Mining and the development of local and national economies

CommDev’s

19 June 2006, Washington D.C.

• Importance to society and industry

• Economic performance of mineral dependent economies

• Resource Endowment Initiative

• Community Development Toolkit

• The way forward

Photo by Malu Cabellos, Guarango Cine y Video

(Guarango Film and Video, Peru)

Photo by Teri Pengilley.Taken from cover of: Karl Blanchet, Regina Keith and Peter Shackleton

(2006)

Importance to society

• Geological resources are non-renewable natural capital

• Risks from social, safety and environmental impacts

• Risks to national economies and public institutions

“Many of the world’s poorest countries possess significant reserves of oil and other natural resources. Yet numerous

academic studies show that, … (such countries) … score lower on the UN’s Human Development Index, exhibit greater

corruption, have a greater probability of conflict in any five year period, have higher percentages of their populations in poverty,

dedicate a greater share of government spending to military spending, and are more authoritarian than those with more

diverse sources of wealth.”

[Palley, 2003]

Broad socio-economic success: also important for business

• Case for access to land

• Security for long-term investments

• Satisfying regulators and financiers

Photo “Pupils at Loharano School, Madagascar, supported by QIT Minerals, Madagascar”Image taken from rear cover of December 2004 issue no. 72 of Rio Tinto’s ‘Review’ magazine

Economic performance

• Socio-economic outcomes are mixed

Source: World Bank

Economic performance

Better Performers Weaker Performers

Better Performers

Generally Better Performers

Weaker Performers with relatively

better performance in a few economic

(E) and social indicators (S)

Clearly Poor Performers

ChileBotswanaMalaysiaTunisiaGhanaMexico

ColombiaGuineaJamaicaMaliMoroccoMozambiqueNamibiaSenegal

South Africa (E)Tanzania (E)Guyana (E)Mauretania (E)Gabon (E + S)Peru (S)Suriname (S)Togo (S) Jordan (S)Zimbabwe

BoliviaCentral African RepublicCongoLiberiaNigerPNGPhilippinesSierra LeoneZambia

Mining investment should be a catalyst

“Mining provides opportunities. If a country fails to

take advantage of them, the fault lies with the

government and other entities that decide how…

the mineral wealth is used”

Graham Davis

Resource Endowment Initiative

• Probe reasons for success or failure?

• How have specific problems been addressed?– Dutch disease– Predatory behaviour– Poor policy and institutional development– Narrow benefits

• Key research questions– What are the critical success factors?– What practical steps can industry and

other stakeholders take?

Resource Endowment work programme

Assuring quality and objectivity

Members of the Independent Advisory Group:• Georg Kell (Executive Head, United Nations Global Compact Office)• Pedro Pablo Kuczynski (Minister of Economy and Finance, Peru) (until mid

2005)• Mamadou Lamine Loum (Independent consultant and former Prime Minister

of Senegal)• Warwick J McKibbin (Executive Director, Centre for Applied Macroeconomic

Analysis and Professor of International Economics, Research School of Pacific and Asian Studies, Australian National University; Member, Board of the Reserve Bank of Australia)

• Hon. Felix Mutati (Deputy Minister of Finance and National Planning, Republic of Zambia)

• Jane Nelson (Director, Corporate Social Responsibility Initiative, Kennedy School of Government, Harvard University and Director, Business Strategy, International Business Leaders Forum)

Initiative Partners Consulting team

Case study findings: Ghana

Ghana Per Capita Growth Rates: 1950- 2003 (1990 PPP$)

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

1951

Introduction ofnew minerals

code

Case study findings: Tanzania

Tanzania Per capita Growth: 1950- 2003 (PPP 1990$)

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

1951

Introduction ofnew minerals code

Case study findings: Peru

Peru: Per Capita Growth 1950-2003 (PPP $ 1990)

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Case study findings: Chile

Chile: Per Capita Growth 1950-2003 (PPP $ 1990)

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

1951

Case study findings: poverty alleviation

• Ghana: 12% reduction (52% to 40%)• Peru and Tanzania: no material change nationally• Chile: see graph below

Overall findings

• Economic growth occurs under right conditions

• Sound macro-economic and legal framework is essential

• Necessary governance standard’s “OK” – provided correct targets – not “good”

• Substantial poverty alleviation can also occur

• Governance quality has improved

Governance in Peru and Chile

Community Development Toolkit

• Objective: tools for community development around mining and metals processing operations

• Local focus

• Broad audience: government, industry and civil society

• Covers full life cycle

Planning and design

ClosureOperationsExploration Construction

Toolkit contents

• 17 practical “how to” tools

• Cover:– Assessment of community

conditions– Planning of programmes and

activities– Relationships: establishing good

stakeholder relationships– Programme management– Monitoring and evaluation

The way forward

• Positive or negative outcomes can result from mineral resource investment

• Sound macro-economic and legal structure needed to stimulate investment

• Socio-economic outcome – governance dependent, key factors:– Effective and co-ordinated use of taxes etc.– Not low tax rate– Focus on capacity strengthening across government– Programme focus on key issues– Strengthening local supply chain

• Collaboration is essential, individual actions will not work

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