Africa sunset

"In late 2010 I started to feel sick," Burgis explains in the perhaps unusual opening to his new book ‘The Looting Machine: Warlords, Tycoons, Smugglers, and the Systematic Theft of Africa’s Wealth’.

Burgis goes on to explain that he was admitted to a psychiatric hospital for post-traumatic stress and depression, 18 months after witnessing the aftermath of a village massacre in Jos, Nigeria.

In stark contrast, the reader is next taken to 23 Wall Street, the home of J.P. Morgan.

It’s the thread connecting the corporate temple of the New York Stock Exchange to the massacre of a village in Nigeria that Burgis seeks to uncover in his book.

After years of reporting in Africa, Burgis decided to examine why many countries in Africa are rich in resources but endemically poor, otherwise known as the ‘resource curse’, and what the West and China’s role is in this depressing trend.

"I was covering Southern Africa in [2008-2009], a moment when the financial crisis led to a big drop in commodity prices," he says.

"It showed very, very strongly the extent to which these Southern African countries are completely enthralled to global commodity markets."

In West Africa especially, he says, there is an "insidious link" between patronage politics – based on natural resource dependency – and violence, corruption and the malfunctioning of the state.

The role of the West

Burgis’s research for the book took him to much of west and southern Africa, including Nigeria, the Democratic Republic of Congo and Zimbabwe, to cover countries "where the damage done by the resources industries is most stark".

Resource nationalism means more than states simply demanding project ownership and levying heavy taxes.

The level of corruption, violence and subsequent money lost to individual states is staggering. In one of the book’s examples, a senior aide of the former Kabila government in the Congo disclosed how the president used to receive $4m each week in suitcases from state-owned and private mining companies.

Burgis details how tantalum was illegally funnelled out of the Congo during its brutal civil war to meet surging global demand, caused by a boom in mobile phones. Other stark examples include an Israeli businessman who used his close friendship with the Congo’s current president to illicitly secure mining deals worth billions, and how one Western mining company illegally acquired lucrative mining concessions in Guinea. These are just a few of the illicit goings-on Burgis details in his book which covers the oil industry as well as mining commodities.

The mining industry is well-versed on the potential for corruption in developing countries, especially some of those in Africa . Anti-corruption and corporate social responsibility (CSR) conferences now appear regularly in the mining industry’s events calendar. So why do some companies, unintentionally – as is always protested – become embroiled in corruption? After all his research, what’s Burgis’s advice for companies to mitigate corruption?

"There is the guy I quote in the book who says a lot of this due diligence work is just manufacturing liability; he says companies want to be able to say ‘we had a good look at this partner before we did a deal with them…we heard some rumours but we never saw anything concrete to demonstrate this arrangement would be corrupt in some way so we went ahead with the deal.’"

He adds that in the due diligence world there are a lot of law firms and compliance departments trying to get it right, trying to ‘choke off’ the middlemen who are happy to pay bribes to advance themselves.

"The problem is you get the M&A banker momentum, where there is a huge push to do the deal, it’s big, exciting – they don’t want anyone to get in the way."

However, Burgis points out, choking off corruption is in the interest of the company as it is rarely the mid-ranking executive who pays the financial burden of getting caught – the company does.

The simple undertaking of not going ahead with a deal that involves dealing or partnering with a company whose ultimate owners are unknown would also mitigate corruption, says Burgis. Front companies can exist easily and officials who abuse their position can disguise their identity in rather straightforward ways.

"It is that secrecy that allows this stuff to go on, and maybe I am missing something but I never really heard anyone make a good argument for why that secrecy should exist at all."

"The problem is you get the M&A banker momentum, where there is a huge push to do the deal, it’s big, exciting – they don’t want anyone to get in the way."

There is the broader question, Burgis says, of whether corruption actually helps the people who pay bribes.

"There is an assumption that you pay your bribe and you get a commercial advantage or personal profit…if you’re having to pay a bribe to get something done then there is a good chance that thing shouldn’t happen in the first place. There is a good chance you are going to be…wedding yourself to the political authorities of the day…that president dies and the next knows you were having a corrupt relationship with the previous lot so you will be frozen out."

Enter China

Chinese companies are also the focus of Burgis’s investigations, particularly the extremely opaque Queensway Group, which is involved in a web of illicit deals in Angola, Madagascar and Niger, to name just a few countries that feature in Queensway’s portfolio.

In the past, it has been implied that if Western companies don’t work in Africa, whether that means participating in bribery or not, Chinese companies will instead, and that will be much worse.

"There is just so much hypocrisy in that," says Burgis. "The idea there is a pure western influence as opposed to a completely malign Chinese influence is complete nonsense."

He slaps down the notion that China and the West are two opposing blocks in terms of their corporate activity in Africa, pointing out that Chinalco, a Chinese state-owned aluminium company, is Rio Tinto’s biggest shareholder and its biggest partner in the Simandou iron ore project in Guinea.

"If you look closely, who benefits from this mass looting? It’s webs of people who you might think, superficially, have completely conflicting interests. So you could have a Chinese middleman, a big London-listed company, assorted African officials of different creeds and political beliefs, sometimes enjoying political support in the West, sometimes not, sometimes enjoying political support in China, sometimes not."

He adds that this is how power works in the Davos era of financial globalisation in which "economic and political powers [have] become detached from nations".

Complicity and diversification

As well as delving into the intricacies of how corruption takes place, Burgis examines the wider global context and in-country socioeconomic issues – how the massacre in Jos, illicit mining deals, and consumers and companies in the developed world are all linked.

A deadly pulmonary tuberculosis epidemic is blighting South Africa’s gold miners.

While Africa’s natural resources enrich the developed world, those in developing nations are left without money for security, food or decent healthcare. The scramble to acquire and retain a stake in the share of natural resource wealth can also stir up ethnic tensions, while helping to keep local militia in arms.

Burgis, after his experience in Jos, personally grappled with the idea of complicity, the extent to which people in the rich world are complicit in the looting of the poor world.

"All the way through the book it tries to come back to that idea of who is responsible, to some extent, and who profits from this exploitation," he says.

In the book a British-Nigerian businessman tells Burgis he fears that "Africa will be a mine and Africans will be the drones of the world".

The somewhat complicit West is starting to take action. There’s a long way to go, but companies are getting better, governments – particularly the US – are prosecuting more, and new laws to mitigate Western companies’ involvement in third world corruption are coming to fruition. Positive steps include the mandatory publishing of payments by companies from US and EU countries to foreign governments [one useful but limited tool, according to Burgis], and the US Dodd Frank 1502 clause which requires companies using conflict minerals in their products to disclose the source of such minerals.

The future

Even if corruption were to stop tomorrow, certain African nations will need to diversify their income away from natural resources to rid themselves of the resource curse, says Burgis.

Resources need to be used in a way that stops them choking off other industries, such as agriculture and textiles.

Like the Asian Tigers (Hong Kong, Singapore, South Korea and Taiwan), by having tariff barriers and export limits African states could retain more of their minerals’ value and foster new industries. This, however, would be very difficult because of the global trading system that a lot of people have spent a lot of time and money building up, says Burgis.

More processing of minerals in-country would also be beneficial but Burgis believes a manufacturing industry is needed for that.

The overarching message of Burgis’s book is that there needs to be responsible development of African nations’ natural resources, not just rapid production to meet the developing world’s insatiable demand, which at the moment only serves to line the pockets of corrupt governments and multinational companies.

"I’m trying to say in the book that these things are not completely unique to Africa at all," Burgis says.

"You can see distortions caused by oil in the British economy and you can see the huge trouble caused by oil in Russia and the Middle East, but I always thought that Africa was the sharp end of this because the state is the weakest, partly because of its dependency on resources, which corrodes the relationship between the rulers, who are funded by oil and minerals, and the ruled, who are trapped on the outside."

Energy link