IMAGINE you have an apple tree, and this apple tree produces the best apples in the local area. Word spreads. Before long an international cider maker gets wind, and applies for permission to use your apples for their product, only they do not apply to you, but to your local MP for permission, who grants it.
This is a simplistic view of the way that many international conglomerates gain access to the natural resources of other countries.
There are two main perspectives on this subject: those who accept that this is a tolerable consequence of trade in a globalised world; and those who view it as a form of stealing.
It so follows that the former view is taken by those companies who mine, drill or farm the resource, and those who benefit from it. The latter view belongs mainly to the indigenous population.
We see examples of the struggle between the native and the foreign over the right to scarce commodities, the world over.
Africa is vast, and is mineral and oil rich. International petrochemical companies and mining conglomerates operate over the length and breadth of the continent, taking their bounty and selling it for huge profit, often to the great displeasure of the local people.
Then there are more politically charged disputes.
The promising hydrocarbon presence in the Falklands Basin has the Argentinian government raging, as they feel that the islands, and thus any oil drilled therein, is theirs. Further examples are numerous.
Then there are countries whose geo-political strategies could be described as being driven by natural resources.
To take China as the leading example, this is a country whose economic growth has far outstripped its domestic resource base.
It is the same with the US.
It must find its energy and minerals from elsewhere, Africa being a prominent provider.
I feel that a lot of the ethics of the situation are determined at individual company level, and its willingness to “engage” with the local population.
One UK company with interests in several African nations is Tullow Oil.
The firm’s website proudly states that 70 per cent of workers in their Ugandan operation are Ugandan nationals.
In Ghana it is 80 per cent.
But provision of jobs is really only a minor issue, compared to the main reason for local discontent.
By far and away the most important issue is that these valuable resources are being sapped from their country, without their having the opportunity to profit from them.
Sovereign Wealth Funds are set up to counter this, into which the assets of the particular commodity in which the country is rich are placed.
But there are relatively few of these.
Zimbabwe, a country rich in minerals such as gold, silver, platinum, copper and diamonds, is a notable absence from the list. This is expected to change, however, as the Indigenisation and Economic Empowerment Act passed recently gives the Zimbabwean government 51 per cent of all significant mining operations within five years.
I would expect more of the same from other such countries.
Tired of seeing their economic prosperity ebb away, and citing the actions of foreign companies as one of the reasons behind their continued poverty, it is likely that more and more states will indigenise their own resources, to divert some of the profit into the national purse.
What does this mean in terms of investing in miners and oil producers in the future?
Well, you must accept political risk when speculating in developing nations, but it is not in a country’s interest to completely block foreign developers, with all the expertise, and access to global markets that they bring.
Choosing a well diversified company should always lessen the effects of pressure in one of its countries of operation.
Once you have found the right company, then it becomes a call on the market.
• Nick Williams is a chartered member of the Chartered Institute for Securities and Investment and an investment manager in the Teesside office of Brewin Dolphin, and can be contacted on 0845-213-1340.