EDITORIAL PAGE Foreign investments have unusual risks

Within a few short years of Vasco da Gama’s discovery of a sea route to India in 1498, trade between Europe and Asia began on a new level. Silk and precious stones were in high demand, but the most lucrative trade was in spices, for that was where profits of up to 1,000% were virtually guaranteed.

Syndicates in Lisbon, Bristol and Antwerp financed the outfitting of ships and if these cockleshells survived storm, mutiny, piracy and the guns of their competitors, they would return to European ports in 24 months or so. In the earliest days, only one would return for every two lost, but the profits were such that the trade could stand the losses. There was never a shortage of syndicates — nor of captains.

Some of the risks facing those entrepreneurs are similar to those facing Canadian mining companies today that are looking outside of North America for their next venture. Political uncertainty and civil lawlessness cannot be ruled out.

Political uncertainty when dealing with less developed countries has waned in the past decade as the need for capital investment convinced them to ease foreign investors’ fears. Mandatory 51% ownership by domestic corporations, restriction on the repatriation of profits, limitations on the conversion of local profits into hard currency as well as an obstructive attitude on the part of bureaucracy are all rapidly becoming history.

Many Latin American nations have made a complete about-face with regard to the off-shore investor. Taxation, repatriation, currency exchange, import-export regulations and ownership constraints have all been relaxed. But that doesn’t mean significant risks no longer exist. The case of Bougainville Copper in Papua New Guinea shows that physical damage and intimidation of personnel are considerations western companies have to face in the less developed parts of the world.

Kidnapping company executives is heard of less than it was in the mid-1980s, but they are still a factor. Unlike their more unfortunate counterparts in Europe, who more often than not were assassinated, the victims in the Third World are held for ransom. It’s strictly a business transaction.

But these risks are beyond the typical business considerations. How such possibilities can be factored into the decision-making process defies rationalization. What value do you put on the personal safety of a senior executive?

In the final analysis, a mining company can only take into account the persuasive tax structure of the chosen country, its lower capital and labor costs, the access to virtually untouched geology (comparable to the American west of the 1860s), and then decide if the potential reward warrants the risk.