This case examines the business decisions around managing the community impact of a mining development in the Gobi Desert region of Mongolia at Oyu Tolgoi-one of the larger copper and gold deposits in the world, and a flagship project of Rio Tinto. In 2009, a mining development agreement was reached with the Government of Mongolia on the national level, but negotiations were just ramping up at the local level. New legislation mandated the creation of a local-level agreement, but the exact requirements were vague, leaving a great deal of ambiguity about the obligations of the company. Hoping to establish its so-called social licence to operate, Rio Tinto committed to discussions with local authorities, but the many stakeholders involved have competing interests.
This case examines the business decisions around managing the community impact of a mining development in the Gobi Desert region of Mongolia at Oyu Tolgoi—one of the larger copper and gold deposits in the world, and a flagship project of Rio Tinto. In 2009, a mining development agreement was reached with the Government of Mongolia on the national level, but negotiations were just ramping up at the local level. New legislation mandated the creation of a local-level agreement, but the exact requirements were vague, leaving a great deal of ambiguity about the obligations of the company. Hoping to establish its so-called social licence to operate, Rio Tinto committed to discussions with local authorities, but the many stakeholders involved have competing interests.
During the summer of 2014, Alan Knight, General Manager of Corporate Responsibility at the integrated steel and mining company ArcelorMittal, observed the unfolding of an Ebola epidemic in Liberia and other countries in West Africa with great concern. On the one hand was the sheer tragedy of the calamity that struck the poverty-stricken country, recently emerged from a long and painful civil war; on the other, the fact that ArcelorMittal's mining concession in Liberia was a crucial part of the company's business going forward. How was ArcelorMittal to face the mounting crisis? What response did it owe its employees? Its shareholders? Its stakeholders? Given the low state capacity in Liberia, ArcelorMittal helped organize a private sector response to the crisis, and, as a pandemic finally was averted, he wondered what lessons to draw from the experience.
Global players in search of double-digit growth are running out of opportunities. Emerging-market giants such as Brazil, Russia, and China are experiencing an economic slowdown. They are increasingly expensive as a base for operations, and it's harder to export to and import from these countries than it used to be. As a result, multinationals are paying more attention to low-income, high-risk countries both as new markets for selling goods and services and as platforms from which to export them elsewhere. Even in industries where competition is skewed by government manipulation, foreign players that target the right sectors with the right strategies can prosper. The first step in identifying opportunities in a frontier economy is to assess the competitive environment of its industries along two dimensions: (1) the degree to which profitability is determined by competition between firms and not by government policies and actions and (2) whether the industry is focused primarily on domestic sales or on exports. Industries will fall into one of four categories. Each category is associated with a distinct strategy, ranging from the conventional (leverage existing capabilities, adapt to local tastes) to the unfamiliar (make yourself indispensable to powerful local players). In this article, the authors offer companies a framework to help figure out whether and where to play and how to win in the spaces in which they choose to compete.
At the half-anniversary of the pro-democracy civil disobedience movement "Occupy Central with Love and Peace" on March 28, 2015, Chief Executive Leung Chun-ying was contemplating the future direction of Hong Kong. Did Hong Kong need universal suffrage, or were its greater challenges economic? After 40 years of remarkable growth, Hong Kong's long-held laissez faire philosophy seemed increasingly inconsistent with its young electorate, which was finding its voice in public debate. With inequality rising in Hong Kong, and the finance and real estate industries playing the dominant role in the economy, many in the territory wondered whether its unique economic model was threatened, or should be changed.
Multinational corporations and wealthy individuals often use so-called tax havens to establish subsidiaries or holding companies in order to rebalance profits across borders with the primary purpose of lowering their effective tax rate. This note describes the use of tax havens, the implications for the financial sector in tax havens, as well as the debate around the effect of tax havens on welfare in other jurisdictions.
In 2013, Rio Tinto was expected to begin commercial shipments from Oyu Tolgoi, a copper and gold mine in the Gobi Desert of Mongolia. Oyu Tolgoi was one of the last great unmined deposits in the world, and, once operations were in full swing, was expected to constitute around a tenth of Rio Tinto's profits and over a quarter of Mongolia's GDP. But the terms of the deal were being threatened by elections in Mongolian and a change in voter sentiment towards the project. With around $6 billion invested, Rio Tinto had to figure out how to make its investment work out. Meanwhile the Mongolian government, facing scorching economic growth rates, had to lead the country through its most significant transformation since the time of Ghengis Khan nine centuries earlier.
Cyprus is a small Mediterranean island located at the cross-roads of Europe, Africa, and the Middle East. Since its 1974 split, Cyprus has grown real GDP more than fivefold-in large part because of its development as an "international business" center. The country developed a large network of double-taxation-treaties (including some of the most robust agreements with Russia and other ex-Soviet Republics) that allowed it to serve as a tax-efficient conduit for international capital flows. In 2002 it acceded to the European Union and in 2008 to the Eurozone. However in 2012, facing fiscal deficits and an insolvent banking sector, the island became the fourth EU country to formally request assistance from the EC-ECB-IMF Troika. The final assistance package required a "bail-in" from uninsured depositors in order to return the nation's largest banks to solvency. How had Cyprus's development model contributed to both the island's financial crisis as well as the structure of its ultimate assistance package?
While the Philippines are located in the vicinity of many of the "Asian Tigers," its development has followed a unique path. The country suffered for years under a dictatorial political regime and protectionist economic policies. Remittances were the largest source of hard currency and the industrial sector was marked by significant concentration and rent seeking. Recent economic reforms have shaken up many sectors of the economy and stimulated rapid economic growth. Conglomerates, which account for a substantial portion of large, organized business activity, need to decide how to adapt to this new environment. Ayala Corporation is one of the largest and most important conglomerates in the Philippines and has been controlled by the Zobel de Ayala family for seven generations. Company leadership must decide whether to alter their strategy in the wake of an election that could dramatically transform the political and business climate of the Philippines in a positive way.
The case narrates the development of Pittsburgh from the 1940s to 2012. It analyzes the collapse of the steel industry in the early 1980s, the city's subsequent decline, and the city's later re-emergence as a hub for higher education, the tech sector, and the healthcare industry. Attention is given to the public-private partnerships that emerged in Pittsburgh, as well as the economic development and taxation initiatives pursued by different mayors.
In spite of its abundant energy resources, Nigeria in 2012 had one of the lowest levels of energy use in the world. Self-generation of power from costly generators was double that of grid-supplied electricity. The history of its power sector was one of inefficient monopolies, missteps, and corruption. But a wholesale change to the market, designed under reformist President Obasanjo and pushed forward by President Jonathan, promised greater efficiencies and investment guided by private-sector principles including widespread privatization, pricing reforms, and reliance on firms to produce and distribute the electricity. Power producer firms on the sideline needed to decide whether they wanted to be a part of this new market.
This technical note describes a methodology for evaluating the political economy of business-government relations in an emerging or frontier economy. The note argues that there are not one but four markets in an emerging economy: the market of "rentiers" such as mining companies that earn profits by maximizing rents in the export sector, "powerbrokers" that use monopoly power and government relations in regulated industries to earn outsized profits selling domestically, "workhorses" that operate in largely competitive (and familiar) sectors serving domestic customers, and "magicians" that rely on country-specific advantages including special treatment and incentives to export in competitive sectors. Firms operating in each of these markets require a different strategy; moreover, each market requires a different approach for regulation and private sector development. If we look at the mix of business activity across these four markets in a country, we can better understand the nature and trajectory of business-government relations.
Incoming and outgoing foreign direct investment in an environment of politics, geography, globalization, and history. Since the end of apartheid, South Africa had undertaken substantial economic reforms in order to attract more foreign direct investment, but it was slow in coming. At the same time, South African firms had become major players in sub-Saharan Africa and beyond. Collectively, these investment decisions could have a major long-run impact on South Africa's economic growth and political stability. South African policymakers needed to decide what they wanted from the private sector, and how to achieve it.
From 1989 to 2003 civil war raged in Liberia, causing GDP per capita to drop an unprecedented 90% from peak to trough. The roots of Liberia's conflict and economic decline are complex and intertwined, resting on over a century of discriminatory elite rule and twisted by ethnic politics during a military dictatorship. By late 2011, eight years of post-conflict government have restored basic order, re-opened the country to foreign investors, and jump-started the small economy. But the country's business model may unsettle its political stability. As Africa's first democratically elected female head of state (and a recipient of the Nobel Peace Prize) Ellen Johnson Sirleaf goes into her reelection campaign for Liberia's presidency, she must decide how to keep the country on its fragile but quick recovery, sowing the seeds for peace and prosperity rather than renewed conflict.