My earlier post on contracts (originally at Palabre) resulted in quite a level of defensiveness on the part of respondents. However, I am not alone in my assessment that the frequency in the violation of contracts is a significant factor in sub-Saharan poverty. Yesterday’s Wall Street Journal offered a column entitled, “Why Africa Is Poor: Ghana beats up on its biggest foreign investors“, which is republished at Ghana’s The Statesman. The article cites the treatment of Texas-based Kosmos Energy, which has arranged a sale of part of its oil field in Ghana to Exxon. The Ghanaian government threatens to buy back oil fields at a cut rate; this would then give them the ability to sell the field to a third party at a huge profit. But it is a violation of their contract with Kosmos:
When Kosmos began its project under the then-ruling New Patriotic Party, the business environment seemed relatively stable with adequate protections for foreign investors. Under Ghana law, consent for a deal such as the one between Kosmos and Exxon can’t be unreasonably withheld, delayed or denied. Such contract protection began to dissolve in January 2009, with the election of the leftist National Democratic Congress.
Other foreign investors are also getting the Kosmos treatment.
The WSJ concludes:
Attracting foreign investment has been a pillar of Ghana’s development strategy, with the government pitching itself as the “Gateway to West Africa.” Spooking new investors by repudiating contracts will rapidly ruin the country’s prospects for long-term development.
The following comment to the WSJ article was made at the Statesman (sic):
Kwadwo mpiani the former chief of staff awarded contractas on humanitarian grounds and out of sympathy to foreign nationals and the NPP dont think these people needed to be probed. If any invester has a problem with following due process then we dont want him in our country. I think the writer of this article is so foolish that he would rather defend a foreign invester instead of his own country. The writer of this article is just as stupid as an ASS. James Bell , Accra , 18/02/2010 5:10:59 P
Unfortunately, Mr. Bell, corrupt practices like these create risk factors which are out of control, and no investor should ever be interested.