and MNCs without regard to the existing laws or the accruing benefits to the host states and their people.
Besides MNCs, Foreign Direct Investments (FDI) also has significant impact on Natural Resources exploitation and environmental conservation and damage. Foreign Direct Investment (FDI) is a form of international inter-firm co-operation that involves significant equity stake and effective management decision power in, or ownership or control of foreign enterprises. It also encompasses other broader, heterogeneous non-equity forms of co-operation that involve the supply of tangible and intangible assets by a foreign enterprise to a domestic firm. FDI reflects a lasting interest by a resident entity of one economy in an enterprise that is resident in another economy. The ideological underpinning of this concept is the transmission to the host country of a package of capital, managerial skill and technical knowledge, as a potent agent of economic transformation and development.
The role of natural resources in economic development touches on many issues, from FDI to the environment to the level and management of exchange rates. MNCs are the main players engaging in value adding activities based on cross-border transactions. They base most of their industrial activities on natural resources. They derive the raw materials from the host countries and export the same either in their raw form or semi-processed one for value addition, which later comes back as a finished product ready for the local market as well as the international markets. For instance, with regard to oil, the exploration and production of oil results in foreign direct investment (FDI) inflows only when the activities are financed by foreign MNCs.
The dominance of MNCs in Africa’s extractive industries is because mineral extraction is capital-intensive, requires sophisticated technology, has long gestation periods and is also risky. There is no guarantee that oil may be discovered after spending an extensive amount of resources on exploration. As a consequence, the increased exploration and production in the region has led to a substantial increase in extractive industry FDI. Further, countries that are rich in natural resources, in particular oil, tend to have weak institutions, suggesting the direct link between FDI and natural resources exploitation. In such arrangements, the host countries often derive little benefits while the lion’s share goes to the MNCs and their home countries.
Indeed, it has been argued that MNCs investment distorts industrial growth in poor areas, and confirms their dependence and underdevelopment, rather than promoting the widespread effects of genuine development. Further, the unsustainable development of natural resource endowments has been linked to several basic limitations as a means of promoting broad-based economic development. Primary product exports have low value added compared to processed and manufactured goods, and the lion’s share of value addition occurs in developed countries, where raw materials are converted into manufactured goods with MNCs play a central role. In the end, the developing countries producing the natural resources end up bearing the brunt of environmental damage as the developed countries which are home to the MNCs reap the bulk of economic benefits.
*This is article is an extract from an article by Dr. Kariuki Muigua, PhD,Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards): Muigua, K., “Multinational Corporations, Investment and Natural Resource Management in Kenya,” http://kmco.co.ke/wp-content/uploads/2018/11/Multinational-Corporations-Investment-and-Natural-Resource-Management-in-Kenya-Kariuki-Muigua-November-2018.pdf. Dr. Kariuki Muigua is Kenya’s foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert. Dr. Kariuki Muigua is a Senior Lecturer of Environmental Law and Dispute resolution at the University of Nairobi School of Law and The Center for Advanced Studies in Environmental Law and Policy (CASELAP). He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Dr. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Africa Trustee of the Chartered Institute of Arbitrators and the Managing Partner of Kariuki Muigua & Co. Advocates. Dr. Muigua is recognized as one of the leading lawyers and dispute resolution experts by the Chambers Global Guide 2021.
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