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By Nicolás M. Perrone
The 2030 Sustainable Development Goals (SDGs) relies on a global partnership, bringing together ‘national governments, the international community, civil society, the private sector and other actors.’ For the SDGs, foreign investors play a central role in bringing capital into the Global South and helping these countries to use their economic resources efficiently, including their natural resources. Seeing foreign investment in natural resources as a contribution to development, however, clashes with a commercial view of these economic transactions, whereby corporate actors try to maximise returns while minimising their costs and risks.
Some economic thinkers, it is true, conflate these two views. They claim that economic activity organised under these individual and competitive premises will have a positive trickle-down effect on the overall economy. But the trickle-down hypothesis is highly debated, and when talking about foreign investment in natural resources, the evidence rather suggests that the exploitation of natural resources can be a curse – and not a blessing – to the Global South.
Taking the SDGs seriously, particularly the idea of a global partnership involving the private sector, requires acknowledging the difficulties to strike deals that favour host states and their people. Environmental and human rights sustainability is crucial, and so it is that the locals receive a fair share of the benefits without sacrificing their way of life. Rather than focusing on natural resource contracts as commercial transactions, then, we need to focus on the establishment and operation of mining or oil projects as governance decisions that have significant distributive and normative consequences.
While commercial transactions are all about bargaining skills and using information strategically, governance decisions require that certain outcomes, such as unfair distributions, are legally or institutionally prevented. This conclusion does not mean that foreign investors should not work for profit. But if the evidence shows that foreign investment in natural resources and sustainable development have an ambivalent relationship at best, we cannot let large multinational corporations take advantage of the imperative to attract foreign investment or the lack of state capacity to negotiate and govern these projects.
A global partnership for the SDGs requires more than guidelines or corporate social responsibility standards. It requires a new legal and institutional imagination about foreign investment projects with large-scale social and environmental impacts. There are several initiatives to improve natural resource contracts taking into account states’ right to regulate and sustainable development. But this may not be enough. If the exploration and exploitation of natural resources are governance decisions as significant as a tax reform, we need international as well as national institutions capable of ensuring full information and participation. The law can contribute to dealing with the weaknesses of low and middle-income countries and their local communities.
Importantly, such a model for foreign investment governance would contrast with international investment treaties and foreign investment contractual practice. The current international investment regime focuses on the protection of foreign investor rights only. From a sustainable development perspective, there is no justification for promoting certainty in this one-sided manner. Also, we should not take cooperation between foreign investors, states and local communities for granted. Real cooperation during the investment project, as opposed to unequal contractual bargaining or formal local consultation, requires reimagining the international investment regime. How to move in this direction exceeds this blog. But a crucial shift, perhaps a threshold shift, is to focus less on foreign investors and their certainty and more on a fair distribution of benefits costs and risks between foreign investors, host states and local communities.
SDG 17 aims to ‘[s]trengthen the means of implementation and revitalize the global partnership for sustainable development,’ https://sustainabledevelopment.un.org/sdg17 (last visited 18 July 2019). Thomas Piketty, Capital In The Twenty-First Century (2014), 68, 70 (speaking of Africa). Ensuring the ‘quality’ of foreign investment projects has become a priority of development institutions. See OECD, ‘FDI Qualities Project,’ http://biac.org/wp-content/uploads/2018/10/FIN-2018-10-FDI-qualities1.pdf (last visited 18 July 2019); Karl Sauvant and Howard Mann. ‘Towards an Indicative List of FDI Sustainability Characteristics,’ E15Initiative. Geneva: International Centre for Trade and Sustainable Development (ICTSD) and World Economic Forum (2017).
See UNCTAD, World Investment Report 2007: Transnational Corporations, Extractive Industries and Development (United Nations 2007). Notably, the United Nations Global Compact, see https://www.unglobalcompact.org/ (last visited 18 July 2018). Real cooperation requires appropriate institutions that can promote trust amongst all the relevant actors. In relation to resource governance, see Elinor Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action (2016). I have outlined some basic principles for a governance model based on distribution and cooperation in Nicolás M. Perrone, ‘Making Local Communities Visible: a way to prevent the potentially tragic consequences of foreign investment?,’ in Alvaro Santos, Chantal Thomas and David Trubek (eds.), World Trade and Investment Law Reimagined: A Progressive Agenda for an Inclusive Globalization (2019) 171.