Just a little something from a paper I’m reading:
Predatory investors.
For some firms, paying the occasional bribe is an unfortunate reality of doing business in the oil and mining sectors in Africa. For others, willingness to engage in business transactions that are exploitative, illegal, or morally questionable constitutes a comparative advantage. These investors are oftentimes free from many of the constraints that deter mainstream investors from doing business in states experiencing conflict or political crises. They typically have an extremely high tolerance for political risk and show little concern for the implications of doing business with corrupt politicians or rogue regimes. Instead, the potential upside for these predatory investors is substantial compared with the marginal downside of a deal that falls through. With the right connections and willingness to operate amid relative chaos, these investors can make a fortune in resource-rich fragile states.
For diplomatically isolated and financially desperate regimes, these investors represent a much-needed lifeline. The leaders of resource-rich fragile states often lack the tools, expertise, and connections needed to circumvent the constraints such regimes face. The ability to evade such constraints is a sine qua non for successful predatory investors in the extractive industries. They provide access to financing (typically at a hefty markup) so the government can remain financially afloat. They help broker and conceal commercial transactions between repressive governments and mainstream investors who might 11 The Anatomy of the Resource Curse otherwise shy away due to reputational concerns. These brokers even help pariah regimes get around travel bans, asset freezes, and arms embargos. In essence, these profiteers offer a gateway to the outside world (see Figure 1).
Predatory investors pose a particularly pressing challenge in resource-rich states when incumbents are financially desperate or diplomatically isolated. Glencore, a Swiss commodity trading company, and its founder, Marc Rich, became infamous for “busting UN embargoes to profit from corrupt or despotic regimes.”30 A 2002 investigation by the U.S. House of Representatives found that, “[d]espite clear legal restrictions on such trade, Rich…engaged in commodities trading with Iraq, Iran, Cuba, and other rogue states that have sponsored terrorist acts.”31 From the late 1970s to the early 1990s, Rich purchased crude oil from regimes facing international sanctions, such as Iran and Iraq, and earned over $2 billion selling it to South Africa, circumventing apartheid-era sanctions.32 Figure 1. A Gateway to the Outside World 12 ACSS Special Report No. 3 In resource-rich fragile states, predatory investors are not merely bystanders conducting business as usual in an unsavory environment. They often proactively empower unaccountable leaders and benefit directly from conflict and political crises.
All history now of course but it kind of raises the question that if you’re really only making dough by doing stuff that other people won’t then you won’t have a whole lot of competitive edge to fall back on when the tide goes out, no? Full report.
