1. Does Africa’s newest independent state see lessons in the continent’s history?
2. "Green" energy in the U.S.
3. Nigeria investors buy government bonds as NSE equities hit lows
Wednesday, September 28, 2011
The Complications of Trying to Save the Planet (a look at involuntary resettlement)
A recent report by Oxfam about a forestry company with a project in Uganda has generated a lot of headlines, for example:
Killing Ugandans to Save the Planet
UN and the World Bank now involved in land theft over carbon credit scheme
Oxfam Report Says Thousands Evicted in Uganda Land Grab
And the actual Oxfam report here.
The issue in question is the alleged forced relocation of inhabitants in an area granted to New Forests Company (NFC), a U.K.-based forestry developer (website here) backed by HSBC, the European Investment Bank (EIB) and Agri-Vie, a South Africa-based fund with investment from IFC, the World Bank’s private sector investment arm. The Oxfam report claims that inhabitants on the land, some 15,000, were terrorized and forced off the land, and received no compensation from the company or the government.
This all sounds pretty bad, and certainly the sensationalist headlines pick that up for more dramatic effect. I haven’t spoken to anyone directly involved in this project or at Oxfam but wanted to offer some thoughts based on the Oxfam report and various other articles.
I called this article The Complications of Trying to Save the Planet because a central element of NFC’s project is to use its forest to offset carbon emissions, and sell carbon credits to polluters around the world.
First, it’s helpful to step back and understand how projects like this one would be structured in a developing country like Uganda. It seems clear from the Oxfam report that NFC was granted a concession over some amount of land for a period of 50 years. This means the Government of Uganda and NFC entered a Concession Agreement, a document that outlines the full scope of the two parties’ relationship to each other during the concession period, including various obligations of the parties, a detailed map of the concession area, the applicable tax regime, what happens if either party breaches the agreement, etc. This is a very typical contractual arrangement for infrastructure projects in Africa and around the world.
Unfortunately for many of these projects, especially in densely populated regions like Uganda and Rwanda, the area that the government grants to a company under the Concession will likely have some residents. The residents will need to be moved off the land for the project to proceed, and it would be typical (and absolutely desirable from the company’s point of view) for the government to take full responsibility under the Concession Agreement for any relocation and compensation owed to the inhabitants.
The issue can be tricky. Inhabitants may not have legal rights to be on the ground, having effectively squatted on the land, often for many, many years. The lack of legal right to the land may be an administrative matter, or linked to government ownership of the majority of the land in some areas.
For companies like Provinceroot and others who work with development finance institutions (DFIs), there are highly developed guidelines for dealing with involuntary resettlements (and a full range of other environmental and social issues). Any infrastructure project in a developing country will need an Environmental and Social Impact Assessment (ESIA) performed by an independent consultant. The ESIA will go into great detail in addressing the project's risks to environmental and social conditions, and explain the project’s mitigants, and, if necessary, highlight the unmitigated risks to the environment or communities. The ESIA process typically includes a community consultation that would involve a presentation of the project to the local stakeholders and provide an opportunity for concerned residents to comment on the project; there may be additional follow up interviews as well. The whole consultation process will be summarized as part of the final written ESIA report as evidence that the project has taken full responsibility to interact with the community and address concerns.
To the extent that a project has caused an involuntary relocation, the full details will be included in the ESIA report. Additionally, the company would typically commit to a Resettlement Action Plan (RAP) to meet with IFC guidelines (the World Bank Group’s policy on Involuntary Resettlement (OD4.30)) in the event of a loss of assets, impairment of livelihood or physical relocations. The RAP should consider the full impact of the resettlement and contain appropriate compensation and/or offsetting measures, and take a dedicated look at whether the resettlement disproportionately affects women and children. IFC has a Handbook for Preparing a Resettlement Action Plan here.
The financing parties take a very keen interest in the ESIA. The DFIs, as development institutions, all take these issues seriously, and the more seriously a project developer handles the ESIA process the easier the financing (or insurance) process will be. Additionally, most DFIs will need to post the ESIA report publicly on their website in order to solicit comments from the public, NGOs or other interested parties. And as we can see from the Oxfam report and subsequent sensationalist headlines, any discussion of resettlement or related issues can become, well, heated.
I want to say very clearly that I don’t know all the facts of the case and cannot form a clear opinion. Digging through the Oxfam report, the key issue seems to be that the company, NFC did not pay compensation, even though it is willing to pay an amount to the government that would be distributed to the people who were relocated, because the government did not want to set a “dangerous precedent” (see footnote 19 of the Oxfam report). And of course the alleged violence that was used during the relocations has received a lot of attention.
The thing that causes me some pause in reading the Oxfam report is that the IFC, EIB and FSC (an independent group that certifies forestry investments that adhere to best operating practices regarding labour, social and environmental issues) all signed off on the project. An IFC spokesman is quoted in a Wall Street Journal article (here) confirming that the group takes the issues very seriously but that the project has met IFC standards. I know from direct experience working with IFC that the group does indeed take the issues very seriously. While it’s possible IFC may have made some errors in judgement (which does not appear to be the case here, to be clear), in general the group is an extremely credible group that does an enormous amount to promote private investment and development around the world. I don’t think the IFC sign-off on the project should be dismissed so lightly.
Additionally, while Oxfam seems to target NFC in its comments, many of the issues seem to stem from actions by the Government of Uganda, as far as I can make out, though before forming any judgement I’d want to know more about the exact responsibilities under the Concession Agreement for carrying out the relocation and the discussions surrounding the government’s alleged insistence that no compensation be paid out.
So, no firm conclusions here, though I did want to point out some areas of concern in the Oxfam report. Getting large projects done in developing countries can be outright messy, with many factors at play. Governments want to attract investment and have it within their powers to grant concessions to investors and developers. I am grateful that there is a well-formulated process to dealing with many of the social issues that may result from infrastructure or other projects.
Note: I had never heard of New Forests Company before these recent articles. Neither I nor Provinceroot International has any interest in New Forests Company (or currently in any forestry project in Africa).
Killing Ugandans to Save the Planet
UN and the World Bank now involved in land theft over carbon credit scheme
Oxfam Report Says Thousands Evicted in Uganda Land Grab
And the actual Oxfam report here.
The issue in question is the alleged forced relocation of inhabitants in an area granted to New Forests Company (NFC), a U.K.-based forestry developer (website here) backed by HSBC, the European Investment Bank (EIB) and Agri-Vie, a South Africa-based fund with investment from IFC, the World Bank’s private sector investment arm. The Oxfam report claims that inhabitants on the land, some 15,000, were terrorized and forced off the land, and received no compensation from the company or the government.
This all sounds pretty bad, and certainly the sensationalist headlines pick that up for more dramatic effect. I haven’t spoken to anyone directly involved in this project or at Oxfam but wanted to offer some thoughts based on the Oxfam report and various other articles.
I called this article The Complications of Trying to Save the Planet because a central element of NFC’s project is to use its forest to offset carbon emissions, and sell carbon credits to polluters around the world.
First, it’s helpful to step back and understand how projects like this one would be structured in a developing country like Uganda. It seems clear from the Oxfam report that NFC was granted a concession over some amount of land for a period of 50 years. This means the Government of Uganda and NFC entered a Concession Agreement, a document that outlines the full scope of the two parties’ relationship to each other during the concession period, including various obligations of the parties, a detailed map of the concession area, the applicable tax regime, what happens if either party breaches the agreement, etc. This is a very typical contractual arrangement for infrastructure projects in Africa and around the world.
Unfortunately for many of these projects, especially in densely populated regions like Uganda and Rwanda, the area that the government grants to a company under the Concession will likely have some residents. The residents will need to be moved off the land for the project to proceed, and it would be typical (and absolutely desirable from the company’s point of view) for the government to take full responsibility under the Concession Agreement for any relocation and compensation owed to the inhabitants.
The issue can be tricky. Inhabitants may not have legal rights to be on the ground, having effectively squatted on the land, often for many, many years. The lack of legal right to the land may be an administrative matter, or linked to government ownership of the majority of the land in some areas.
For companies like Provinceroot and others who work with development finance institutions (DFIs), there are highly developed guidelines for dealing with involuntary resettlements (and a full range of other environmental and social issues). Any infrastructure project in a developing country will need an Environmental and Social Impact Assessment (ESIA) performed by an independent consultant. The ESIA will go into great detail in addressing the project's risks to environmental and social conditions, and explain the project’s mitigants, and, if necessary, highlight the unmitigated risks to the environment or communities. The ESIA process typically includes a community consultation that would involve a presentation of the project to the local stakeholders and provide an opportunity for concerned residents to comment on the project; there may be additional follow up interviews as well. The whole consultation process will be summarized as part of the final written ESIA report as evidence that the project has taken full responsibility to interact with the community and address concerns.
To the extent that a project has caused an involuntary relocation, the full details will be included in the ESIA report. Additionally, the company would typically commit to a Resettlement Action Plan (RAP) to meet with IFC guidelines (the World Bank Group’s policy on Involuntary Resettlement (OD4.30)) in the event of a loss of assets, impairment of livelihood or physical relocations. The RAP should consider the full impact of the resettlement and contain appropriate compensation and/or offsetting measures, and take a dedicated look at whether the resettlement disproportionately affects women and children. IFC has a Handbook for Preparing a Resettlement Action Plan here.
The financing parties take a very keen interest in the ESIA. The DFIs, as development institutions, all take these issues seriously, and the more seriously a project developer handles the ESIA process the easier the financing (or insurance) process will be. Additionally, most DFIs will need to post the ESIA report publicly on their website in order to solicit comments from the public, NGOs or other interested parties. And as we can see from the Oxfam report and subsequent sensationalist headlines, any discussion of resettlement or related issues can become, well, heated.
I want to say very clearly that I don’t know all the facts of the case and cannot form a clear opinion. Digging through the Oxfam report, the key issue seems to be that the company, NFC did not pay compensation, even though it is willing to pay an amount to the government that would be distributed to the people who were relocated, because the government did not want to set a “dangerous precedent” (see footnote 19 of the Oxfam report). And of course the alleged violence that was used during the relocations has received a lot of attention.
The thing that causes me some pause in reading the Oxfam report is that the IFC, EIB and FSC (an independent group that certifies forestry investments that adhere to best operating practices regarding labour, social and environmental issues) all signed off on the project. An IFC spokesman is quoted in a Wall Street Journal article (here) confirming that the group takes the issues very seriously but that the project has met IFC standards. I know from direct experience working with IFC that the group does indeed take the issues very seriously. While it’s possible IFC may have made some errors in judgement (which does not appear to be the case here, to be clear), in general the group is an extremely credible group that does an enormous amount to promote private investment and development around the world. I don’t think the IFC sign-off on the project should be dismissed so lightly.
Additionally, while Oxfam seems to target NFC in its comments, many of the issues seem to stem from actions by the Government of Uganda, as far as I can make out, though before forming any judgement I’d want to know more about the exact responsibilities under the Concession Agreement for carrying out the relocation and the discussions surrounding the government’s alleged insistence that no compensation be paid out.
So, no firm conclusions here, though I did want to point out some areas of concern in the Oxfam report. Getting large projects done in developing countries can be outright messy, with many factors at play. Governments want to attract investment and have it within their powers to grant concessions to investors and developers. I am grateful that there is a well-formulated process to dealing with many of the social issues that may result from infrastructure or other projects.
Note: I had never heard of New Forests Company before these recent articles. Neither I nor Provinceroot International has any interest in New Forests Company (or currently in any forestry project in Africa).
Wednesday, September 21, 2011
Tuesday, September 20, 2011
U.S. Commercial Service features Provinceroot on website
I'm very pleased that the U.S. Commercial Service team working with the African Development Bank has linked to Provinceroot's "Projects are Interdisciplinary and Local" article. Check out the link here (click on "U.S. Company Tips for Doing Business in Africa").
The U.S. Commercial Service and the export.gov website are both wonderful resources for companies pursuing business abroad.
The U.S. Commercial Service and the export.gov website are both wonderful resources for companies pursuing business abroad.
Monday, September 19, 2011
Bullish but realistic views on investing in Africa
Here.
Some interesting points raised in the article:
“Africa has a perception attached to it which is often outdated to the realities of it”;
Ghana set to grow 12% in 2011;
60% of African private equity fundraising comes from DFIs.
Some interesting points raised in the article:
“Africa has a perception attached to it which is often outdated to the realities of it”;
Ghana set to grow 12% in 2011;
60% of African private equity fundraising comes from DFIs.
Friday, September 16, 2011
Assorted Links: Togo, Malawi, etc.
1. Togo President’s brother lost this fight
2. Malawi civil groups reject further talks with government, sets new protest date
3. Anadarko pursuing aggressive Africa exploration program
4. The case for Africa in your portfolio
5. McKinsey Quarterly’s archive of articles on Africa
2. Malawi civil groups reject further talks with government, sets new protest date
3. Anadarko pursuing aggressive Africa exploration program
4. The case for Africa in your portfolio
5. McKinsey Quarterly’s archive of articles on Africa
Thursday, September 15, 2011
Five Tips for Doing Business in Africa
This is a short article I sent around in March 2011.
Provinceroot International is a project developer and advisory firm focused on sub-Saharan Africa. I founded Provinceroot International (www.provinceroot.com) in 2010 to pursue a broad range of opportunities in Africa and to help other businesses do the same. Here are my top 5 tips for working on one of the fastest growing and most exciting places in the world today:
1) Be on the ground !
If you want to do business in Africa, you need to be in Africa. The right amount of time, and the timeline for establishing your presence, varies for the individual project.
If you set up a meeting with a company or government official, don’t fly out on the next flight after the meeting. Spend several days or a week, preferably including a weekend. Schedule meetings with embassy staff, local banks, contractors, distributors, or whomever you might be in contact with if your project goes forward. This will be time well spent.
If you do stay, don’t be a tourist. Look for friends of friends or other introductions to people who can take you out to dinner, local coffeeshops or bars. Try to understand what life is like in that city or town – you may very well be living there in a few months, or supervising someone who does.
As your project advances, one week at a time is not enough. You’ll need to spend two or three weeks. At some point you will need to open an office with a manager and support staff for a full-time presence. If that manager is not you, you’ll still need to visit regularly (see point 2 below).
While email, cellular phones and skype are useful tools, they cannot replace time in country.
The trick, of course, is finding people that are flexible enough to spend time on the ground and experienced enough to have high impact.
2) Include experienced commercial and investment managers
As your project matures through development phases, you’ll need to make sure that your on-the-ground team is in close communication with senior management, the board of directors, etc.
Many projects in Africa, especially ones in infrastructure, end up being a broad partnership between many diverse institutions, including the primary developer and/or equity investor but also other shareholders, lenders, insurers, sovereign governments and all the participants in the host country. Someone needs to be coordinating and constantly re-assessing the process between all of these parties, and especially the impact on your organization.
You will need a manager with commercial and investment experience to be this coordinator. And Tip #1 applies here: this manager needs to spend time on the ground to be most effective.
Do not treat the project as simply an engineering or sales task ! You need a focused, experienced executive to oversee the process.
3) Consider political risk insurance
Political risk is one of the largest concerns about investing in emerging markets for many investors in North America and Europe. You should know that there are ways to mitigate many of the risks.
Political risk insurance does not just cover “gunboat expropriation,” i.e. the host country government seizing assets using violence (though to be sure part of the policy can cover outright political violence).
Many other political risks can be covered such as the risk that the central bank will not allow local currency to be converted or transferred out of the country. “Creeping” expropriation, a more subtle way for a government to apply pressure on a project by eroding the commercial and legal framework, may also be covered.
Both the Overseas Private Investment Corp. (OPIC) and the World Bank’s Multilateral Investment Guarantee Agency (MIGA) offer sophisticated packages of insurance to cover these risks.
4) Establish a – credible – network
You may be contacted by someone who is related to a government official, or someone with a permit for a site and a special connection to a minister. If you work with them, they promise, you’ll have a carefree project in no time.
In almost every case, just say no.
If you are interested in doing business in a country, you’ll need a high-grade network. Contact your embassy’s commercial service and economic officer. If a law firm you have worked with has a local office, set up a call with -- or better visit -- one of the partners. Consult with any of the development finance institutions (DFIs) active in the region. Meet with regulators, investment promotion agencies and privatization commissions. If you can raise interest in your project by contacting these entities you will be able to credibly step forward to the ultimate decision makers in the country.
Good local representatives are critical, but in general a credible rep is just one element of a broad consortium to setting up operations.
5) Talk to lenders early
Whether you are using commercial banks or DFIs, involve them in the process early. Early stage feedback is critical if debt is an essential component of your investment.
Plus, if the lender supports your idea it can provide a letter of interest or commitment letter during the initial development phase to lend credibility and peace of mind. Most governments will want to know that financing is in place before authorizing your project.
DFIs especially can be highly effective partners in any development process. Because DFIs have high-level contacts in the governments themselves, they can assist in a broad range of issues once their support for a project is established.
Provinceroot International is a project developer and advisory firm focused on sub-Saharan Africa. I founded Provinceroot International (www.provinceroot.com) in 2010 to pursue a broad range of opportunities in Africa and to help other businesses do the same. Here are my top 5 tips for working on one of the fastest growing and most exciting places in the world today:
1) Be on the ground !
If you want to do business in Africa, you need to be in Africa. The right amount of time, and the timeline for establishing your presence, varies for the individual project.
If you set up a meeting with a company or government official, don’t fly out on the next flight after the meeting. Spend several days or a week, preferably including a weekend. Schedule meetings with embassy staff, local banks, contractors, distributors, or whomever you might be in contact with if your project goes forward. This will be time well spent.
If you do stay, don’t be a tourist. Look for friends of friends or other introductions to people who can take you out to dinner, local coffeeshops or bars. Try to understand what life is like in that city or town – you may very well be living there in a few months, or supervising someone who does.
As your project advances, one week at a time is not enough. You’ll need to spend two or three weeks. At some point you will need to open an office with a manager and support staff for a full-time presence. If that manager is not you, you’ll still need to visit regularly (see point 2 below).
While email, cellular phones and skype are useful tools, they cannot replace time in country.
The trick, of course, is finding people that are flexible enough to spend time on the ground and experienced enough to have high impact.
2) Include experienced commercial and investment managers
As your project matures through development phases, you’ll need to make sure that your on-the-ground team is in close communication with senior management, the board of directors, etc.
Many projects in Africa, especially ones in infrastructure, end up being a broad partnership between many diverse institutions, including the primary developer and/or equity investor but also other shareholders, lenders, insurers, sovereign governments and all the participants in the host country. Someone needs to be coordinating and constantly re-assessing the process between all of these parties, and especially the impact on your organization.
You will need a manager with commercial and investment experience to be this coordinator. And Tip #1 applies here: this manager needs to spend time on the ground to be most effective.
Do not treat the project as simply an engineering or sales task ! You need a focused, experienced executive to oversee the process.
3) Consider political risk insurance
Political risk is one of the largest concerns about investing in emerging markets for many investors in North America and Europe. You should know that there are ways to mitigate many of the risks.
Political risk insurance does not just cover “gunboat expropriation,” i.e. the host country government seizing assets using violence (though to be sure part of the policy can cover outright political violence).
Many other political risks can be covered such as the risk that the central bank will not allow local currency to be converted or transferred out of the country. “Creeping” expropriation, a more subtle way for a government to apply pressure on a project by eroding the commercial and legal framework, may also be covered.
Both the Overseas Private Investment Corp. (OPIC) and the World Bank’s Multilateral Investment Guarantee Agency (MIGA) offer sophisticated packages of insurance to cover these risks.
4) Establish a – credible – network
You may be contacted by someone who is related to a government official, or someone with a permit for a site and a special connection to a minister. If you work with them, they promise, you’ll have a carefree project in no time.
In almost every case, just say no.
If you are interested in doing business in a country, you’ll need a high-grade network. Contact your embassy’s commercial service and economic officer. If a law firm you have worked with has a local office, set up a call with -- or better visit -- one of the partners. Consult with any of the development finance institutions (DFIs) active in the region. Meet with regulators, investment promotion agencies and privatization commissions. If you can raise interest in your project by contacting these entities you will be able to credibly step forward to the ultimate decision makers in the country.
Good local representatives are critical, but in general a credible rep is just one element of a broad consortium to setting up operations.
5) Talk to lenders early
Whether you are using commercial banks or DFIs, involve them in the process early. Early stage feedback is critical if debt is an essential component of your investment.
Plus, if the lender supports your idea it can provide a letter of interest or commitment letter during the initial development phase to lend credibility and peace of mind. Most governments will want to know that financing is in place before authorizing your project.
DFIs especially can be highly effective partners in any development process. Because DFIs have high-level contacts in the governments themselves, they can assist in a broad range of issues once their support for a project is established.
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