Guanxi; bright lines, fine lines, hard lines, sand linesGuanxi is Mandarin for knowing who to pay for what, and how much. Glencore, inheritor of the empire of the legendary oil trader and commodity speculator Marc Rich, who had heads of state and military chiefs of intelligence in his pocket like so many nickels and dimes, like its founder, has guanxi. Anybody who gets Israel and Iran together at the bargaining table to trade a pipeline easement for a secure oil and gas supply, exceeds the savvy of guanxi by several echelons of wiliness. Having the king of Spain and several other European monarchs on his rolodex he knew there was a market for that Persian crude, and he had the ships to supply it. He knew Saudi was squeezing the Shah at the Strait of Hormuz, and the good Shah needed an outlet, and that the only way was high and dry through the desert of the Holy Land. And being a jew himself he knew the old joke that Moses wandered the desert for forty days and forty nights, and settled in the only place in Arabia where there is no oil. And knew that what little there was on the Sinai peninsula, Abu Rudeis and Ra's Sudr, had reverted to Egyptian control in 1975, and the Arabs had seized all that British-American oil on their home turf, and, after the Yom Kippur War, weren't about to supply it to some infidel jews, who therefore no longer could count on a secure supply from their friends at Standard Oil in America, or their friends at Shell in England. But the fascist Franco, who nevertheless liked Mr Rich and did plenty of business with him, was a friend of Adolf and Rey de Espana, an anti-semitic state going back to the time of the Inquisition in the fifteenth century, could not accept crude shipments from vessels under an Israeli flag. So he swapped the Iranian oil from Israeli vessels to Albanian ships before sailing it to the Spanish refineries. Now that is guanxi. And how many can say they bested the IRS? As he got a presidential pardon from none other than Bill Clinton on his last day of office, from an outstanding warrant and conviction in absentia for $100 million in tax evasion, some trumped up charges from the swashbuckling trading days of the 1970s oil shocks and the Nixon-Ford-Carter rations, price controls, and the bizarre "old oil, new oil" regulation in time of acute shortage, the tiered tax scheme which all the multinationals skirted but the scapegoat Rich, who had come penniless to America, a refugee from Belgium and Third Reich, via Morocco, thanks to mother's guanxi with Yankee politicians, to become a self-made billionaire in trading precious oil at a time when America was short and Marc had become public enemy number 1.
A Swiss commodity trader sitting in the hills of Zug, who makes a loan to an orthodox jew to secure machine guns from his Israeli army buddies for an assassin in darkest Africa in exchange for mineral concessions, has guanxi. Fleurette, ergo, having established a monopoly in the diamond trade in this very way, has guanxi as its primary modus operandi. Zijin, MMG and China Moly, having proper Han pedigree, certainly have guanxi. What about Ivanhoe? In the sense of relationships, and connexions, and knowing the business, sure. A veritable drilling machine with X-ray vision, peering deep into mother earth's secret bubbling caverns to find her hidden precious minerals. But guanxi, no. Not in the important sense. They are too good for this business, as conducted in smoke-filled rooms with a grin and a nod, a clang of the briefcase, a tap of the rifle, and a wire from Geneva.
As for bright-lines, on the red-carpetted palace floors of Kinshasa, a fly on the wall may have overheard:
Katumba: Monsieur Robert, we are prepared to reduce your level of taxation, provided we have certain assurances from you.
Robert: Of course, Minister; name it.
Katumba: Well, it is a french word, "assurances", which does not have an exact translation in English.
Robert: You mean to say...
Katumba: Yes, certain assurances. You know our friend Yves in Zurich?
Robert: Oh, no, I can't. We can't.
Katumba: Why?
Robert: The RCMP.
Katumba: I see.
Katumba: Djamba, Robert ne peut pas payer.
Djamba: Vraiment! Pourquoi?
Katumba: La RCMP.
Djamba: Qu'est-ce que c'est, la RCMP?
Katumba: Je ne sais pas, mais je crois, La Restriction aux Canadiens sur l'Argent qui peut etre Paye.
Djamba: l'Argent, c'est la monnaie en Englais?
Katumba: Oui.
Djamba: J'ai entendu cela. Que les Canadiens ne peuvent pas payer.
Katumba: Peut-tu le croire?
Djamba: Oui, c'est possible.
Katumba: Hmm. Est-ce que les Russes ont RCMP.
Djamba: Je ne pense pas.
Katumba: Et les Chinois, ont-ils la RCMP?
Djamba: No, ministre, definitivement pas.
Katumba: Alors, dis au revoir aux Canadiens.
Djamba: C'est domage, j'aime Robert.
Katumba: Oui, je l'aime bien aussi.
As Bloomfield has suggested, the stability pact is a line in the sand that Mr Friedland has drawn. But what is he really saying? He is saying that this is the only thing he can defend in arbitration, as its violation would contravene all manner of tax treaty between the DRC and nations of foreign investors. However, barring this, the mining code may be altered, and realtered, and there is not a damned thing anyone can do about it, because this is "notre Congo, notre cuivre", and you are invited on our terms, which are as we dictate any any given time.
And there is a fine line of arbitration, in which courts, as sophisticated as they are, do not understand business, and business risk, and that Ivanhoe's stake here is not the USD 800 million sunk here, but the value of the deposits, which is well into the billions, because this was risk capital, and it got very smart and very lucky and created value for the shareholders and for the nation. But that is not something the government or the court will ever appreciate, that a capitalist takes enormous risk to make a return, and when that return is made, it must be honoured, protected, and restored, or there is no capitalism. But the venerable and supreme justices of the Permanent Court of Arbitration in the Hague, in their fine line testing, will look to the accountants for the historical cost and book value, less depreciation, and say, well you only spent this much, and we will hear arguments from all sides, and then take ten years to think about it, and come with a judgement. We will not grant restitution, but compensation, and such award, if any, shall be, in consideration of all relevant facts, such amount as deemed fairly owing. And such award, if granted, will not be collected by the supreme high court, with resonant authority. You must do this yourself. But you may add interest accruing at an annual rate of one per cent, by authority of the court. Johnny, being a good barrister, or, as they call it in his country, an attorney at law, will appreciate all this about bright lines, and fine lines. And the boys in Kinshasa know all this too, all too well, because they were not born yesterday, and they know they can push the miners to the hard rock wall, because this is "notre Congo, notre cuivre".
And this is why Mark and Ivan are taking a hard line. And Robert, like Mark and Ivan, is getting squeezed, and is justified in doing like, but he is Mr Congeniality and Mr Diplomatic. And we can work it out. But now, I say, truly Robert, now is the time to put the boot on the table. We will bury you!