Making mining work for development and how development agencies can help
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Remarks by Mark Lowcock Permanent Secretary, Department for International Development
I want first to congratulate the Government of Australia, and in particular my friends and colleagues in AusAid, for their initiative in hosting this event.
You know more about this than most of us. Especially about how to do it well. Australia is not just a leader in successfully exporting mineral commodities. You are also a leader in sustainable mining, delivering long term benefits to the economy, to host communities and to the environment.
I dare say you have had to manage some of the risks that come with mining as well as the opportunities. I did wonder, as I encountered the price of my morning cup of coffee earlier today, whether exchange rate appreciation was one of them. But I’m ready to conclude, Peter, that you just have spectacularly good coffee here, and that accounts for the price.
I want to cover the challenges countries face in exploiting their resources effectively, and how agencies like mine can help.
My own country is one whose development has been spurred by natural resources. Our industrial revolution, 200 years ago, saw the emergence of the great cities of Lancashire and the Midlands, scores of factories and mills and thousands of miles of roads, railways and canals. It was driven by the genius of our inventors and our heritage as a sea faring and trading nation. But it was fuelled by coal. Easy to mine. Cheap to transport because our mines were near the sea and our inland waterways. Easy to use. The industrial revolution saw a 100 fold increase in coal production. Britain’s coal boom. Literally fuelling the development of the world’s first industrial economy.
An endowment of oil, gas, coal, metals and minerals creates an unambiguous development opportunity. It can be used well. Or it can be used badly. But it is an opportunity.
In the early parts of my career, as a young development professional in the mid-1980s, the received wisdom was that a few of the poorest countries in which my organisation focused its efforts were luckily endowed with mineral opportunities. But that many were not.
I was sent to the rural areas of Quetta in Pakistan in 1988 to look at why a fluorite mining and exploration project we had financed had failed to come up with the goods. And then later the same year to La Paz in Eastern Bolivia, where we had spent 10 years financing the British Geological Survey to map the pre-Cambrian shield to identify the potential for gold and other precious metals. The materials produced were world class, but sadly major new mining opportunities were not identified.
With soaring global demand and ever better technology, it is now clear that extractives can be a much bigger part of the development story for more of the poorest countries than some people thought a generation ago.
Prices for many mineral commodities may have come off the frothy levels they reached 2 or 3 years ago. But they remain very robust by historical standards.
The International Energy Agency have a baseline scenario predicting the global demand for energy will increase by over a third up to 2035. That seems likely to be the case for industrial minerals and other raw materials too, as the appetite of developed and emerging markets for inputs for infrastructure, construction and manufacturing continues to grow.
The commodities boom has led to a surge in exploration in many poorer countries. That has identified many new deposits. Investments started five or more years ago are also now coming on stream. On one estimate, extractive industries account for around a third of African growth in the last 10 years. And by 2010, the total volume of official aid to Africa, at $48 billion, was exceeded by the value of just Angola’s oil exports - $51 billion. And it’s of course not just Africa.
The number of countries with plausible plans for developing extractives industries is growing. There are plenty in this region, among them some of the smaller island economies. Many in Asia. And a majority of the 55 countries of Africa.
Extractives, in other words, are no longer an issue for a small number of big players. There are a larger number of smaller players too, many of them new entrants.
This has important implications for organisations like mine. Our role is to help countries grow, tackle poverty and attain self-sufficiency. In recent times that has been a very successful endeavour. Many countries in Europe, Asia and Latin America who used to receive aid no longer need it. In my business, that is the definition of success. We now have the opportunity of achieving the same across many of today’s least developed countries, and extractives are an important part of the story.
So the big questions for me are first, how are countries with new extractives opportunities going to make a success of them? And second, what can development agencies do to help?
The Africa Progress Panel, a high-level group chaired by Kofi Annan and including African leaders like President Obasanjo of Nigeria and Graça Machel, as well as leading African business figures like Strive Masiyiwa and Tidjane Thiam, earlier this month published an important set of answers to these questions.
If you have not read their report, you really should. They set out detailed recommendations for African governments, international institutions, the private sector, civil society and development agencies. The focus is on Africa. But the analysis is universal. If there are people who might cavil at some of the detailed recommendations, I doubt there is anyone who disagrees with the broad thrust.
Kofi Annan and his team make the point that most countries endowed with minerals need capital and expertise from international investors to develop them. Given that it is now clear that many more countries have valuable endowments, investors have choices. So a lot of countries have to work out how to be attractive to investors.
The panel say that the key to managing non-renewable resources successfully is a coherent long term national strategy, embracing all stakeholders, that can convert temporary natural resource wealth into the permanent human capital that can expand opportunities across generations.
They identify 5 main components.
First, an enduring contract between governments and citizens sustaining the highest standards of transparency and accountability.
Second, ensuring the benefits are distributed sustainably across society, both by spending on basic services, but also by putting in place the infrastructure and skills needed to foster inclusive growth.
Third, progressively strengthening the linkages between the extractives sector and local markets, maximising value added.
Fourth, developing resources in a way that protects and benefits host communities, and safeguards the natural environment.
And fifth, providing civil society groups with the political space to monitor what is going on, including in contracts, concessions and licencing agreements.
Too often, this prescription has been ignored. Benefits have been scooped by elites, wanting to use them to build dynasties, but having the effect of breeding resentment, distrust and ultimately instability. That rarely turns out to be a winning formula, certainly in the long run.
The Annan report makes important recommendations for the international community, as well as suggestions for how development agencies can help.
They call on the G8 to take the lead on a new agenda on tax, disclosure and transparency.
We agree. The G8 summit in Britain we are hosting next month will focus on three ways in which we can support the development of open economies, open governments and open societies. Advancing trade. Ensuring tax compliance, including progress on beneficial ownership. And promoting greater transparency.
Underlying this is a belief in free enterprise as the best route to growth. The standards we set, the commitments we make, and the steps we take can help solve vital global issues, fire up economies and drive prosperity, not just in our own countries, but all over the world.
The Extractive Industries Transparency Initiative has an important role to play here. The UK has invested in EITI from the beginning. It’s great to see Australia hosting the Global Conference here later this week. Now EITI covers 37 countries. No doubt there’ll be more by the end of the week. It has helped entrench an expectation of transparency and demonstrated how business, governments and citizens can work together to deliver change. The revised standard will strengthen the drive for openness in government systems further. But to lift millions out of poverty – the EITI’s primary aim - we need to find ways to make sure transparency and accountability are the norm everywhere.
That’s why my Prime Minister, David Cameron, has called on G8 members to put their own houses in order as well as encouraging others to emulate high standards of transparency. Last month, the EU took a historic step by agreeing to require companies in the extractives industry to report their payments to all governments project by project, matching rules already set by the US.
New EITI rules will entitle citizens to the full set of information they need to hold governments to account for how oil, gas and mining riches are used. At the G8 we aim to level the playing field for business and make progress towards common global reporting standards by encouraging more countries to adopt these rules. This will fight corruption, strengthen the investment climate in resource-rich countries and spur economic growth. Some people, including blue chip international investors, also think there should be contract disclosure.
I know that as Australia takes on Presidency of the G20 later this year, you will be considering how to shape this agenda. The G8 and G20 are, of course, very different bodies, but we hope that further work can be taken forward during your leadership, given your expertise in this sector.
Like the Annan team, we want to deliver inclusive development and bring citizens to the centre of this work. One way to promote this is through open data and the Open Government Partnership, which the UK co-chairs.
We are keen to ensure that the new wave of information on oil, gas and minerals is accessible to citizens, investors, governments, media, and parliaments – all those people who really need it to ensure these assets drive growth. For those of you who will be here on Wednesday evening, I invite you all to come to the Power House Museum and hear more about our innovative work to inspire new data storytellers. You can also follow the conversation on Twitter: #followthedata.
The Africa Progress Panel also calls on donors to make a concerted and sustained effort to build a capacity of governments to manage their resources well.
I’d like to run through five of the ways we at the UK’s Department for International Development have been responding to that.
First, we have financed advice and expertise at the request of countries thinking of setting up sovereign wealth funds, or worried about how to handle the macroeconomic challenges created by rapid development of mineral resources.
The International Growth Centre, funded by DFID but independent, offers world class, demand driven analysis and policy advice. Run by the London School of Economics and Oxford University, it now has 13 offices across the developing world. It has provided policy advice on the mineral tax regime in Zambia, on mining licenses in Sierra Leone and on an economic framework for natural resource management in Liberia. Your next speaker can tell you more.
We are also supporting countries with the establishment of social protection systems, as an efficient way of ensuring that natural resource wealth is shared across society – in particular as an alternative to fuel and other subsidies, which are often both inefficient and subject to abuse.
One of the most gripping stories I have followed over the last year has been the effort of the Nigerian Government and the National Assembly to clean up a multi-billion dollar abuse of the fuel subsidy scheme. Checks have been put in place, auditors sent to the ports, and claims where no evidence of importation of product existed refused. What was probably Africa’s biggest corruption scam was stopped. Had the subsidy arrangement not existed, that particular scam would not have been possible.
Second, we have been asked for help in a range of countries including Malawi and Sierra Leone, to put in place appropriate legislation to develop mineral resources, and build the capacity necessary to negotiate effectively so that concessions and licences work both for investors and the host country. Sometimes, multilateral agencies are best placed to do this, as with the World Bank’s PROMINES programme in the Democratic Republic of the Congo, which we co-finance.
We also have capacity and expertise in the UK on geological surveying and mapping. We are exploring with the World Bank and the British Geological Survey how to integrate geological data across countries into a common digitalised platform. This will make geological data accessible to governments, citizens and potential investors – now and in the future. By combining the data with other important information on infrastructure or the environment, governments will be able to integrate concession allocations for mining projects in wider economic, environmental and social planning.
In Afghanistan, we’re developing capacity in the Afghanistan Geological Survey’s newly established Environmental Geology section. We are also assisting the Ministry to strengthen its contract management and inspectorate functions, including supporting an independent audit and reporting facility for large complex contracts and their ancillary agreements.
Third, we provide expertise on tax policy and administration. This is an area in which more international collaboration is needed. We are building new capability in Her Majesty’s Revenue and Customs, which is our tax authority, to make our tax experts available to help their peers in developing countries. The first three programmes will be in South Africa, Ethiopia and Tanzania. More are in prospect.
Fourth, we have been asked by both investors and national and local governments in some places to help develop economic opportunities for local people and communities on the back of mining ventures. We have, for example, interesting work advancing in Tete Province in Mozambique, home to one of the world’s largest coal projects now under development.
And fifth, we can work with private investors to increase the development impact of their projects. Investors often have long time horizons on major extractives projects and therefore want a stable and predictable environment. They want host governments to be able to put in place arrangements which make it easier for those companies with high standards to operate in difficult places. They also need up to date and accurate information on which to base investment decisions – something we provide in Afghanistan by advising potential investors about opportunities and the development situation more broadly.
There is a lot at stake – for governments, investors, the international community, but above all for citizens – in how the current minerals super-cycle plays out. Unfortunately, there are as many, maybe even more, stories of things going wrong as things going right. If this conference can help turn that around, you will have been successful.
I agree with those people who think this century could be Africa’s century, and that of other low income countries. There are three or four issues which will determine that. How you develop your extractive resources will be one of them. Good luck!