Prof. Matthew McCartney
An Empire Where the Sun Never Sets (On Court Cases)
In 1968, a dismembered Mauritius gained independence from Britain, but not without losing the Chagos islands in the process. These 60 small islands were shorn from the rest of Mauritius in 1965 and turned into the British Indian Ocean Territory. In the feverish Cold War era of the early 1960s, soon after the Cuban Missile crisis, Britain and America established a military base on the largest atoll of the Chagos, Diego Garcia, which was ideal for the purpose. It offered a natural harbor, was large enough to host a sizeable military presence, and was strategically located between East Africa and Southeast Asia. Where the military rationale smiled international law frowned. Mauritius has challenged the dismemberment ever since, pursing court cases against the UK since the 1970s.
The legal process culminated in a 2015 ruling by the permanent court of arbitration and again in 2019, with a ruling by the International Court of Justice and a UN General Assembly vote (116 to 6) for Britain to leave Chagos and for the islands to be reunited with Mauritius. To further compound the illegality of continued colonial occupation, between 1965 and 1971, the British government had forcibly depopulated the 1,000 plus civilian inhabitants of the Chagos islands. Those who had been displaced have since been living in Mauritius, the Seychelles, and the town of Crawley in the UK, many in poverty. Again, the law ruled against the UK. In 2000, two UK High Court judges declared these expulsions to have violated international and British domestic law.
Aided by the election of a new Labour-led government in the UK in October 2024, the UK announced it would finally give up its sovereignty of the Chagos islands, and after years of negotiation, return them to Mauritius. The deal was announced as a rare “win-win-win-win moment in international relations, with all the relevant actors able to claim a meaningful victory: Britain, Mauritius, the US, and the Chagossians.” For Britain, it was the moment to resolve a lingering imperial injustice; for Mauritius, a reunification; for Chagossians, a slightly truncated right to return; and for the US (and UK), the military base on Diego Garcia was granted formal legal recognition via an agreed 99-year lease under formal Mauritian sovereignty. There was initially no objection from the US, where President Biden labelled the agreement as “historic” and amounted to a “peaceful and mutually beneficial outcome” while protecting a key military base which “plays a vital role in national, regional, and global security.”
However, it wasn’t quite unanimous. The BBC reported some disquiet among UK-based exiled Chagossians who felt betrayed because they had not been consulted at any stage in the negotiations. There was also some debate in the UK media about the wider geopolitical implications of the deal. An editorial in the right-leaning UK Daily Telegraph newspaper accused the Labour government of pursuing “juvenile, half-witted anti-colonialism” and having “betrayed our strategic interests, delighted our enemies, weakened our alliance with the United States.” Concerns revolved around the potential that China could gain access to Diego Garcia. After the victory of Donald Trump in the 2024 US election, there was some disquiet about whether his administration would accept the deal. Incoming US Secretary of State Marco Rubio and Defense Secretary Pete Hegseth were both[1] reported to have “criticised the Chagos plan.” After meeting with Donald Trump, UK Foreign Minister David Lammy said “I’m very confident that when the new administration looks at the detail of this deal that they will stand behind it because Donald Trump knows what a good deal looks like.” The deal was also buffeted from another direction, the Mauritian general election in November 2024 brought to power a new administration headed by Prime Minister Navinchandra Ramgoolam who declared that there were “problems with the lease arrangements”. Incoming Minister of agro-industry and fisheries, Arvin Bootell objected to the length of the lease on the military base which he claimed would run in practice for 200 years.
The political debate before and after the agreement and the ensuing media discussion have primarily focused on the outcomes of the legal process. The implied economic benefits of the negotiations, however, have been glossed over and only referenced briefly by the media and other commentators.
In exchange for permission to operate the military base on Diego Garcia, Britain will provide “a package of financial support” to Mauritius that will include “annual payments and infrastructure investment.” The total sum has not been released or perhaps even negotiated yet, but in Mauritius, Alan Ganoo the Land Transport and Light Rail Minister, declared in October 2024 that the rent-cum-compensation will amount to “many billions of rupees” and as a result “Mauritius will become one of the biggest developing countries.”
This two-part blog series argues that the rent accrued from the Diego Garcia military base could create a ‘resource curse’ scenario, in which windfall resource revenues undermine further development.
What is the Resource Curse?
Until independence in the 1950s and 1960s, European colonization in Africa and Asia was criticized for having created a ‘drain of surplus.’ European colonizers used their imperial-sovereign control of trade, financial flows, and taxation policy to acquire natural resources (especially oil) at low prices. In return, they exported to those colonies and other countries more expensive manufactured goods. After independence, many newly-recognized countries sought to gain domestic control over natural resources to maximize their local-national economic benefits. By the late-1950s “virtually every hard-rock mineral and petroleum firm in the developing world was foreign-owned, by the end of the 1970s virtually all had been nationalized.” The mantra was that resources were good and the benefits of resources had been ‘stolen’ during the colonial era.
Over time the world accumulated numerous puzzling anecdotal case studies. By the 1980s, it was evident that economic growth ‘losers’ such as Nigeria, Zambia, Sierra Leone, Angola, and Venezuela were all resource-rich, while the Asian tigers, Korea, Taiwan, Hong Kong, and Singapore were all resource-poor. These puzzling ambiguities between resources and growth can be seen in a simple graph. Figure One shows the relationship between economic growth between 1994 and 2014 across a sample of 68 developing countries and the exports of fuels, ores and metals as a fraction of GDP.
Figure One: Per capita GDP growth (1994–2014) and fuels & non-fuels exports for 68 developing countries
To the surprise of the resource-optimists, the overall relationship is slightly negative, but the divergent case studies noted above ensures that the relationship is not a very strong one. An influential study by Jeffrey Sachs and Andrew Warner in the mid-1990s subjected this question to a rigorous statistical treatment and found that, even after controlling for the impact of initial per capita income, trade policy, government efficiency, investment rates, and other variables, economies with a high ratio of natural resources to GDP in 1971 experienced less economic growth between 1971 and 1989.
This puzzling phenomenon became known as the Resource Curse.
Twenty years later “considerable evidence” has been amassed in support of the resource curse hypothesis. The most notorious example is that of Nigeria. Nigeria began earning oil revenue in 1965 and over the next 35 years, Nigeria’s cumulative revenues from oil amounted to $350 billion at 1995 prices.[2] Over those decades, Nigeria’s per capita GDP fell from $1,113 in 1970 to $1,084 in 2000, making Nigeria one of the 15 poorest countries in the world. Between 1970 and 2000, the proportion of people subsisting on less than US$1 per day increased from 36% to just under 70%. In absolute terms this implied that the number of poor people had increased from 19 million in 1970 to 90 million in 2000.
Since the early 2000s, there has been a sustained boom in global commodity prices, such as oil and copper. Many countries have experienced two decades of rapid economic growth, driven by high commodity prices and exports and a resulting boom in foreign direct investment (FDI) into the commodity sector. The World Bank and private consultancies such as McKinsey argue that today, extractives-led economic growth can be sustained. The dominant narrative is that countries can avoid the resource curse by following rules of best practice.
Will Mauritius Face a Resource Curse in 2024?
The term ‘resource curse’ is something of a misnomer. What matters is not resources per se, but that a country gains a large windfall in revenue from point resources. This may be from export of or government taxes on resources such as oil, minerals, plantation crops (sugar, bananas), or from other sources, such as foreign aid. In the case of Mauritius, these windfalls may stem from the rent of a military base. Point resources, such as these, contrast to more diffuse resources such as smallholder agriculture where the ownership, production, exports, and tax revenue are spread more widely, both in terms of geography and control. There is supporting evidence point resources, specifically, can create a resource curse.
It is difficult to find evidence of how much the UK or US pay for a military base equivalent to Diego Garcia. In the late-1990s, the US was paying about $180 million a year for the use of Clark Air Base, Subic Bay Naval Base and four smaller installations in the Philippines. Negotiations in 1991 floundered as the US was prepared to pay $360 million a year for a ten-year lease, while the Philippine government sought $825 million a year for an eight-year lease. In November 2023, the UK government published figures showing that its military base in Cyprus cost £256 million annually, including rent and other running costs.
Information on the financial rent-cum-compensation for the Diego Garcia military base has not yet been divulged or perhaps even negotiated by the relevant governments. A Mauritian Minster has been quoted as saying this will run into ‘billions of rupees” (tens of millions of US dollars at the current exchange rate). A media report in the UK-based Daily Mail newspaper seemed to confirm this estimate saying that the “The UK will pay ‘tens of millions’ of pounds a year to lease a crucial military base on the Chagos Islands on behalf of the US.” The Mail also noted that “Senior sources told the Mail that the bill for Diego Garcia……. could even run into the low hundreds of millions”.
The rent would likely be paid to the government of Mauritius so an appropriate comparison would be to compare the rent to the government’s annual tax revenue. In 2019, Mauritius raised about 20% of GDP in taxation, equivalent to about $2.6 billion, a rent of $130 to $260 million would increase annual government revenue by between 5 and 10%. This could be enough to create resource-curse like conditions in Mauritius.
Conclusion
This blog opened with what many argued was a legal triumph. One of the vestiges of global imperial and Cold War politics was solved in October 2024 with the reunion of Mauritius and the Chagos Islands. However, the solution wasn’t easy and required several high-profile legal defeats, global opposition, and a change of government in the UK. The media reporting in the UK, India and elsewhere has been, with some exceptions, very positive, with many proclaiming a win-win-win-win solution. Commentators have focused on the positivity of a legal victory for Mauritius, and negative sentiment has been directed towards the lack of consultation among Chagossians, the geopolitical threat to the US presence in the Indian Ocean relative to that of China, and reservations about the length of the lease among the new government in Mauritius.
So far, the narrative about the legal case has neglected the possible implications of Mauritius experiencing a resource curse as a result of the rental-cum-compensation payments for the Diego Garcia military base. This blog has noted that there is a lack of real data on the financial implications of the recent deal, but that a resource curse is a real possibility for Mauritius, especially in relation to the size of its impact on the government budget. A crucial argument from this blog is that a variety of resource windfalls, including foreign aid or a rental payment for a military base can cause a resource curse-type impact.
The second blog in this series will look at the possible implications of the implied Chagos-induced resource curse and the possible policy solutions to turn a potential curse into a resource-blessing.
Thanks to Ashwin Roy who originally asked the question ‘could the Chagos ruling create a resource curse for Mauritius’?
[1] At the time of writing (December 2024) neither had been confirmed in their appointment.
[2] After deducting payments to the foreign oil companies.
