Natural Resources for National Reconstruction: A New Generation of Investment Contracts
40 Pages Posted: 28 Sep 2016
Date Written: July 9, 2016
This article offers the first major systematic account of resources-for-infrastructure (R4I) investment contracts and their terms and conditions, modeling their organic workings and reconstructing their formal structure. R4I contracts combine a mining or oil venture and an infrastructure project in order to extract minerals or hydrocarbons and to pay for major infrastructure projects with revenues generated from those extractive activities. Under this ring-fenced agreement, the host state gets the infrastructure and the foreign investor gets the extracted resources. These contracts are thus deceptively akin to barter trade agreements. The technical yet crucial difference is that barter takes place in the context of international trade whereas a R4I contract is structured as a foreign investment deal.
R4I contracts are born of China’s dramatically increasing interest in Africa and its under-explored, under-exploited natural resources. Successive summits on China-Africa cooperation have led to loans, credit and development aid from China to Africa; trade and investment treaties between China and African states; and a new wave of R4I contracts.
What are the risks and costs of long-term foreign direct investment (FDI) that these contracts diminish or exacerbate? This question canvasses the resource curse, the costs and the investment risks that may keep investment contracts from being fully enforced according to the intentions of the contracting parties. Contract breaches, expropriations, confiscations, restrictions on currency exchanges, political violence, are among the factors that may undermine the proper enforcement of investment contracts. Lastly, what are the financial terms of R4I contracts? The financial arrangements woven through R4I contracts have attracted the most attention – and criticisms.
This article explores the intentions of the parties in entering into these contracts; the extent to which contracts can structure commercial transactions and foreign direct investments (FDIs) in the mining sectors of resource-rich countries; the economic sectors covered by R4I contracts; and their commonalities and differences with other investment contracts.
In six sections, the article (i) provides the theoretical and methodological background of R4I contracting; (ii) unpacks the notion of resources-for-infrastructure; dissects (iii) the resources side of the R4I model, (iv) the R4I deal's reimbursement of infrastructure investments, and (v) the infrastructure side of the R4I model; and finally (vi) marks out the characteristics that distinguish R4I contracts from traditional investment contracts.
Keywords: Africa, China, infrastructure, extractive industries, FDI, investment contracts
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