MUNOFS IV 2011
Forum:
General Assembly Third Committee
Issue:
Measures to prevent neo-colonialism as a consequence of
foreign investment in Africa
Student Officer:
Wu Wei
Position:
Deputy Chair of General Assembly Third Committee
Introduction
Conventional economic wisdom dictates that foreign investment and
production for export are crucial when it comes to tackling underdevelopment
and eradicating poverty. With Foreign Direct Investment (FDI) in Africa
expecting to hit US$150B by 2015, while many would wish to applaud the
growth of foreign investment in African nations, there have been burgeoning
debates concerning such investmentsʼ political implications. The crux of these
debates lies in foreign investmentsʼ potential to be tools of neocolonialism.
Instead of being used for the development of African economies, foreign
capital is used to exert de facto control over the domestic countries and
exploit Africaʼs rich resources. Foreign businesses and governments are also
able to influence and decisively affect African nationsʼ economic and political
polices through the threat of divestment. The idea of developed countries
involving themselves in the affairs of African countries at the expense of the
African countries through economic and fiscal means is further expounded by
the Dependency Theory.
Key Terms Defined
Neo-colonialism: “The economic and political policies by which a great
power indirectly maintains or extends its influence over other areas or people.”
(Merrian-Webster)
Dependency Theory: The main premise of this theory is the inability of the
dependent countries to develop and sustain an effective autonomous
development model. The dependent countries (Third World countries) can
only expand their economy as a reflection of the expansion of the economies
of dominant countries (First World countries) and their economies are unable
to develop into advanced economies. Often, the Third World countries remain
MUNOFS IV 2011
raw natural resource providers for the dominant countries, suggesting that the
dominance-dependence relationship is exploitative in its nature and
perpetuates underdevelopment in the Third World.
Divestment: Withdrawal of foreign funds from the domestic countries
Foreign Investment: Foreign investment can be divided into four main
categories: FDI, FPI, commercial loans and official flows.
Foreign Direct Investment (FDI): “A category of cross-border investment
made by a resident in one economy (the direct investor) with the objective of
establishing a lasting interest in an enterprise (the direct investment
enterprise) that is resident in an economy other than that of the direct investor.
The motivation of the direct investor is a strategic long-term relationship with
the direct investment enterprise to ensure a significant degree of influence by
the (former) in the management of the (latter).” (OECD Benchmark Definition
of Foreign Direct Investment, 4th ed. 2008.)
Foreign Portfolio Investment (FPI): Foreign purchases in the stock and
bond markets. Such investments, as opposed to FDI, are volatile and usually
short term.
Official Flows: Official development assistance/aid
Commercial loans: Bank loans granted to foreign businesses or
governments
Divestment: Withdrawal of foreign funds from the domestic countries
UN Perspective
The United Nations maintains its position that foreign investments are needed
for the development of African economies, as seen by constant efforts of the
United Nations Development Program to encourage foreign investments.
However, it does realize that neocolonialism can indeed be a consequence of
foreign investments. As such, it would to like to issue regulations and
introduce measures to prevent neocolonialism in the aim of ensuring that
respect for any involving nationsʼ sovereignty, a fundamental principle of the
United Nations as enshrined in Article 2 of the UN Charter, is upheld.
MUNOFS IV 2011
Major Parties Involved and Their Views
African Countries
It is no doubt that all African governments oppose any form of neocolonialism
and would not tolerate infringement of their countriesʼ sovereignty.
However, in the attempt to gain capital necessary for development, African
leaders might or perhaps even have to conclude agreements that are
exploitive in nature and harm their countriesʼ economies in the long term. This
is seen through the “farmland grab” trend, in which African governments are
leasing vast tracts of land to other countries and investors at minimal land
fees with vague promises of jobs and infrastructure.
China
While the Peopleʼs Republic of China was already present in Africa in the
fifties, it has a more proactive approach in developing Sino-Africa relations in
recent years.
The Chinese have extensively involved themselves in the major industries in
Africa, ranging from the mining industry in Zimbabwe and Congo to the oil
drilling sector in Nigeria and Sudan. China has being making several
purchases across the African continent, importing platinum, copper and cobalt
from Zambia and timber from Congo Barazaville. It is estimated that the
Chinese currently have investments in 27 major oil and gas projects and they
have showed no sign to decrease investments in African nations. In their trips
to Africa in 2006, Chinaʼs Prime Minister Wen and President Hu made
promises to commit US$2.5B investment in Egypt and also extended similar
promises to other African nations. The US$5B China-Africa Development
Fund, Chinaʼs venture-capital fund for Africa, is another example of Chinese
foreign investments in Africa.
Chinaʼs zealous enthusiasm in investing in African states, however, has been
placed under scrutiny. Some have attributed the countryʼs generous
investments in Africa to the fact that China needs to obtain natural resources
to sustain its rapidly growing economy. China is currently importing 30% of its
oil from Africa and its state-owned giant energy enterprise China National
Petroleum Corporation is the largest shareholder of the Greater Nile
Petroleum Operating Corporation, the company that controls almost all of
Sudanʼs oil fields.
MUNOFS IV 2011
Representatives from Western countries have openly voiced their concerns
with Chinaʼs involvement in Africa. German development ministry
parliamentary secretary Karin Kortmann has been quoted saying that "our
African partners really have to watch out that they will not be facing a new
process of colonization". In a June 2011 television interview in Lusaka,
Zambia, U.S. Secretary of State Hillary Clinton has also said that Chinaʼs
influence over the continent has showed signs of “new colonialism”.
Some of the African leaders are warning against the threat of neocolonialism
as a result of Chinaʼs investments as well. South African President Thabo
Mbeki, whose country sells iron ore to China, has talked about “potential
danger” of Sino-Africa ties becoming a colonial relationship, stating that
"China cannot only just come here and dig for raw materials and then go away
and sell us manufactured goods".
Despite all these charges against China, it is worthy to note that Chinese
investments has been well received by many African governments as these
governments view Chinese investments as a relieving alternative to Western
investments which often comes with numerous political and economic
conditions. Furthermore, Chinese loans, mostly issued by Chinaʼs export
credit agency Export-Import Bank of China, usually have better terms than
those offered by Western commercial banks.
France
France has been a major trading partner of the African nations for many
years. Many French conglomerates such as France Telecom, Bollore, Total
and Elf have signed major business deals with African corporations. More
than 120 French companies operate in South Africa alone and French
President Sarkozy has confirmed in the biannual Franco-African Summit that
the French Development Agency will continue to invest heavily in Africa,
bringing the total sum of French financial commitment to Africa to be over
€10B over the next 5 years.
The Frenchʼs economic influence in African French speaking countries is
particularly strong. Apart from the fact that French companies have strong
presence in the Francophone region, the CFA Franc is also tied by a fixed
exchange rate to the Euro (previously the French Franc before the European
Union was formed).
In Côte d'Ivoire, a former French colony, French investments take up more
than 50% of the total FDIs and the French Bouygues group dominates
important public utilities and construction industries. In light of extensive
MUNOFS IV 2011
French investments present in Côte d'Ivoire, France, with its historical
baggage of previously being one of the chief colonial powers in Africa, has
been accused of practicing neocolonialism when the French intervened
militarily in the 2002 Ivorian Civil War.
Germany
Germany has 39 bilateral investment treaties and several energy and raw
materials partnership with various African nations.
Apart from promising support for the African investment climate, German
Foreign Minister Westerwelle stressed that Germany is offering Africa
“[partnerships] between equals” and seek to cooperate in a way that is
beneficial to both parties.
Gulf States
Source: Wall Street Journal (2009)
Gulf States and their government-backed companies have spent around
US$15B in FDIs in sub-Saharan Africa from 2007 to mid-2008 and some view
investments from the Arabs as a form of counterweight to dependence on
Chinese investments.
MUNOFS IV 2011
Foreign investments from the Middle East are expected to remain substantial
as food insecurities push Middle Eastern governments to invest in African
uncultivated arable land. The Saudi-based Menafea Holdings has announced
a US$125M agricultural investment in Zambria while United Arab Emirates
has acquired 400,000 hectares of land in Sudan.
India
Trade volumes between India and Africa have grown from US$7.11B in 2001
to US$32.7B in 2010. At the 2011 India-Africa summit, Indiaʼs Prime Minister
Manmohan Sigh addressed the India-Africa partnership and said that India
will offer US$3.6B in credit lines over the next three years. India also plans to
build a US$2.12B railway line between Ethiopia and Djibouti and develop set
up diamond processing facilities in Botswana to assist Botswana to “move up
the value chain”.
International Financial Institutions (IFIs)
As Europe and the United States hold 47% of the International Monetary Fund
votes and 61% of the World Bank votes between them, the IFIs are seen to be
Western-dominated. Critics protest that IFIsʼ policies and programs are
heavily influenced by these Western states and thus are neo-colonial
strategies that will benefit the West rather than strategies that will focus solely
on benefiting the African states.
IFIs are also criticized for issuing loans with conditionality, which often calls
for liberalization of the economy and privatization of nationalized industries.
Loans are only given when countries comply with program conditions and this
is argued by the critics to be neocolonialism backed by financial coercion.
In addition, the involvement of IFIs in formulation of economic programs (i.e.
Structural Adjustment Programs) in Sub-Saharan Africa has been growing.
This is because the terms of conditionality required for IMF and World Bank
lending has increased and more technical advice from IFIs is provided to the
African nations to support the execution of planned projects and policies.
South Korea
Accounting for 2.6% of Africaʼs total trade of US$629M in 2009, South Korea
is an emerging trading partner with the African states. The East Asian state is
also becoming one of the key investors in Africa. In July this year, South
Korean companies such as steelmaker HSG and electronics producer LG
have announced their plans to build manufacturing plants in South Africa.
MUNOFS IV 2011
Korean investments mainly flow into natural resource projects such as oil
mining in Nigeria.77% of total FDIs from South Korea goes to the mining
sector.
Headlines were made in 2008 when South Koreaʼs Daewoo Logistics
attempted to sign a 99 year land lease agreement with Madagascar involving
1.3 million hectares of arable land (half of Madagascarʼs arable land). The
lease agreement collapsed under pressure from claims of neocolonialism.
United Kingdom (UK)
UK-Africa bilateral trade in goods exceeded £20B in 2009 and UKʼs FDIs has
also grown steadily over the years, though a large portion of the economic
partnership is carried out with South Africa. Recently, the British firms are also
investing in farmland for biofuel production. The Tanzanian government has
granted British company Sun Biofuels the use of 9,000 hectares for 99 years.
The lease is free and in return, Sun Biofuels will invest €13M in infrastructure
to benefit the local population.
United States of America (USA)
The United States has always been a leading source of FDI in sub-Saharan
Africa, accounting for more than 37% of the capital flows from developed
nations to sub-Saharan Africa during the late 90s.
Though US investment in Africa remain a small part of worldwide total US
involvement, FDIs in Africa has more than doubled since 1998, increasing
from $7B to $18.5B. US investors, however, are still primarily focus on natural
resources, with 47% of total U.S. investment in Africa in the mining sector.
Hilary Clinton US Secretary of State has heightened USʼs opposition to any
form of neocolonialism and said “United States is investing in the people of
Zambia, not just the elites."
Timeline of Events
1950 – 1960: Decolonization
Late 50s and early 60s: Post-colonization era. Though traditional Western
colonialism has ended, the previous colonialists still have much cultural and
economic dominance in the newly dependent African states. The All-African
MUNOFS IV 2011
Peoples' Conference was held during this period of time with the aim of
resisting neocolonialism.
1961: Establishment of the Non-Aligned Movement. The purpose of the
organization is to ensure the sovereignty of non-aligned countries. All African
countries are members of the Non-Aligned Movement.
1974: United Nations General Assembly passed resolution 3201 and 3202
2000 – 2010: Sharp increase in foreign investments in Africa due to presence
of new investors from the Middle East and Asia
UN Involvement, Relevant Resolutions, Treaties and Events
A/RES/S-6/3201
Declaration on the Establishment of a New International Economic Order
www.un-documents.net/s6r3201.htm
A/RES/S-6/3202
Programme of Action on the Establishment of a New International Economic
Order
http://www.un-documents.net/s6r3202.htm
A/RES/1803
Permanent sovereignty over natural resources
http://cil.nus.edu.sg/rp/il/pdf/1962%20General%20Assembly%20Resolution%
20On%20Permanent%20Sovereignty%20Over%20Natural%20Resourcespdf.pdf
Possible Solutions
Solutions must be practical and not disrupt the equilibrium of the world
economy. Here are some questions that the delegates should think about
when formulating their solutions:
1. Given that neocolonialism is far more difficult to detect than colonialism,
when is the point that the committee decides to intervene to prevent
neocolonialism?
2. How is the committee going to regulate foreign investments to ensure
MUNOFS IV 2011
3.
4.
5.
6.
7.
neocolonialism is prevented?
How can we prevent the regulations from being excessively interfering and
restrictive so that investors will not decrease their investments in Africa?
What can be done to protect the rights of nations who are selling
resources and land in mining contracts and land acquisitions?
How can African countries remain self-sufficient without relying too much
on developed countries?
Sometimes, multi-national corporationsʼ position can differ from their home
countriesʼ political stance. In such a situation, should the home countries
bear the responsibility to ensure that the investments from these
corporations do not result in neocolonialism?
If neocolonialism has already occurred, what can be done to rectify the
effects of neocolonialism?
Bibliography
“Foreign Direct Investment in Africa: Performance and Potential”. United
Nations Conference on Trade and Development. 1999. Web. 3 Jun 2011.
Marafa, L. M. “Africaʼs Business and Development Relationship with China:
Seeking Moral and Capital Values of the Last Economic Frontier”.
United Nations Economic Commission for Africa. 2007. Web. 4 Aug 2011
Danielle Langton. “U.S. Trade and Investment Relationship with Sub-Saharan
Africa: The African Growth and Opportunity Act and Beyond.” CRS Report for
Congress. 28 Oct. 2008 Web. 26 Jul. 2011.
"US trade seeks to help Africa's people: Clinton." Agence France-Presse 11
Jun. 2011,: NewsBank. Web. 3 Jun. 2011.
Griffiths, M. & OʼCallaghan, T., International Relations: The Key Concepts,
London, Routledge, 2002.
Hanson, Margaret, and Hentz, James J. “Neocolonialism and Neoliberalism in
South Africa and Zambia”. Political Science Quarterly Vol. 114, No. 3. 1999.
JSTOR. Web. 2 Aug. 2011
Wharton School of the University of Pennsylvania. “Middle East's Investments
MUNOFS IV 2011
in African Farmlands Are Rooted in Food Security Fears.” Arabic
Knowledge@Wharton. 22 Mar. 2011. Web. 3 Jun. 2011.
“COTE DʼIVOIRE Investment Guide.” Africa-Asia Business Forum. Web. 26
Jul. 2011.
Brautigam, Deborah. “Africaʼs Eastern Promise: What the West can Learn
from Chinese Investment in Africa.” Foreign Affairs. 5 Jan. 2010. Web. 26 Jul.
2011.
Krause-Jackson, Flavia. “Clinton Chastises China on Internet, African ‘New
Colonialism’”. Bloomberg News. 12 Jun. 2011. Web. 3 Jun. 2011.
“Outsourcing's third wave: Rich food importers are acquiring vast tracts of
poor countries' farmland. Is this beneficial foreign investment or
neocolonialism?”. The Economist. 21 May. 2009. Web. 26 Jul. 2011.
Coker, Margaret. “Persian Gulf States Bet on Africa Despite Downturn”. Wall
Street Journal. 23 Feb. 2009. Web. 3 Jun. 2011.
Cheng, Eva. “Is China Africa's new imperialist power?”. Green Left Press. 2
Mar. 2007. Web. 26 Jul. 20011.
Gil Seong Kang. “The Korea- Africa Partnership: Beyond Trade and
Investment”. Africa Development Bank Africa Economic Brief Vol 2 Issue 9.
June 2011. Web. 26 Jul. 2011.
Irish, John. “France sets up $120 mln Africa agriculture fund”. Reuters. Jun 1.
2010. Web. 26 Jul 2011.
Knaup, Horand. “Green Gold Rush: Africa Becoming a Biofuel Battleground”.
Spiegel Online. 5 Sep. 2009. Web. 2 Aug. 2011
“New Chapter in German-African partnership”. Embassy of the Federal
Republic of Germany Pretoria. 17 Jun. 2011. Web. 3 Jun. 2011.