EDITORIAL PAGE — Tackling corruption

Doing business in foreign countries has placed some North American mining companies face-to-face with the problem of how to secure promising projects without taking part in the corrupt business practices that prevail in many parts of the world.

Since the fall of communism, many nations have been aggressively seeking foreign investment to revitalize their economies, with much of this effort directed at resource industries such as mining. Unfortunately, not all have been successful in creating the right environment to reduce the political and business risks associated with such ventures.

Bob Parsons, head of the World Mining Group for the consulting firm of Price Waterhouse, says the level of corruption in some countries has reached epidemic proportions and become a significant barrier to doing business in those jurisdictions.

It is well-known, of course, that pervasive corruption can severely affect project economics as payoffs divert money from projects and reduce their profitability. But the larger issue is that systematic corruption can destabilize national security and push the gap between the haves and the have-nots so far apart that the overthrow of regimes is a real possibility.

For proof, one need look no further than Zaire, where the country’s ailing leader, Mobutu Sese Seko, is under siege by rebel forces. The country has fabulous mineral wealth and ought to be one of the most prosperous nations in the world. Instead, it has a failed economy and grinding poverty, decaying infrastructure, a health crisis and a high level of illiteracy — all because, for many decades, corrupt interests have plundered the nation’s wealth.

The tide is going out for Mobutu. Already, rebel leaders in eastern Zaire are reported to be offering gold mining concessions to foreign companies. The rebels’ next target is Lubumbashi, the heart of the country’s copper and cobalt belt and the base of the state-owned mining company Gecamines. At the rate things are going, most of Zaire’s mineral wealth will soon be in rebel hands. Let us hope rebel leaders will be pragmatic enough to recognize existing business agreements with foreign investors in this region.

Worldwide corruption has become an issue of concern for the World Bank, which attempts to assist emerging economies and, at the same time, ensure the security of its loans. Because many of these involve mining ventures, the Bank recently invited a select group of experts to help it examine and understand the key forces likely to shape the development of the global mining industry over the next 25 years. The group met in Washington, D.C., last week and will be continuing their dialogue through ongoing E-mail forums.

Parsons, who took part in the Washington meeting, believes the Bank has a role to play in urging governments to adopt fair business practices and a level playing field for investors. Toward that end, the Bank appears to be moving away from funding projects for hard assets and is leaning more toward softer, technical-assistance projects, providing training programs and infrastructure development assistance in areas such as finance, law and accounting.

But Parsons also believes industry organizations and mining companies can help bring “soft pressure” to bear on governments to reform their business practices. With the competition for investment dollars fiercer than ever, it is increasingly clear that corruption is bad for business.