Managing environment & social effects of large versus small-scale investments in Congo

Investment and trade in Africa has boomed over the past decade – but has lead to problems of planning, control and coordination. Ollivier Girard/CIFOR.

National agencies that promote and approve foreign investments in Congo Basin countries could play an important role in ensuring that new projects in the region are socially and environmentally beneficial – provided they are better funded and staffed, according to studies by the Center for International Forestry Research (CIFOR).

Such oversight is particularly important considering the level of new investments coming into the region from China.

Chinese investment and trade in Africa have boomed since the country launched it’s “going abroad” push in 2000. A report published in 2011 revealed the number of application approvals on the continent grew from less than 10 a year before 2002 to nearly 400 in 2010 – with an annual average growth rate of 250 percent.

Many of China’s investments were in the Congo Basin, which has the world’s largest rainforest after the Amazon. However these investments are often negotiated and approved by different ministries overseeing mining, agriculture and forestry, which are governed by their own laws and policies on the environment, land acquisition, impact assessment and mitigation.

This leads to problems of planning, control and coordination, says Louis Putzel, CIFOR scientist and lead author of Chinese trade and investment and the forests of the Congo Basin: Synthesis of scoping studies in Cameroon, Democratic Republic of Congo and Gabon.

“It makes it more difficult to govern ecological impacts and the effects on vulnerable people, who may be affected by environmental change or even relocated when a large company enters into a deal with the government,” he said.

Better managing the effects of inward investment

Large-scale investments by both private and public companies, the report found, was particularly pronounced in the mining and timber sectors, with a growing interest in agriculture and in particular projects to produce rubber and palm oil.

“Along with infrastructural expansion, these are the sectors that are likely to have the most direct impact on forests, and they are competing with each other in terms of influence, control, and land use,” said Putzel.

The study noted that all three countries have national investment promotion agencies – one-stop shops for investors, enabling them to submit applications and get breaks on taxes and custom duties.

“But because high-level investors often do not use these agencies, the role of investment promotion agencies in governing social and environmental impacts is limited,” says Putzel.

By increasing the capacity of the investment promotion agencies to review and evaluate environmental and social impact assessments submitted by all foreign investors, or by creating a new national entity to coordinate those efforts across the different sectors, Putzel suggests these countries may still be able to better manage the effects of inward investment.

Large versus small companies

One of the questions raised by the CIFOR studies is how Chinese-owned companies compare with others, domestic and international, when it comes to standards and guidelines. While studies to answer that question are still ongoing, some of the preliminary findings are suggestive.

“Larger Chinese companies with international profiles make greater efforts to comply with international standards regarding environmental and social effects,” Putzel said.

“Also, those that are buying out other foreign companies are inheriting the existing procedures of corporate governance—including, for example certified forestry operations—so it will be interesting to see how the new investors maintain or improve adherence to sustainable practices over time.”

Mining, agriculture and timber are the sectors that are likely to have the most direct impact on forests, and they are competing with each other in terms of influence, control, and land use.

However, in addition to the growth in large-scale Chinese business interests, there has been a large migration of individuals and small business owners from China – as well as from the Middle East and elsewhere – into the Congo Basin region, the authors found.

“These small-scale independent actors are highly active in the informal timber and mining sectors, across the full supply chain of producers, buyers, traders, and extractors,” Putzel said.

The track records of these smaller investors, who may not be as visible nor as accustomed to international standards and corporate social responsibility requirements, are highly variable, and in some places there have been complaints from community members.  This is the case in areas where numerous small-scale mining companies are active, as in the southern region of the Democratic Republic of Congo. But according to Putzel, these are often companies with little or no state investment from their home country, and may not be legally registered or even known there.

Increased demand drives informal extraction

The authors suggest that region wide, more attention needs to be paid to how rapidly growing demand for raw materials from China and from other emerging economies is affecting informal resource extraction and trade, which in some cases can increase the risk of violations of labor rules, environmental standards, and human rights.

“Even more than for the large-scale players, this is an issue of improving national and local governance in the region,” says Putzel.

“And because sources of demand are constantly changing, it is important for countries in the Congo Basin and elsewhere in sub-Saharan Africa to manage investments in environmentally sustainable ways that bring optimal benefits to local people.”

For more information about the issues discussed in this article, please contact Louis Putzel at l.putzel@cgiar.org

This research is carried out as part of the CGIAR Research Program on Forests, Trees and Agroforestry and was supported by the German Society for International Cooperation (GIZ), The World Agroforestry Centre (ICRAF), Brainforest Gabon and TT Research Center for Development Cameroon.