I just reread this BBC article from a few months ago about how a Chinese state owned bank is investing $9 billion in the Democratic Republic of Congo in exchange for mining rights. There was also a similar article where a Chinese mining company is investing $3 billion in a Peruvian copper mine.

On the surface these investments seem exactly what these two developing countries need, but in reality the Chinese companies will end up making enormous profits:

But critics say the problem is not just fiscal privileges.

The whole arithmetic of the deal unfairly favours the Chinese. At current world prices for copper and cobalt, they claim, the Chinese side of the joint venture will make a colossal overall profit of about $42bn after all the investment’s been paid.

That is between a 4 to 5 times return on their investment. I don’t see how anybody can argue that the people of DRC are the winners here. What makes the deal even worse is:

The idea is that China will recoup its total investment within 10 years.

Thereafter the joint venture – one third DR Congolese, two-thirds Chinese – continues to exploit the mine.

Why on earth should a foreign entity end up owning 66% of a country’s natural resources? Again, how is this deal in the best interest of the people of the Democratic Republic of Congo?

This is an ideal time to reevaluate the whole idea of giving for-profit companies or foreign government owned companies the right to exploit developing countries resources, where the investors reap extremely handsome profits while the people in those countries see minimal benefits.

Hence I am proposing forming community profit organizations (comprofit or CPOs), where these entities would bid for contracts to exploit natural resources such as minerals, oil, etc., where all the profit would then be invested directly in the local community and country: to build schools, hospitals, roads, etc. The difference between this approach and what the Chinese bank is doing in the DRC would be investing $42 billion vs $6 billion in the local community.

In order for this to work the comprofits will need to be run like proper, for profit businesses. The only difference between a for-profit company and com-profit would be where the profits go. In the for-profit case the billions of dollars of profits go to individuals and investors, while in the com-profit case the money goes to the people who own the resources. For example, why should a steel magnate be worth upwards of $20 billion or a foreign government owned bank make $42 billion while the people who own the resources get crams in return?

The challenge is the comprifit would need to raise billions of dollars in order to compete with the likes of state owned companies or huge for-profit companies that can offer $3 billion upfront to developing countries who badly need the resources. What I have a problem understanding is that why doesn’t the World Bank encourage such ventures? May be it does, and I am not aware of it, but more often than not I am reading stories of deals pushed by the Word Bank that favor investors at the expense of the people.

Comprofits could also raise funds from private investors, such as large pension funds, and other institutional investors in return for reasonable returns.

Finally, I understand that Bill Gates and Warren Buffet are donating their fortunes to charities. Why not invest some of that money in comprofits? Not only would this reduce poverty and disease, increase literacy and build infrastructure, but the charities would also get a good return on their investments. I would call that a win-win.

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