Minerals and Development Olle Цstensson, Caromb Consulting

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Minerals and Development Olle Östensson, Caromb
Consulting
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Outline of presentation

• Introduction quick references to Chile and Peru
• Improving minings contribution to development
  the national and the local level
• Why is it so difficult to build diversified local
  economies around mining now?
• Revenue sharing
• Small-scale mining

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Mining can contribute to poverty reduction The
case of Chile

• Chile has become one of South Americas
  wealthiest countries while relying significantly
  on mining. Poverty fell by almost half from
  1990-03, and by over 60 in Antofagasta
• At the same time, Chile has performed well in
  social and governance indicators
• Minings value added in Region II about 24 of
  regional GDP

• Purchasing inputs and services from local
  suppliers (including imported goods). 80 of
  inputs sourced domestically, half of those in
  Region II
• Escondida Foundation conducts social programs
  (15m over 5 years)

Chile Falls in poverty by region, 1990-2003
Antofagasta Chiles core mining region
Source Resource Endowment initiative, Chile case
study, p.48
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Employment multipliers can be significant

• Mining contributes significantly to indirect and
  induced employment employment multipliers were
  3-4 in Chile, often 8-10 in Africa.
• Public-private mining cluster government and
  mining companies invested in education and in ISO
  certification of enterprises supplying the mining
  industry

Source Resource Endowment initiative, Chile case
study, p.41
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The case of Peru

• High mining investment has contributed to
  significant economic growth at national level
• Steady increase in mining revenues transferred to
  local government through Canon Minero system
• BUT poverty and social inequality remain high
• Social tensions and conflicts at the local level
  around various mines reported

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Improving minings contribution to
development the national and the local
level

• Most of the big financial benefits of mining
  (FDI, exports, government revenue etc) accrue
  nationally
• but the physical and human impacts are mostly at
  the community level
• It follows that
• Minings contribution greatly depends on how
  these large central government revenues are used
• Minings (small) employment contribution is
  mainly at local level, and displacement of local
  labor (e.g. artisanal miners) can result in a
  significant negative effect on livelihoods
  locally
• Local procurement can have significant additional
  indirect effects on total employment and incomes.
  But the opportunity for these effects to be
  realized is often overlooked, both by governments
  and by investors. In weakly developed economies
  they must be actively fostered.

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Improving minings contribution to
development the national and the local level

• At the national level, through fiscal links
• Transparency and accountability for revenues
• Fiscal policy targets to be met over entire
  business cycle
• At the local/regional level
• Visibility of mining revenue
• Improving local capacity
• Transparent revenue sharing mechanisms

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Mining and regional development

• What happened with mining 100 years ago in the
  countries that are now developed? (Canada, the
  Nordic countries)
• Mining led to metals production, manufactured
  goods exports
• Employment generation, skills accumulation good
  jobs and lots of them
• Supporting industries established, based on
  innovation mining equipment, service providers
• What happens in developing countries today?
• Few linkages to other sectors, mine workers
  wages are the main stimulus to local economies -
  but they can be important, 8-10 new jobs per mine
  worker is common in Africa
• Little innovation
• Widening income differences
• Crowding out of other sectors
• Social friction and conflict

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Why is it so difficult to build diversified local
economies around mining now?

• With todays metals prices, the money is there,
  but
• Globalization means that
• Inputs can be imported because transport costs
  and tariffs are lower, therefore difficult to
  build backward links
• Processed products are exposed to international
  competition, therefore no forward links
• Processes are standardized and mechanized there
  is little room for using the advantage of low
  local labour costs
• Skills do not have to be developed locally,
  experts can easily be brought in, therefore fewer
  high quality jobs are filled by locals
• Easy access to state of the art technology
  reduces need for local innovation
• Widespread poverty and overpopulation mean that
• There will always be unmet demands for jobs
• Many have an incentive to act outside the law

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Solutions

• Nurturing of clusters through partnerships
  between government and companies
• The Chilean example
• In Mozambique, the establishment of the Mosal
  aluminium smelter led to local job creation along
  a corridor stretching from the border with South
  Africa to Maputo
• Pro-active procurement policy of companies,
  combined with training and technical assistance
• Anglo American has met its obligations under the
  Black Empowerment Programme in South Africa by
  improving the capacity of small and medium
  enterprises among its suppliers

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Solutions (contd)

• Empowering communities
• In Papua New Guinea, local development committees
  have the final word on all development projects,
  including those connected with mining
• Regional development planning
• Local governments usually do not have the
  capacity to plan for long term development, and
  the capacity has to be built
• Development planning has to be inclusive and
  participatory nobody can be left out and
  decision making has to be for real
• The process and its results have to be visible
  and the actors have to be accountable

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Revenue sharing

• Would it help if spending decisions were made by
  local governments?
• Distinguish between delegation of taxation
  authority (only in federal states) and sharing of
  revenues
• Most common in Latin America and Asia, often the
  outcome of conflicts between the centre and
  regions
• UNCTAD/ICMM case studies of four countries, 2006
• Two countries (Ghana and Peru) had revenue
  sharing mechanisms, little significant local
  development
• Two countries (Chile and Tanzania) determined
  spending centrally, better results
• Lack of planning capacity at local level
• Weakness for bricks and mortar and for prestige
  projects (municipal swimming pools and government
  offices)

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Peru

• Long history of conflict between centre and the
  regions and of oppression of rural population
• The Canon Minero was introduced to share benefits
  more equally
• Resulted in enormous income transfers (at
  present, about US 2 billion/year), but
• Long implementation delays
• Limited to capital investment
• Large inequalities between communities
• Only the municipality where the mine is located
  gets funds
• Many white elephants (new municipal offices)
• Lack of local planning capacity and insufficient
  support from central government

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Peru, contd

• Therefore, changes to the Canon Minero aiming to
  share revenues more equally among all regions,
  but most still goes to the mining regions
• the Programa Minero de Solidaridad con el Pueblo
  (PMSP)
• Voluntary support by mining companies to local
  development, facilitated by a framework drawn up
  at the national level
• Most mining companies in Peru, and all foreign
  investors, have PMSP programmes, which often
  include capacity building elements
• Mainly very good results
• Lack of clarity about the role of government and
  investors

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Small-scale mining A neglected poverty problem

• Small-scale mining is big 20 million people in
  the world, all of them poor
• Environmental damage deforestation, erosion,
  destruction of water courses, mercury
• Safety hazards accidents, disease, mercury
• Social problems crime, drugs, prostitution
• Costs to economy loss of agricultural labour,
  lack of investment, low productivity, no
  processing, inequitable allocation of revenues
  along supply chain

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Solutions

• Raise productivity training, improved equipment
• Eliminate mercury as hazard to health and
  environment better equipment, alternative
  technologies
• Legalize and integrate titles to mining claims,
  preference for local people
• Change the distribution of revenues
  organizational support, licensing of dealers
• Processing training, capacity building, fair
  trade schemes
• Communities and small-scale mining (CASM, UK,
  World Bank), workshops, grants, training,
  networking

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THANKS!olleostensson_at_gmail.com