Building wealth long after the miners depart

08 Nov 2011

Helen Clark in Mongolia UNDP Administrator Helen Clark with a felt processing entrepreneur who is part of the Enterprise Mongolia project. (Credit: UNDP)

A conference on managing extractive industries in Ulan Bator, Mongolia, addressed the challenge of how resource-rich countries can make best use of their precious oil, gas or mineral assets and develop resilience to price volatility. Countries exporting these commodities need options to stabilise their economies and make them less vulnerable to the vagaries of unpredictable prices. Recent market history shows why: copper prices dropped nearly 15 per cent from July to September, and the price of gold has gone up more than 30 per cent since January. Such fluctuations make budget planning difficult and resource-rich developing countries vulnerable to market shocks. It’s also true that economies where extractive industries dominate do not always reap social and economic benefits for their people. Indeed, the extraction of mineral resources can become a curse where it fuels conflict and creates environmental disaster. The gross mismatch between the wealth generated and the paucity of local benefits derived is often exacerbated by weak governance and a lack of transparency and accountability. Yet it is possible to design policies that guard against the negative impacts of exploiting natural resources. That is why UNDP and the government of Mongolia brought together representatives of 17 resource-rich developing countries to address ways of making the wealth generated by extractive industries work for human development.

The choices that governments and other partners make directly affects whether natural resources contribute to social and economic development. Good governance and sound long-term planning help countries avoid the effects of the resource curse, and provide quality services such as education and health care to their citizens. Effective anti-corruption laws and high civil-society engagement also encourage governments to be more transparent about how they spend and distribute their nation’s natural resource wealth. Strong environmental planning and regulation can help avoid the legacy of degraded ecosystems often associated with mining. Economic diversification is a key to macro-economic stability. Countries can establish sovereign wealth funds that preserve a share of resource-generated wealth for future generations. Such funds allow countries to plan ahead for the days when their extractive industry resources are depleted. Managing resources generated by extractive industries needs to balance the need for current investment with securing a legacy for future generations. Striking that balance can reap benefits long after their natural resource endowment is exhausted.

Talk to us: How can we ensure that natural resources don’t become a curse for developing nations?

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