All the seats were full when Patrick J. Garver, Executive Vice President and General Council, Barrick Gold Corporation, Toronto talked about dealing with political risk in the minerals industry. There is no paper to accompany his presentation, but here is my summary of a most insightful and engaging talk.
He noted that the three big political risks are still with us: expropriation; currency restrictions; and terrorism that the state cannot control. But there are other, new political risks that threaten to eclipse the traditional three. These include:
1) Devolution of power from central governments to local authorities. The four provinces of Argentina that have effectively banned gold ming are an example. This devolution of power is associated with weaker central governments, and easier access to the open world of information. As we see in Scotland and Wales, this trend is not confined to places where there are mines and resources to be mined.
2) The rise of parallel economies. Criminal interests making money from drugs, guns, prostitution, and human traficking, are like the mafia of old, seeking to put their money into more “legitimate” enterprises. These criminals can and do subvert politicians, judges, and local authorities and destablize the entire structure of governments. He noted that you know this is happening whenever you read of the revocation of operating licenses, alleged environmental trangressions leading to a shut down, taking on local partners, and new rules for bids favoring the only local bidder.
3) State sponsored companies. From Russia, China, and Venuzuela we see state sponsored companies branching out into other countries offering financial terms and other benefits no private comapny can match.
4) The increasing influence of NGO. He noted that with the loss trust of politicians which seems to be endemic to most societies, NGO are coming to represent a voice of reason and credibility. He noted that many NGOs are sophisticated and well financed and many locals turn to them as independent voices of reason.
5) The declining influence of international financing institutions. He noted that the World Bank, for example is tarnished, and is not longer the only source of finance.
