It’s a familiar story, and I won’t be the first one to tell you. As documented widely, the rapid industrial rise of the BRIC economies has created an unexpected demand crush on natural resource commodities, generating all sorts of anomalies for foreign investors in extractive industries. We have seen resource nationalism issues pop up in emerging economies everywhere from Venezuela and Bolivia to Nigeria and Russia, while both state and private companies are attempting to negotiate and understand the rules of a whole new competitive playing field – whereby host governments find themselves with the unprecedented leverage to demand more than just capital.

In Africa, these new, unconventional investment arrangements often involve debt forgiveness and extensive infrastructure and aid packages (and in the case of Algeria, arms deals with Russia) – in short, not the type of incentives that the private companies have much experience with or are readily able to provide.

However, the impact of this new competition gap isn’t yet entirely clear. On the one hand, the resource curse is perpetuated in many energy and metals exporting nations, as authoritarian governments extend repressive abuses with very little fear of an investment slow down over concerns of corruption, democracy, or human rights. This of course in turn has exacerbated social tensions over the distribution of resource wealth – with Nigeria as the prime example.

On the positive side, especially needy countries are finding themselves able to negotiate much needed projects from international energy and mining companies to benefit the population and ease social tensions surrounding many foreign investment deals in this complicated age of globalization. This is the keystone of what we are calling corporate foreign policy – whereupon corporations are leapfrogging over the government-as-middleman, to address relations with local communities with proactive engagement. This is what happens when companies find themselves forced to begin taking on the role of states where local governments have failed.

But has the price already become too high? Is there a right way and a wrong way to survive in this new environment, producing either the positive or negative result?

A recent article in the Wall Street Journal was strongly critical of some missteps made by energy companies in their desperate race to secure access to resources. In particular it cites Italy’s national champion Eni, whose willingness to sign extremely unfavorable deals (though providing access in Libya until 2047) and pay exorbitant prices much higher than most other companies is having a distorting effect on international pricing as well as contracts standards. There seems to be no deal that the Italians wouldn’t accept – regardless of the state or rule of law or democracy in the host country.

The experience of France’s Total in Africa has been somewhat different, as the company “committed itself to projects far beyond pumping oil, like building high schools in Angola.” However this may just be lip service: the South African human rights organization OSISA reported in January 2008 that the Total/Angola firm granted a mere $800,000 towards lab equipment and accommodation for students enrolled in the National Oil Institute – which surely counts as a worthy investment for the future of the oil industry of “one of the poorest lands on earth”?

This attitude seems to fall in line with a more general stance on infrastructure investment in poorer continents, particularly Africa. The G8, for example, had pledged in 2005 to increase development aid to Africa to $25bn a year, but just this week reports have been circulating that they will backtrack. Unfortunately we have become used to broken promises from the G8.

According to Thierry Tanoh, the vice president of the International Finance Corporation (IFC), “Everybody knows that Africa needs more than $10bn a year in infrastructure investment.” The majority of Africa’s infrastructure funding currently comes from specially-designed funds, such as those developed by the IFC, an arm of the World Bank, which has just launched a new fund to unlock $5bn in infrastructure funding for the continent.

It is easy enough to see why companies may be shying away from investing in Africa. The Nigerian government has just granted state-owned Nigerian National Petroleum Corporation (NNPC) permission to seek investment of up to $60 billion at a time when the global market most needs the oil. Matthew Green in this week’s FT has written an interesting article on Nigeria’s oil industry, reporting that the NNPC has, in the past, been accused of failing to pay its share of exploration and development costs in agreements with other oil companies such as Total, Shell and ExxonMobil. Sonangol, part-owned by the Angolan state, has come under fire for lack of transparency in its dealings, which has made dealing with the IMF difficult in the past. But it seems that the real problem is lack of funds.

Angola’s industry minister says that “Angola’s industrial development programme, between 2009 and 2013, is expected to cost $6.5 billion,” of which the State can fund just $800 million, leaving a huge gap for foreign investment.

Enter China

This gap is being increasingly filled with funds from China, whose state-owned companies have shown a nearly limitless appetite to throw money into African infrastructure projects. Although many would argue that this new inflow could significantly boost the continent’s future prospects in the global economy, for some reason we only hear of grave concerns and the “threat” of the Chinese presence. A February article by Laurie Goering at the Chicago Tribune, archived externally here, says that some analysts believe China’s support comes at a price, and “undermines African institutions and Western efforts to promote good governance.”

But with other countries shying away from the continent, China’s efforts are increasing. The China Development Bank, which operates under the direct jurisdiction of the State Council, signed a partnership with Nigeria’s United Bank for Africa earlier this year, and manages the $5 billion China-Africa Development Fund, a investment vehicle set up in 2007 to promote infrastructure projects in Africa, which is continuing to pour money into the continent. And just this week, Angola and China’s Eximbank signed three funding agreements for infrastructure projects.

Other countries are already looking to Africa as a means of expanding their operations, albeit on a lesser scale. Nicolas Sarkozy recently announced that France’s AFD, the French Development Agency, a public institution providing development financing, will resume activity in Angola, and France’s minister of state for foreign trade has just signed an agreement guaranteeing the protection of France’s Angolan investments. Brazil’s state-run Petrobras will start pumping oil from Nigeria’s offshore Agbami oil field next month, and expects to invest an additional $1.4 billion by 2013. Total is about to start drilling in Sudan, and Vodafone has agreed to buy a stake in state-run Ghana Telecommunications for $900 million.

High risks continue to deter investment, but the majority of those risks are speculatively related to political and economic instability – the paradox being that such risks that can only be lessened through increased investment. And as yet, there have been no scandals of state corporations wrangling for control in joint ventures with Western companies, or any multinational investors on the African continent facing the kind of antagonism currently destroying operations at TNK-BP…

If international mining and energy corporations have any hope of competing with Russian and Chinese state-held firms in Africa (and they certainly can, with much greater expertise, technology, and efficiency), understanding how their corporate foreign policies can be designed for optimal implementation and government relations is paramount to success. This is something that must be done before it is too late.