Was it really a big week for mining and development?

Written by Margaret Callan

Mining and developmentI attended four conferences about the mining and petroleum industry in developing countries from Friday May 17 to Friday May 24. In this post, I won’t attempt to summarise what was covered in these events, but I do want to present my perspective on whether the past week delivered on its promise of exploring the connections between mining and development.

The week started with Oxfam’s mining symposium, Sustainable Mining – indigenous peoples, community rights and mining: free, prior and informed consent [pdf], moved to AusAID’s Mining for Development Conference 2013, Maximising Benefits for Communities, followed by a Publish What You Pay event, Shining a Light: the emergence of a global extractives reporting standard, and ended with the Extractive Industries Transparency Initiative (EITI) 6th Global Conference, Beyond Transparency, with over 1300 delegates. The four events provided a welcome opportunity to hear global, national, corporate and civil society perspectives on extractive industries.

What did we hear?

During the week we heard a lot about how international initiatives such as EITI have led to improvements in the transparency of financial information from the extractive industry, particularly payments to governments, and the potential for further strides in transparency as companies comply with recently agreed legal requirements in the United States and European Union (see Michael and Stephen’s recent post). We also had presentations from implementing countries about the impact of EITI – for some, the initial EITI report was the first time citizens became aware of how much (or how little) tax extractive industries paid, for others it was the first time they learnt who the major resource companies were and what profits they earned. From civil society, we heard that EITI’s national multi-stakeholder group of government, industry and civil society was the first time civil society participants had been in the same forum as the other parties: able to be heard, ask questions and participate in discussion and debate.

The week’s events also included presentations about the challenges for communities and companies in putting into practice international sustainable mining standards and human rights requirements such as ‘free, prior and informed consent’ from indigenous peoples. For companies these standards and requirements are fundamental for obtaining and maintaining a licence to operate. But implementing them is not straightforward. Challenges for companies in negotiating a community agreement include establishing exactly who ‘affected communities’ and their legitimate representatives are, and understanding how local communities function; both require companies to include anthropologists in their human resource teams. For communities, it is often difficult to envisage the future with a mining project operating, so they need considerable time and expert advice to prepare for negotiations. Time constraints and artificial deadlines imposed by companies and/or states represent a significant risk to satisfactory agreement making.

Several presenters advocated for extractive industry community agreements to be published in the same way that company payments are, and argued that agreements need to be reviewed regularly to see how well they are operating and to take into account societal changes resulting inter alia from the implementation of the mining or petroleum project. Speakers emphasised the need to include different levels of government in agreements and for mutual obligations and commitments to be explicit. Unless this is done, companies risk being blamed for deficiencies in the delivery of benefits under community agreements and other parties may remain unaccountable.

A few presenters directly addressed the subject of the development impacts of mining companies. Three focused on company procurement and employee budgets, noting that both were far greater than corporate social investment budgets (procurement is one-hundred times the value of social investment for Anglo American, a metallurgical coal producer). Companies boost the local impact of their operations when they make a practice of identifying and supporting local businesses which can provide goods and services, and supporting local skills development through training and education initiatives. Another presenter noted that in remote and poor communities, companies could contribute their substantial managerial and logistical capacity to improving local services. He cited the example of Misima island, Papua New Guinea, where the mobilisation of mining company resources in a partnership with health authorities led to the elimination of filariasis.

What didn’t we hear?

At all the events, the focus was on mining’s potential to contribute to development. But apart from the examples in the paragraph above, I heard little about what is being achieved in practice. It has been recognised for well over a decade that for many countries and affected people mining and petroleum resources have been more of a development curse than a blessing. Didn’t the International Council on Mining and Metals adopt its ten guiding principles and initial Sustainable Development Framework in 2003, then its Community Development Toolkit in 2005? Weren’t the principles of EITI also agreed in 2003? Wasn’t the UN Declaration on the Rights of Indigenous Peoples adopted in 2007? Hasn’t there been a mining boom over the past decade? Which resource-rich countries have done well in converting this economic growth into development outcomes?

What’s happened is that there has been a growing and welcome commitment by states and companies to greater transparency, particularly in relation to financial payments, and to the principles of sustainable development in their operations. But if the past week’s discussions are any indication of what development progress has been made, there remains a long way to go before these steps translate into development outcomes for resource-rich countries and peoples.

Transparency is essential but it is only the first step in realising the potential of mining to contribute positively to development. What further steps need to be taken was explored on the second day of the EITI conference in a session titled, Ensuring the EITI stimulates public debate. Here the focus was on the fact that we now have more information available, and to that extent EITI and other initiatives have had some success. But it tends to be poorly disseminated, understood and used to engage companies, state and non-state authorities and hold them accountable for the development impacts meant to flow from extractive industries. Similarly, sustainable development reporting by extractive industry companies is of limited value without independent oversight and monitoring, dissemination of information in a form that can be readily understood, and ongoing dialogue leading to action.

What of the future for mining and development?

I would suggest two areas that need to be given more emphasis by international aid agencies including AusAID and the extractive industry. The first is strengthening the capacity of local communities to engage with extractive industry companies and local governments so that they can become more active and effective actors in their own development. Without stronger local community engagement that is more inclusive, especially of women, it is difficult to envisage development outcomes from extractive industry projects will improve, even with more transparent reporting regimes.

Second, extractive industry companies should push the transparency boundaries by monitoring and publishing independent reports on the local impacts of their operations. These reports should be widely disseminated and presented in a form that is readily understood; they should cover all aspects of community agreements including the undertakings of local governments and development authorities, as well as the company. Comprehensive reporting of this nature would be a fine contribution to building the constituency of citizens active in advocating effectively for their own development.

If the absence last week of an emphasis on the record of extractive industries in contributing to good development outcomes indicates there is limited evidence of this to date, in my view we should be very concerned. Mining and petroleum industries have been experiencing a boom. Now the inevitable cyclical downturn is coming, with projects being delayed, postponed or mothballed across the globe. Can we expect the potential contribution to development to be realised during the next decade when the industry will be experiencing leaner times? I hope so but, like the markets right now, I’m a bit lacking in confidence.

Margaret Callan is a Visiting Fellow at the Development Policy Centre.

Margaret Callan

Margaret Callan was a Visiting Fellow at the Development Policy Centre. Prior to this, Margaret worked for AusAID in various senior management positions. Her research focuses on the role of the private sector in development.

7 Comments

  • Thanks Margaret for this post and mention of the on-going work we’re involved in. I would also just support Tess’ comment around the lack of information on the effects of corporate development efforts. For a couple of decades now people like Colin Filer, John Burton, myself and others have been pushing for forms of ‘social monitoring’ around these operations that would provide rigorous evidence of development effects, with very patchy and partial results. In part it seems that companies simply aren’t interested (there being no formal requirement, or at least none that is regularly enforced by the regulators), they don’t have the skill sets needed to really research and understand the social effects and changes (the attribution of effects is tricky), and in part I think there is a fear that a transparent monitoring process might reveal (and implicate them by association) a range of dysfunctional social changes… The contrast with the extensive environmental monitoring programmes is revealing as these programmes are (surprisingly!) far less political and concern processes that companies have a high degree of control over, unlike the social processes that mining tends to induce.

  • Interesting article by Callan on mining — The issue is a big one, and the messages are good, including the clear need for mining companies to do a much better job telling their story. Just a hunch, but given the titles and sponsors, I suspect that each of the conferences attended was brimming with donor and civil society types, and not quite so many miners.

    Close to five years ago, my wife launched a PR and public affairs company when we were based in Mongolia. She’s since worked or is working with many of the majors and juniors in that market, including Vale, Rio and SGS. After leaving UB for Belgrade, she kept the Mongolia company and launched a Serbian sister — also focused on mining. As a result I’ve gotten to see a very different side of the industry, a side which 20 years ago I couldn’t have fathomed. Mining practices have improved a lot in the past 20 years.

    To be sure, mining has put some big holes in the ground. But with all of the pressure from varied quarters, the companies have shaped up a lot. I’ve been impressed by substantial investment in community outreach (which my wife has been very involved with), deep-seeded commitment to safety, and pretty consequential efforts to mitigate environmental damage. Mines are increasingly going underground which will further contain the visible impacts.

    How much have the companies done for development? Mongolia’s pretty darn transformed. The fact that income inequality has increased isn’t to be blamed on the mining companies, its much more a function of flawed policy. Many of the Mongolian tycoons were made during the waves of privatization that followed the opening in 1990 — years before the mining boom really began in 2009. The GOM somewhat botched its effort to establish a sovereign wealth fund which could have distributed some of the mining receipts, which by the way actually have yet to start rolling in. Rio’s Oyu Tolgoi copper/gold mine only began production this year. Basically, the government spent funds that hadn’t yet accrued, and thereby undermined what could have been a powerful tool to share the wealth. And finally other schemes, including the distribution of shares in the putative IPO of Tavan Tolgoi sound good, but are reminiscent of the mass voucher schemes exercised liberally across central and eastern Europe in the 1990s, and which were not glowing models of wealth distribution.

    The issue that Serbia is grappling with, where modern mining has yet to come, is associated with value addition: Who and where will it be captured? The GOS wants to reap as much value added in-country from mining as possible. And everybody agrees they should, mining companies included. The western majors and a handful of juniors are still exploring, but could start mining in 3 – 5 years if all goes well. I’ve been a vocal proponent of mining in Serbia for a couple reasons, not least the minerals that will be mined could drive processing and finishing in downstream industries if Serbia commits to a long-term strategy and vision that will keep the value-added in-country. And this is possible.

    Rio Tinto is exploring a lithium borate deposit. Lithium, of course, is a big factor input to modern batteries and fuel cells. If Serbia plays its cards right, lithium that will be processed in-country could be converted into the power source for future electric cars that Fiat could produce in its south Serbia plant. Borates are used in fertilizer, but also in specialty ceramics and glass. Borates could also find their way into finished products, like wind turbine blades or glass for cell phones and computers.

    Downstream processing is where additional jobs and revenue will be generated, and where development impacts will be multiplied. Serbia is better-placed than Mongolia to build up downstream processing, but government has got to have the vision to court and attract industry and manufacturing that consumes raw and processed ores and converts them into modern, high-tech products.

    Serbia has the engineers and smart people to make this happen. If government can chart the course, preserve stability and create the economic climate that welcomes investment, then 15 or 20 years down the road, Serbia will be a source of knowledge-based and modern engineered products that will be on the cutting edge of alternative energy and the next wave of IT innovation.

  • Please let me add the link to this paper to my previous comment, for those interested: http://www.sciencedirect.com/science/article/pii/S0921800910003447

    This must be one of the most under-cited papers: while it has the usual possible limitations of a cross-country regression study, the intuition and theory is very sound, in my opinion, and quite possible the tip of the iceberg.

    Un-gated discussion paper version here: http://www.uq.edu.au/economics/mrg/2709.pdf

    Cheers
    Ryan

  • Well said, Margaret – thanks.

    You final paragraph and the first one in ‘what didn’t we hear?’ hit the nail on the head. After following this literature closely for a number of years I am very glad to at least see some people talking openly about this.

    There is little to no evidence of improved development outcomes (not solely economic, as you point out), particularly at the macro level. This is even the case if you look at selective and promotional case-studies for benefits to countries and communities (eg. from ICMM).

    The more important question should indeed not be how do we maximise the development benefits, but what are they? What do they look like over time, particularly beyond the immediate local community? What are the transmission mechanisms? Relative to other private sector actors engaged for development partnerships, is this a more effective sectoral engagement and investment than other sectors (eg. manufacturing, agriculture, services), where we have evidence of of positive human development spillovers?

    Thanks again and hope to see more critical work on this.

  • Thanks Margaret for this post which does a great job of framing the wider issues that arise in this space. I particularly appreciate the acknowledgement that the EITI approach is just one part of the puzzle. In terms of a dearth of information about ‘development’ impacts I wonder if this is because there aren’t many or whether it is because what has been missing to date is a mechanism for identifying and documenting them. In other parts of the private sector in developing countries businesses and their owners probably don’t document development impacts and outcomes because that information is not what they use to make decisions about the future. But that does not mean there are not development impacts present (of varying kinds) that can be identified, documented, quantified and evaluated. However the methodologies and expertise in this type of activity may not be traditionally present in the skills sets of a private sector entity (and I would largely argue that it is unrealistic to expect them to be in small businesses but it is more appropriate for large entities to include these functions in their team). I noted that during ‘mining’ week there were some protests about AusAID supporting mining in PNG and elsewhere, it would be interesting to know what responses (if any) there were to this.

    • Dear Tess and Ryan,

      Thanks for your thoughtful comments.

      Tess, while I accept that companies may not have had a business motivation for documenting their development impacts in the past, and did not have the expertise to do this either, I don’t think this is the case any longer. Almost all major businesses investing in developing countries have made public commitments to sustainability and responsibility in their operations, covering their economic, environmental and social impacts. So I would argue that they are obliged to report on these commitments and to do so accurately and comprehensively (rather than selectively and narrowly, as many do). But I don’t sheet home the responsibility for addressing all of the impacts of resource projects to the companies only. Governments, landowners and local communities are parties to resource project agreements and they usually warmly welcome the expected benefits (increased revenues, cash incomes, opportunities for local enterpreneurs). But they tend to pay much less attention to the negative aspects of the structural and societal change resource projects bring, such as inwards migration, increased crime, gambling, prostitution, family violence, and sexually communicable diseases including HIV/AIDS. It is not only the companies which need to pay more attention to these negative impacts, but importantly, national and local authorities. Glenn Banks and colleagues at Massey University have done some interesting work in this area, see here.

      Ryan, I skim-read the very interesting research you alerted me to. I wonder whether the findings would have been different if you had disaggregated the components of your primary commodities to separate agricultural raw materials, food and beverages from fuels, metals and ores. The reason I suggest this is that ANU researcher, Dr Mike Bourke, has some interesting analysis of Papua New Guinea which shows that poverty (his proxy is under 5 child mortality) is lowest in urban and rural areas with good agricultural environments, and highest in rural areas with poor agriculture environments and locations where the extractive industry is the only significant source of cash income. Dr Bourke’s presentation at the PNG Institute of National Affairs, “The role of agriculture in a national economy dominated by gas, petroleum and mineral exports” can be found here [pdf].

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