Politics and Mining – a Grubby Mixture
For those who revel in a juicy courtroom drama, there’s a fascinating tale unfolding in the High Court in London at the moment. It’s a story of (alleged) multi-million dollar side-payments, inducements and commissions featuring a cast of characters ranging from rulers and politicians to industrialists and mysterious middle men, surrounding the supply of alumina to the Alba smelter in Bahrain. (Incidentally, to give credit where it is due, one of my friends in Bahrain tells me that the best coverage of this trial to be found is in the Metal Bulletin, although of course it has been reported elsewhere as well.) The trial is still going on, so this is not the time to prejudge the outcome, and anyway, this is not a piece about corruption. Alba is just the trigger, in that it draws our attention to the way in which politics and the mineral industry often walk hand in hand.
Unique Position of Extractive Industries
That shouldn’t be a surprise, of course, because there is a qualitative difference between the extractive industries and other sorts of manufacturing. Why? Because the resource is finite. Now, a small caveat here; I am not one of those who believes we are heading for shortages. The earth’s crust contains lots of the minerals we need; true, they may be in more awkward places to exploit, but technology can handle that. Each orebody, each well, though, is finite, and that’s why politics and mining and drilling are so closely intertwined. You only have one shot at each deposit, so you better get it right.
The developed economies with worthwhile resources can afford to be relatively sanguine about this. They have largely tried and tested tax and royalty regimes and – mostly – reasonable controls. (But even here the unexpected can cause debate; think of the Australian mining tax.) On the whole, though, commercial operators are licensed to mine or drill, and the politicians keep in the background.
Source of National Income
It’s a different world, though, in smaller, developing economies where the exploitation of the mineral resource is often by far the major generator of national income. In that case, the politicians have to keep a tight control over the extraction of the stuff in the ground, because without it, their hold on power may look a little precarious. And, to be fair, one can understand why. As the resource is finite, the politicians know that they hold a heavy responsibility of husbanding it for the benefit of the population as a whole. That’s how it should work – the geological good fortune serving the interests of the whole country. It does work like that in many cases; responsible management and professional operations.
However, sometimes the truth is very different and politicians begin to believe that the natural resources are part of their own personal wealth. How many dictators from resource-rich countries have died extremely wealthy, while the development of their nations has failed to happen? We can all find plenty of examples of that. I said at the beginning that this wasn’t a piece about corruption, but in the end, if it’s about the mix of politics and the extraction of resources, it’s almost inevitable that it becomes so. The normal scapegoats – at least first off – are the international mining and drilling companies. I’ve lost count of the number of hatchet jobs I’ve seen or read over the years directed at Glencore/Anglo/Rio/at al (delete as appropriate); mostly they turn out to be dramatically exaggerated, while the spotlight is not so often turned on the political regimes who are probably at least as, if not more, culpable in their desire to profit themselves from the deposits.
Cause for Concern
Perhaps what the Alba case (allegedly) seems to be showing us is that the desire to make gains out of mineral deposits is not in fact the exclusive preserve of those international mining companies by shining a light on what appear to be some pretty murky dealings. Why this may give cause for concern is clear; as I said above, the earth is not short of mineral deposits, but increasingly new finds are more difficult to exploit. Either the problem is technical (sites that are deeper/colder/more remote, for example) or, and this is the point, in what are euphemistically called ‘difficult’ regimes.
There probably isn’t a solution to this issue; changing human reactions to power and wealth is unlikely. It’s just interesting when we catch a glimpse of the grubby things happening below the surface. And before anybody tells me that Bahrain is not a producer of alumina – the resource underpinning what is alleged to have been going on there is of course the oil and gas that power the smelter. Underhand dealings may be alleged in the supply of alumina, but at the root of it all is the energy that fires the smelter and its associated industries. The availability of that is what enables everything else to happen.