October 2011

1. Poli%cal
Economy
Assessments
can
secure
poli%cal
licenses
to
operate
and
increase
CSR
effec%veness
October
2011
Wri$en
by
Nicholas
Garre$
and
Dan
Paget
Resource
Consul:ng
Services
Ltd

2. Contents
1. Poli:cal
challenges
in
the
mining
sector
(country
and
site
focus)
2. ‘Poli:cal
license’
to
operate
3. Sinophobia
and
populism
in
Zambia
4. Rio
Tinto
and
elite
poli:cs
in
Guinea
5. Poli:cal
Economy
Assessments
(PEA)

3. Preamble
• This
is
a
conversa:on
igni:ng
presenta:on
and
not
a
comprehensive
treatment
of
the
subject
area.
• ‘Poli:cal
economy’
broad
term
–
in
private
sector
applica:on
it
is
understanding
the
‘rules
of
the
game’
and
ac:ng
on
stakeholder
incen:ves,
power
and
the
ins:tu:onal
reali:es
to
an:cipate
‘unforeseen
consequences’
(risk
management
–
deeper
analy:cal
focus,
than
standard
‘external
affairs’
or
‘poli:cal
risk’
provider
updates)
• Best
applied
in
‘complex,
but
high
reward
environments’
• Ini:al
exercise
to
inform
market
entry
or
design
of
CSR
programme;
BUT
also
regular
exercise
to
inform
‘external
affairs’
management
and
opera:onal
management.

4. Poli:cal
challenges
in
the
mining
sector
• Challenging
rela:onships
with
local
stakeholders
– From
above,
by
elites
– From
below,
by
mass
cons:tuencies
and
local
residents
• Challenging
ins:tu:onal
environment
(‘rules
of
the
game’)
• CSR
programmes
face
opposi:on
– Unforeseen
resistance
from
local
stakeholders
– Opposi:on
from
vested
interests
• CSR
programmes
not
honed
to
local
reali:es
– Centrally-­‐developed
(blue
prints)
– Do
not
cater
to
local
ins:tu:onal
infrastructure
constraints
and
socio-­‐
poli:cal
incen:ves
and
responses
1

5. Poli:cal
licenses
to
operate
• Poli:cal
challenges
o^en
arise
from
mul:na:onal
mining
companies’
interna:onal
loca:on
vis-­‐à-­‐vis
mining
sites
• Mining
companies
face
similar
challenges
to
those
faced
by
development
agencies:
– CSR
programmes
are
not
always
context-­‐specific
– Strong
analy:cal
frameworks
and
process
driven
interven:ons
leave
companies
blind
to
the
(o^en
unintended)
effects
of
their
programmes
• Mining
companies
need
to
develop
and
maintain
‘poli:cal
licenses’
on
top
of
‘social
licenses’
–
if
you
don’t
have
poli:cal
buy-­‐in
at
all
levels,
the
best
local
social
rela:ons
won’t
help
(e.g.
First
Quantum
in
DRC
–
lack
of
poli:cal
support)
2

6. Chinese
investments
and
populism
in
Zambia
• A
significant
Chinese
presence
– Chinese
enterprises
form
a
significant
minority
of
mine
owners
– China
became
the
source
of
47%
of
FDI
to
Zambia
(Mwanawin
2008)
• Resentment
and
Protest
– Protest
and
shoo:ng
at
Chambishi
Mine
in
2008
over
low
wages
– Shoo:ng
of
13
workers
in
at
Collum
Coal
Mine
in
2010
– Explosion
at
Luanshya
in
2006
• Poli:ciza:on
of
mining:
– Michael
Sata,
populist
opposi:on
leader,
cri:cized
irresponsible
investment
and
‘neo-­‐colonial’
extrac:on
without
development
–
Calls
for
puni:ve
taxes
over
the
mining
sector
3

7. Chinese
challenges
might
have
been
an:cipated
and
managed
• There
is
a
history
of
firebrand
urban
radicalism
in
Zambia
• Many
Zambians
felt
robbed:
– Zambian
mines
were
sold-­‐off
cheaply
in
the
1990s,
and
mining
companies
profited
from
rising
mineral
prices
in
the
2000s
– Chinese
investment
rose
as
mining
companies
began
to
make
large
profits
• Chinese
mining
companies
o^en
pay
worse
wages
than
others
• Close
rela:onships
between
Chinese
and
Zambian
governments
began
to
look
collusive
• Sata
was
able
to
connect
popular
frustra:on
with
the
mining
industry
and
cosy
interna:onal
rela:onships
to
a
Chinese
face
3

8. Rio
Tinto
and
elite
poli:cs
in
Guinea
• Four
concessions
that
make
up
Simandou
cons:tuted
the
largest
undeveloped
iron
ore
asset
in
the
world
• Rio
Tinto
was
granted
the
concession
in
2002
under
Conte
regime
• In
2008,
President
Conte’s
regime
was
fast
losing
support
• The
Northern
two
blocs
of
the
concession
were
rescinded
by
a
regime
desperately
seeking
popular
support
• A^er
a
coup
in
late
2008
by
Captain
Camara,
further
threats
were
made
against
Rio
Tinto
4

9. Instability
in
an
ailing
regime
and
a
fragile
transi:on
• Rio
Tinto
was
likely
to
suffer
collateral
damage
in
elite
poli:cs
• Conte’s
regime
had
poor
prospects
when
the
license
was
granted
in
2002:
– 18
year
old
semi-­‐authoritarian
regime
– Civil
wars
in
neighbouring
countries
– Instability
underpinned
by
poverty
• Unstable
regimes
are
likely
to
shi^
their
favour
to
other
business
partners
to
buy
the
support
of
important
power-­‐
brokers
• Rio
Tinto
could
not
have
prevented
the
coup
or
the
transi:on,
but
might
have
been
be$er
prepared
4

10. Poli:cal
Economy
Assessments
(PEAs)
• In
both
Zambia
and
Guinea,
underlying
risks
became
manifest
suddenly
and
only
once
they
were
well-­‐developed
• A
PEA
returns
poli:cs
to
the
heart
of
company
strategy
development
• A
PEA
examines
prevalent
ins:tu:ons
and
the
incen:ve
structures,
power
and
rela:ons
of
poli:cally
relevant
actors
and
provides
a
basis
for
understanding
and
ac:ng
upon
stakeholder
behaviour.
• PEAs
are
applicable
to
country
and
site
level
and
are
typically
1-­‐2
month
on
the
ground
exercises
undertaken
by
expert
teams
with
knowledge
in
PE
methodologies
and
the
locality.
• PEA
results
provide
an
informed
basis
for
engaging
stakeholders
and
building
coali:ons
for
the
support
of
the
project,
raising
and
addressing
ins:tu:onal
capacity
constraints
with
partners,
and
improving
private
-­‐
public
dialogue
around
the
development
of
the
mining
sector.
• PEAs
should
feature
in
a
company’s
porkolio
of
risk
management
tools.
5

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