Governance and Sustainable Development in mining and metals

World Mines Ministries ForumToronto, Canada, 29th February 2008

Kathryn McPhail, International Council on Mining and Metals

Session overview

Kathryn McPhail, ICMM: Governance and sustainable development in mining and metals

Peter Sinclair, Barrick Gold Corporation: The role of mining in socio-economic development in Tanzania

Rees Warne, Catholic Relief Services: Encouraging accountability in the mining sector

Siyan Malomo, Nigerian Geological Survey: The role of government

Jonas Moberg, Extractive Industries Transparency Initiative: Global trends in transparency

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Outline

With safeguards, mining FDI can help kick start fragile economies…(29% of Paul Collier’s “Bottom Billion” reside in resource rich economies)

Addressing human rights violations requires partnership

EI Investments that contribute to conflict sensitive, high quality growth (rather than to social tensions that may spin out of control and lead to violence) require:

Companies to act responsibly

Donors to link mining agendas with mainstream poverty reduction strategies

Partnerships to fill governance gaps, particularly at local levels, with far greater donor support

FDI can help kick start fragile economies….

Previously failing economies (e.g. Ghana in the 1970s; Peru and Tanzania in the 1980s) do not have a wide choice about where they will find new investment to jump start economic recovery

Even “basket case” economies that fail most FIAS-type tests for attracting FDI can and do attract mineral investments (Sudan, Burma)

Mining (especially high value metals such as gold) offers many advantages:

Requires limited institutional basis of good institutions

Modest demands on a weak or damaged physical infrastructure

Large domestic market for sales not required

Is relatively easily taxed by moderately well-organized governments

But…let’s recognize the risks

Collier’s analysis identifies 3 lethal contributors to the likelihood of civil conflict in bottom billion countries: low income; low growth and high dependence of limited set of natural resource-based exports

Dutch disease is the main economic channel that may preclude the diversification away from the natural resource dependence

Rent seeking is a major political-economy factor that lead such economies into autocracy

But it is the presence of dysfunctional democracy that can also damage economies of this type Intensive electoral competition But no checks and balances on exercise of power by those who

win elections CONCLUSION – we need the ‘public good’ of institutional checks

and balances

Human rights: most cases in the middle layer of the ‘onion’

No consensus on boundaries of responsibilities

Centre of the ‘onion’: company has direct control/responsibility (e.g. employee safety)

Outermost circle: exclusively domain/control of government (e.g. host government actions far from its operations)

Most cases in middle layer of the ‘onion’ – where there is blurring of lines between local communities, governments, and companies

…but were perceived to have significant links with the mining operations

…donor agencies can help provide the missing ‘public goods’….

Lessons of history (e.g. Daniel Litvin’s ‘Empires of Profit’) from multinationals still play out today:

Firms are ‘fumbling giants’ e.g., they’ve often failed in past to understand local socio-political context. But they have a key role to play

Western ‘ethical’ activists throughout history also have often failed to understand local context, & sometimes have made things worse

Slow progress (or worse) if firms and NGOs try to supplant role of governments…

But… Effective tripartite partnerships require governments to act

more effectively…this is where development agency help is needed…

Responsible foreign direct investment can also help...

ICMM’s Resource Endowment initiative addressed 2 questions:

What are the critical success factors that have enabled some countries to benefit from substantial resource endowments and avoid the so-called resource curse?

What practical steps might be taken by the industry, governments, local communities and aid agencies to build these success factors?

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Analytical Framework: composition of effective governance

The Resource Endowment Toolkit

Provides systematic approach to documenting impacts (good and bad) of individual mining projects on local, regional and national level

Maps how mining projects affect governance structures, institutions and policy changes at all levels of government

Contains quantitative and qualitative tools

Can be readily applied by non-specialists, including non-economists

Not just relevant for companies, but all mining sector stakeholders, including government agencies

Toolkit complements existing initiatives

Toolkit uses the Extractive Industries Transparency Initiative company reporting template

ICMM member Anglo American’s Socio-Economic Assessment Toolbox: Provides user-friendly methodology

for company managers to identify local social and economic impacts

Develops management plans to enhance positive impacts

SEAT version 1 has been made publicly available from Anglo American website

Toolkit has been tested at global and country levels

Peer review, feedback and guidance

Phase 1 Global workshop

Phase 2Global

workshopPhase 3

Country workshops

• Literature review

• Define ‘mining country’

• Assess the performance of mining countries

• Develop a toolkit for four country case studies

• Undertake country case studies (Ghana, Peru, Chile and Tanzania)

• Assess findings and identify common themes

• Develop recommendations

• Prepare Synthesis Report

• Country pilots in Ghana, Peru and Tanzania:

Mapping multi-stakeholder initiatives

Workshops for action learning partnerships

• Mineral Taxation supplement for toolkit

May - Dec 2004 Jan - Dec 2005 Jan 2006 onwards

Analytical Framework

How can quality, conflict sensitive outcomes be achieved?

Broad-based income and employment generation facilitates effective absorption of mining into the national economy (Chile)…

But this type of spill-over will not occur naturally in less developed economies (e.g. Tanzania) where diversified development has yet to take root

Deepening governance reforms (i.e. moving beyond the threshold improvements) particularly at the local level is critical to (a) help limit negative effects and (b) capitalize on positive growth opportunities

In particular, greater fiscal decentralization and empowerment of local and regional authorities is needed – but capacity, checks and balances, and accountability must be built in parallel

Transparency: EITI provides for governments and companies to publicly report resource revenues with civil society monitoring

Security: VPs sets standards companies can expect from state/private security forces protecting assets

Conflict: Kimberley Process certification for diamonds reduces risk of violence fuelled by mineral revenues

Economic impacts: Resource Endowment initiative

Multi-stakeholder initiatives also contribute to positive outcomes

Partnership will be needed to help fill governance gaps...

The challenge is that governance reforms do not come about by technocratic interventions only. They call for strategic domestic alliances and consensus building around tangible improvements in six areas

Partnership implies shared objectives, individual responsibilities and mutual accountabilities - collaboration is fundamental to enhanced outcome

Priority should be given to building such partnerships at the sub-national, i.e. regional and local levels between companies, governments, donor agencies, and non-governmental organizations

For example…..

Mining and poverty reduction: partnerships key…

Host Governments:• Explicitly recognise mining’s

potential contribution to poverty reduction

• Integrate mining into poverty reduction initiatives

Companies:• Understand poverty in

mining area • Participate in national

development dialogues• Support local capacity

building in relation to MDGs

Donor agencies:• Link mining sector and

poverty reduction support• Tri-sector partnerships key

pending effective capacity• Engage with local NGOs and

faith groups

Partnership for Poverty Reduction

NGOs, Civil Society, Communities:• Participate in policy dialogue• Recognise role of mining in

poverty alleviation• Participate in delivery of

poverty reduction projects

QUESTIONS

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