Seven things to consider when managing non-renewable natural resources
19 Mar 2015 by Degol Hailu, Senior Advisor, Sustainable Development
Natural resource wealth offers enormous potential for achieving development goals. But without effective management, the wealth can be squandered.
UNDP works with governments, the private sector and civil society to minimize the risks associated with building an oil, gas and mineral economy and optimize the benefits. Here are seven tips on how the development impact of these finite resources can be enhanced.
Know your wealth. Most of the oil, gas and mineral resources in developing countries are yet to be discovered. Consequently, foreign companies that carry out exploration activities have pertinent geological information before governments do, creating bargaining asymmetry during contract negotiations.
As the African Mining Vision notes, governments need to fully know their resource wealth to be able to negotiate as equals.
Establish comprehensive legal frameworks. Several contracts and mining codes have been revised in recent years, usually when governments realize, sometimes under pressure from civil society, that tax rates are low, environmental protection is weak and re-settlement schemes are inadequate.
Participatory and consultative measures are indispensable when drafting key legislation.
Maximize revenues for development. The income earned from taxing resource extraction can be low, first, because of weak contract negotiating capacity, and second, due to lack of transparency and accountability in revenue management.
Advocacy efforts must focus on encouraging open budgets and a mindset change by private companies from a purely extractive to a developmental one, e.g. by paying taxes and avoiding profit-hiding schemes.
Nurture domestic skills and employment. The extractive sector generates little employment, which also tends to be low-skilled and low-wage. This is partly due to the capital intensity of the operations as well as the shortage of workers skilled in engineering and management.
Many countries, such as Mozambique, have taken steps to address these issues by expanding mining related higher education and training.
Develop integrated infrastructure. There are cases where infrastructure only serves the resource sector, akin to “enclave colonial infrastructure” that links the mine to the rail, direct to the port, all powered by a dedicated electricity plant.
Shared infrastructure development, especially between bordering nations, fosters access to markets by the manufacturing and agricultural sectors, while promoting regional integration.
Create linkages with the wider economy. Extractive companies procure machinery, equipment and supplies. These inputs are often regulated by local content rules, which can easily be met without necessarily fostering domestic production. For instance, some locally registered firms in Liberia import the goods to meet the local content guidelines.
Domestic value addition too is key to such linkages. But, this depends on how quickly domestic processing capacity can be built. Developing related, but parallel industries is also an option. For example, South African enterprises that supply machinery for mining companies use their capabilities to supply equipment to other manufacturing firms.
Devise a strategy for artisanal and small-scale mining. The ASM sector creates more jobs than large-scale mining operations. However, serious challenges exist. Child labour plagues the sector. Sudden influx of miners to an area creates the risk of conflict due to contestation over water and land. The use of mercury leads to environmental degradation, and the potential for increasing incomes is limited because of rudimentary technologies.
These problems could be addressed through comprehensive strategies and effective regulations for artisanal mining.