What is an Ethical Investor to Do?

[Previous] [Contents] [Next]

Lydia Miljan

Since August 1999, Talisman Energy, a Calgary-based oil company, has been the subject of a divestment campaign by the Boston-based American Anti-slavery Group. The problem with Talisman has nothing to do in general with its product - in this case oil and gas. The problem has to do with Talisman's 1998 purchase of Arkais Energy Ltd. and its 25 percent stake in the Greater Nile Oil Petroleum Operating Company in Sudan.

The Anti-Slavery Group, as well as churches and relief organizations, have denounced the Talisman investment in Sudan and have pressured mutual funds to divest themselves of their Talisman stock. They have won allies in the US government, and in Canadian church groups, who accuse Sudan of harbouring terrorists. In the spring of 1999, the Americans bombed an alleged terrorist facility in the country.

Madeleine Albright has questioned the morality of Talisman even operating in Sudan. Since November 1999, the campaign to encourage mutual funds to divest themselves of Talisman stock has been stepped up. An examination of the sources used by the National Post in their stories on Talisman reveals that allegations of human-rights violations and calls for government sanctions as well have come from several aid groups, American and Canadian churches, the Sudanese rebels, international aid workers, and displaced Sudanese, as well as academics.

No one source making the claims dominates the news coverage. The groups themselves note this point. Jesse Sage of the American Anti-Slavery Group has said that "humanitarian groups, the US Congress, and Madeleine Albright, the US Secretary of State, could not all be wrong in their opposition of Talisman." In contrast, 42 percent of the statements made in defense of the company's actions and activities in Sudan have come from Talisman itself.

According to the opponents of Talisman, including the American government, the best policy in dealing with Sudan is one of isolation. These groups claim that if foreign corporations do not invest in Sudan, then the government will not have the funds to wage a war against its own people. To ensure that such claims are acted upon, the American Anti-Slavery Group launched a Talisman Divestment Campaign (TDC) to force the company out of Sudan. They have written highly critical reports and pressured American investors to pull out of Talisman. Media outlets have endorsed these moves. The Washington Post, for example, editorialized that Talisman "has rightly become the target of a divestment campaign."1

Media attention to this issue invariably assumes that the policy of isolation is best for Sudan. For example, the Anti-Slavery group has argued that such a divestment campaign "was used in the 1980s as a tool for ending apartheid in South Africa." In fact, the results of imposing sanctions on South Africa after 1985 are highly questionable. The Institute for International Economics, for example, has declared them to be a failure, not least of all because they scarcely had any effect on that country's GDP.

To see what was being said about Talisman and Sudan, we examined 27 stories that ran in the National Post and Financial Post from November 1998 to January 14, 2000.2 Generally speaking, media attention to contentious issues tends to pit one group's opinion against another. In this case, the US government and relief organizations simply state that divestment is the only way to ensure that Sudan will end its civil war. In contrast, Talisman claims that their actions in the country provide more help to the people than if they were not there. There has generally been no effort to assess credibility or provide an understanding of the wider context.

Talisman's president and chief executive, Jim Buckee, tried to suggest the wider perspective. In a letter to Talisman investors, as reported by the National Post's Claudia Cattaneo, Buckee wrote that "Sudan has been in turmoil for many years. However, I believe that continued investment and international involvement will provide a catalyst to economic and social development. This will ultimately improve the standard of living in a country that has endured more than its share of civil war, famine and poverty" (November 25, 1999, web site: nationalpost.com).

Buckee's statements obviously support Talisman's position, but in none of the stories critical of the oil company were references provided to actual studies that document the extent to which Western investment helps or hinders the inhabitants of underdeveloped countries in general, or the Sudan in particular.

Research published in The Fraser Institute's book Economic Freedom of the World, for instance, supports Buckee's remarks. This work looks at 23 dimensions of restrictions on economic activity and finds that those countries with the fewest restrictions on economic activity grow the fastest. Sanctions are clearly a restriction on economic activity and simply lead to sustained impoverishment.

In the course of their study, the authors of Economic Freedom of the World note that "other work has looked at infant mortality, literacy, access to safe drinking water, and corruption, all of which show better outcomes with higher levels of economic freedom."3 Other economists have found that improvements in a country's standard of living greatly increase the likelihood that political freedom can flourish. None of this contextual material was presented in the Post's news coverage.

Talisman's position is that it is neutral in the civil war, and its efforts provide jobs for an ethnic mix of Sudanese. In addition, the well sites provide much-needed clean drinking water for the local people. The company has also provided road infrastructure that has helped local commerce. Since Talisman invested in the country, Sudan has been able to implement macroeconomic and structural policies dictated by the IMF. As a result, in August 1999, the IMF lifted its declaration of non-coopera- tion from Sudan.

According to Credit Suisse, "The TDC has a three-pronged approach in its campaign to divest Talisman." They claim that the campaign's first goal is to "Stress the alleged human rights violation, hoping some of the more polit- ically-driven pension funds ... will feel enough public pressure to sell their holdings." This tactic has been quite successful. In the past 2 months, 46 percent of the National Post's coverage of Talisman and Sudan has uncritically repeated allegations of human rights abuses, and often these stories claimed that Talisman's investment is helping fund the government's activities.

The second prong of the TDC is to "Propagate the fear of continued selling, increasing the inherent risk in owning the stock. This plays upon the fears of short-term, or momentum-driven investors, who may wait until things clear up before bothering with the stock, despite its extreme undervaluation." This theme has also been adopted in the Post's media coverage with 16 percent of the attention focusing on calls for divestment and reports of the effectiveness of the TDC in devaluing the company stock.

The final prong of the campaign to "Encourage government regulations, which may limit the ability to own the stock" has been met with the least success, with only 7 percent of the Post's attention attempting to pressure the Canadian government to impose sanctions. Therefore, while 69 percent of the Post's coverage had touched on these three points, only 31 percent provided the defense of the company's position.

The issue in Sudan is obviously complex: there are no quick and easy solutions to a country long mired in civil war and human rights abuses. However, why a Canadian media outlet such as the National Post has so uncritically adopted the claims and opinions of the American government and NGO aid organizations is unclear. The Post, as have many other media organizations in the country, let itself be used in a war of words from foreign interest groups and government officials all in the name of helping the Sudanese people.

Even so, the Post's own coverage has indicated that if Talisman leaves Sudan there will be no shortage of European buyers for its share of the project. A more sceptical approach to the claims of Talisman's opponents would have resulted in a more accurate and balanced picture.

Notes

[Previous] [Contents] [Next]

info@fraserinstitute.ca You can contact us at the above email address for any comments or information requests. Please report any dead links or technical problems.

If you know someone who would be interested in this web page, please enter their email address below, and we will forward this URL to them: Email Address:

Last Modified: Wednesday June 9, 1999.