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Synthesis of four CountryCase StudiesThe Challenge of Mineral Wealth: using resource endowments to fostersustainable development

April 2006

Findings andrecommendations

Contents

Preface 1

Chapter 1: Overview 31.1 Key Messages from Phase I 41.2 The October 2005 Workshop 51.3 Outline of the Synthesis Report 6

Chapter 2: The Four Case Study Countries 7 2.1 Economic and Social Development 82.2 Mining’s Role and History in these Countries 92.3 The Mines Reviewed in the Case Studies 13

Chapter 3: Economic Impacts and Poverty Reduction: Outcomes 15 and Causes3.1 Growth Performance 163.2 Linking GDP Growth with the Growth of Mining 183.3 Social and Poverty Outcomes 213.4 The Policy Drivers of the Growth Recoveries 243.5 Implications for the ‘Resource Curse’ 29

Chapter 4: Economic and Social Contribution of the Target Mines 314.1 Introduction 324.2 Incomes and Employment: Direct and Indirect 344.3 Broader Economic Impacts 354.4 Social Investment Impacts 354.5 Comparing the Overall Social and Community ’Project Impacts’ 37

Chapter 5: Understanding the Routes to Enhanced Outcomes 395.1 The Problematic issues 405.2 Governance Structures: Causes and Solutions 455.3 Sequencing and Targeting of Governance Reforms 525.4 The Conditions for Enhanced Outcomes 53

Chapter 6: Implications for Companies, Governments and Donors 556.1 Introduction 566.2 Mining and Local Economic Development 566.3 Mining, Poverty Reduction and Social Improvement 586.4 Social Investment and Compensation 596.5 Dispute Resolution and Transparent Communication 606.6 Artisanal and Small-Scale Mining (ASM) 616.7 Moving Towards Implementation 626.8 Summary of Recommendations 62

Chapter 7: Main Conclusions 657.1 Introduction 667.2 Context to the Conclusions 667.3 Issues and Main Conclusions 67

Bibliography and acknowledgements 71

The Challenge of Mineral Wealth: using resource endowments to foster sustainable development

Preface

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In the past five years, the economic, social andenvironmental dimensions of mining andminerals have been the subject of wide-rangingconsultation, critical comment, research andanalysis. The Mining Minerals and SustainableDevelopment Project (MMSD) and ExtractiveIndustries Review (EIR) respond to theunprecedented focus of public attention on thesustainable development challenges forextractives in general and mining in particular.

In May 2004, ICMM1 initiated its ResourceEndowment2 initiative3 to better understand how large scale mining activity in low and middle income countries can enhance the socio-economic development of host countries.The initiative aims to isolate the drivers ofdevelopment effectiveness in the mining andmetals sector and to document the policyframeworks, operational practices, andpartnership arrangements that deliversustainable outcomes on the ground. This action-research project is being done togetherwith UNCTAD and the World Bank Group. ICMM also consulted stakeholders such as mining companies, governments, donor agencies, labor and non-governmentalorganizations (NGOs).

Much of the ‘resource curse’ literature hasfocused on problems rather than solutions.Consequently it is not of much practical help indesigning improved policy or filling gaps inknowledge. For example, how have apparently‘successful’ countries avoided problems now so widely perceived? Can such outcomes berepeated in other developing economies endowed with an abundance of mineralresources? How should the main stakeholderswork together to enhance positive socio-economic outcomes from mining investments?

To help bridge these gaps, some of the specificquestions the Resource Endowment initiativeattempts to address are:• How the mining sector overall contributes to

national development? • What strategies have been effective in managing

revenues generated by natural resources for sustainable development and poverty reduction?

• How an individual mining project contributes to development at national, regional and local levels?

• What are the practical and policy implications for mining companies, host country governments, development institutions, and NGOs?

• What might the distinct responsibilities of these development partners be to support implementation of findings and recommendations?

The three distinct phases of the initiative andrelated products are outlined below.

Phase 1: Analytical Framework and ToolsThe initial phase of the project concentrated onthe development of an analytical frameworkfocussing on governance processes, including theunderlying factors and rules of the game thataffect social and economic interactions andoutcomes. These aspects were incorporated into a practical toolkit to assess local, regional andnational socio-economic impacts of mining. The toolkit also deals with how mining operations impact on governance structures,institutions and policy changes at different levels of government. Phase 1 involved anextensive literature review, and a ‘coarse-sift’comparative analysis of the relative economic and social well-being of 33 countries with a highdependence on minerals. Initial findings werecritiqued in a multi-stakeholder workshop whichhelped to shape a revised approach.

Phase 1 Published reports:• Analytical Framework: Executive summary • Resource Endowment Toolkit.

Phase 1 Additional Online Resources:• Analytical Framework: Main Report• Literature Review• November 2004 Workshop proceedings.

1 The International Council on Mining and Metals. 2 The Challenge of Mineral Wealth: using resource endowments tofoster sustainable development. 3 The initiative is managed by Kathryn McPhail, Principal, ICMM.

‘to better understand how large scale miningactivity in low and middle incomecountries can enhancethe socio-economicdevelopment of hostcountries.’


Phase 2: Testing, Synthesis and Emerging LessonsThis involved applying the toolkit to two main andtwo comparator countries, Peru (with Chile as acomparator) and Ghana (with Tanzania as acomparator). In all four countries, mining hadshown some evidence of having successfullycontributed to economic and social improvements.The purpose was to test the toolkit, to assesswhether it could be applied to a broader set ofmining countries, and to propose refinements.The findings were reviewed by a second multi-stakeholder workshop which providedvaluable feedback.

Phase 2 Published reports:• Four country case study executive summaries• Synthesis report of findings of the four case

studies.

Phase 2 Additional Online Resources:• Ghana, Tanzania, Peru and Chile country

case studies • October 2005 Workshop proceedings.

In addition, a number of other publicationssummarize the process or findings of both Phases 1 and 2, and signal ICMM’s approach to Phase 3:• A Spotlight series that summarizes key

aspects of Phases 1 and 2 (The Prize; The Challenge; Ways Forward; and Process and Feedback)

• Resource Endowment Guide to Phases 1, 2 and 3.

Phase 3: Action Learning through PartnershipsThe activities of Phase 3 will include a number of‘pilot projects’ in partnership with others toencourage uptake of the Phase 2 recommendationsand, as a consequence, enhance the contributionof mining to social and economic development.Phase 3 will also focus on dissemination andoutreach.

For the latest information on Phase 3, includingdetails of pilot activities and partners visitwww.icmm.com

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Overview

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be repeated in some of today’s developingeconomies?

A diagrammatic representation of this point for twoof the most common issues associated with the‘resource curse’ – the macroeconomic perspectiveand the rent seeking syndrome – is set out inFigures 1 and 2 respectively.

The two unanswered questions from these criticalissues (as shown in the two diagrams) are mirroredin an equally important and unanswered point fromthe advocates of Corporate Social Responsibilityinitiatives. Why is it that companies that haveadopted apparently highly socially responsible andhigh cost approaches to their mining investmentsin low-income countries – as many large miningcompanies have done – continue to confrontwidespread criticism of their behaviour from hostcountry and international advocacy groups?

1.1 Key Messages from Phase 1The process of developing an Analytical Frameworkin Phase 1 identified several important messagesabout the impact of mining investments in low- andmiddle-income countries. These messages havebeen carried forward into the toolkit and so into thefour case studies.

Above all, many of the critical propositions aboutmining from the literature of the past 10-15 yearsfail to explain the differences in outcomes betweenthose countries that have suffered from the‘resource curse’ and related ailments and thosecountries that did not. Natural resourceendowments have undoubtedly contributed to long-term sustainable and broad-based socio-economic development at least in some countries1.But why did these countries avoid the problemsthat are now so widely perceived, and how can thedynamic forces that created these good outcomes

1. Overview


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Natural ResourceEndowment

MiningActivities

SoundMacroeconomic

Policies

PositiveOutcome+ =+

Figure 1: Macroeconomic Perspective

Why do many countries fail to pursue sound macroeconomic policies?


MiningActivities

Rent-SeekingBehaviour

NegativeOutcome+ =+

Figure 2: Rent-Seeking Perspective

Why are some countries less prone to unproductive rent-seeking?


MiningActivities

CSRInitiatives

PositiveOutcome+ =+

Figure 3: Corporate Social Responsibility Perspective

Why do poor outcomes at the national level undermine positive outcomes at the local and regional level?

‘many of the criticalpropositions aboutmining from theliterature of the past10-15 years fail toexplain the differencesin outcomes’

For completeness, a simple representation of thatpoint is also shown diagrammatically as Figure 3.

In the Analytical Framework developed in Phase 1it was concluded that answers to such questionswould need to make use of impact studies ofmining that utilized both a micro (local) perspectiveand also a more macro (national) perspective.

It was also argued that the missing elements ineach of the three approaches to assessing mining’simpacts (Figures 1 to 3) are associated with anincomplete specification of the governanceprocesses in the host countries. In particular, allthree approaches fail to probe sufficiently deeplyinto the nature of governance and, more importantly,into the underlying conditioning factors and rules of the game that affect social and economicinteractions. Why is it that governance is supportivein some cases but not in others? To truly under-stand the development role of mining investments(and the potential pitfalls), it was thought to benecessary to explicitly incorporate this moredetailed probing into the analysis. The economicsand the political economy issues have to beassessed in tandem. Hence substantial detailpertaining to institutions and governance structuresand to the various influences upon these has beenincorporated as an essential element into both theAnalytical Framework and the case study Toolkit 2.

1.2 The October 2005 WorkshopDuring the final stages of preparation of thisreport, a stakeholder workshop was held in Londonas part of the process of testing the usefulness ofthe toolkit and the results that have beengenerated thus far. This event was attended bysome fifty persons from host governments, donoragencies, relevant non-governmental organizations

(NGOs) and the mining community. Its agenda wasestablished through a process of co-creation led bya sub-group of stakeholders who had volunteeredthemselves for this task3. A Summary Note ofProceedings is available as a separate document.

Most of the main insights from the workshop relate to the recommendations to governments,companies, donors and NGOs about how they canbest head off ‘resource curse’ dangers. Theseinsights are referred to selectively in therecommendations section of this present report(mainly Chapter 6). However, stakeholders also felt that the case study work to date may haveunderemphasised, or even ignored, issues thatneeded more in–depth attention in future workbased on the toolkit. These areas include:• The tax regimes for mining. These regimes are

not described and analyzed in detail in any of the four case studies. But it was felt that they should be given fuller attention with particular emphasis on the ways in which tax credit arrangements might be used to try to encourage a higher level of company involvement in local capacity issues. This would complement the in-depth work done in all case studies on governance issues as well as on issues of revenue transparency.

• Land tenure structures condition many of the income and other effects that emanate from mining investment in predominantly low-income agrarian societies. Therefore the variations in such arrangements across countries need to be addressed more explicitly.

• Although several of the case studies do report in-depth survey results (attitude surveys and others) in local communities, some stakeholders argued for improved methodologies to measure the views of communities and civil society at large.

• Competition for water use can be a contentious issue in some cases and also needs more attention than it has received in the case studiesto date.


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1 Whilst there is fairly compelling evidence of the presence of the‘resource curse’, there are several countries that have managed to avoidit (Stevens, 2005; Sarraf and Jiwanji, 2001; Wright and Czelusta, 2003;Acemoglu et al., 2003). The most frequently cited cases are Australia,Botswana, Canada, Chile, Indonesia, Malaysia and Norway.2 In the Resource Endowment Toolkit, a 5 X 5 matrix provides the mostconcise summary of the issues that need to be explored.3 Carlos Aranda, Southern Peru; Leah Hibbin, CARE International; Paul Hollesen, AngloGold Ashanti; Rashad Kaldany, World Bank/IFC; Rob Lake, Henderson Global Investors (UK); Julie McCarthy, Open SocietyInstitute; Marta Miranda, World Wildlife Fund US; Theodore Moran,Georgetown University; David Murray, Transparency International UK;Gordon Peeling, Mining Association of Canada; Alan Roe, Oxford PolicyManagement; Jonathan Samuel, Environmental Resources Management;Hugo Sintes, CARE International.

‘the analysis spells outthe nature of thepartnership roles thatshould be played bymining companies and host country governments, as wellas the donors andNGOs that supportthem.’

1.3 Outline of the Synthesis ReportThis Synthesis Report provides a concise overviewof the main findings that have emerged from thecase studies to date.

• Chapter 2 describes the main features of the four countries, the nature of their mining histories and the target mine in each case.

• Chapter 3 first summarizes the record of economic and social outcomes that have been observed in these countries in the past 20-30 years. It then assesses the extent to which these outcomes can be explained by the mainstream arguments relating to the conduct of economic policy and to the readily defined measures of sound governance.

• Chapter 4 provides a parallel account of the micro level impacts – on incomes, employment, social provision etc – associated with the target mine.

• Chapter 5 then explores the gaps that need to be filled if better social and economic impacts are to be achieved. It does this by using some of the commonly-voiced criticisms of mining to tease out the reasons that allow broadly benign outcomes to co-exist with the ongoing problems.

• Chapter 6 then uses the analysis of the earlier sections to advance some preliminary ideas (for debate in the October 2005 workshop) to achieve improved outcomes in future. Among other things, this part of the analysis spells out the nature of the partnership roles that should be played by mining companies and host country governments, as well as the donors and NGOs that support them.

• Finally, Chapter 7 draws attention to the most important new insights from the study.

At the level of policy, the study confirms manythings that are familiar, but has also identified newslants that suggest major changes in the ways inwhich the various players view the situation andtheir respective roles. The work broadly endorsesthe usefulness of the toolkit that was proposed inPhase 1, but also suggests a number ofrefinements to ensure its greater usefulness infuture work along similar lines.


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The Four Case StudyCountries

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country, Tanzania, has the largest population with35 million people and also the largest percentageof people dependent on agricultural production.The richest of the four countries, Chile, has thesmallest population with 16 million and is also themost urbanized. Ghana and Peru are in betweenwith population sizes of 22 million and 27 millionrespectively.

Political Structures and HistoriesDifferences in various dimensions of politics andhistory are also profound across the four countries.Both Latin countries became politicallyindependent in the early part of the 19th centuryand have had a wide experience of various forms ofpolitical organization since then including variousconstitutional reforms, experience with bothmultiparty parliamentary and presidentialdemocracy, varying degrees of executive andlegislative powers, and periods of military rule(including dictatorship) and multi party democracy.By contrast Ghana and Tanzania have beenpolitically independent only since 1957 (Ghana) and1961 (Tanzania), and have spent much of theintervening period evolving single party systems ofpolitics into embryonic multi-party democracies.Tanzania achieved this only in 1995 and Ghanaachieved it only three years earlier. In both casesthe new systems are still bedding down.

Both Chile and Peru have emerged from periods ofautocratic government only in the past 10-15 years:1990 in the case of Chile when President AlwinAzocar replaced General Augusto Pinochetfollowing the first democratic elections since 1970,and 2001 in the case of Peru when President Toledotook over following the collapse of the Fujimoriregime. However, a fundamental differencebetween these two countries is that in historicalperspective the Chilean system looks back to amuch more stable democratic tradition, interruptedonly by the Pinochet regime and a short spell ofauthoritarian rule in the early 1920s. Peru incontrast has been riddled with political instability,crises and coups resulting in frequent shiftsbetween authoritarian and democratic rule. Ghana, in common with the Latin countries,suffered sustained periods of military dictatorshipprior to its own return to constitutional rule in2002, while Tanzania has enjoyed a somewhat moresettled political record with significant continuitybetween its various administrations.

Common to all four countries is that they are now

2.1 Economic and Social Development The four countries chosen for in-depth study sharea common dependence on mining activity as amajor source of their livelihoods. But in otherrespects they show substantial differences thatneed to be borne closely in mind in makingcomparisons between them. The next paragraphssummarize the more important points.

In economic terms, Ghana and Tanzania are bothvery poor African countries with per capita incomes of only around $350 and $270 respectively.The Purchasing Power Parity (PPP) adjustmentsmake these figures a bit higher but only raiseTanzanian income to a little over $540 per annum –well under the $2 per day definition of absolutepoverty for the typical person – and the Ghanaianfigure to less than $2000 per annum. Chile andPeru are much more advanced middle-incomecountries with per capita incomes of $4500 and$2000 respectively (or in PPP terms $9500 and$4700). Both African countries have MillenniumDevelopment Goal targets for 2015 that are lowerthan the corresponding levels already achieved insome dimensions by the two Latin Americaneconomies. For example the Africa target for 2015for under-5 mortality is 60 per thousand live births.Chile had a ratio below 15 and Peru one of 58 evenbefore the end of the last millennium.

The wide differences in incomes per capita aremirrored in similarly wide differences in levels ofsocial development. In relation to the UN’s HumanDevelopment Index (HDI) for example, Tanzania andGhana rank as ’low’ HDI countries (162 and 131respectively on the list of 177 countries for whichdata are available for 2003). By contrast Peru andChile rank 85 and 43 respectively which puts Peruin the ’medium’ HDI category and Chile in the ’high’HDI category, with life expectancy and literacyrates that compare reasonably well with some EUcountries.

All four countries have population sizes of wellover 10 million: a sharp contrast with the smallmining economies of Africa such as Botswana andNamibia that might have been chosen as casestudies. Aside from the economic importance ofmining, they all have substantial proportions oftheir populations engaged in and dependent uponother non-mining activities. Many of the tensionsthat persist derive from this fact and especiallyfrom the competition for land between mining andtraditional agricultural activities. The poorest

2. The Four Case Study Countries


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’once economic policiesprovide a minimalstructure that allows areasonable prospect ofcommercial success thenmining investment mayoccur, even when thenormative quality anddemocratic legitimacy of governance is poor.‘

with weak governance is an important part of theproblem to be understood. Indeed it is the sort ofcombination with which mining companiesconsidering new overseas investments frequentlyneed to contend. The mining companies areunlikely to be attracted to countries whereeconomic policies are grotesquely distorted. But once economic policies provide a minimalstructure that allows a reasonable prospect ofcommercial success then mining investment mayoccur, even when the normative quality anddemocratic legitimacy of governance is poor. As some of the case studies demonstrate, newmining investment can be an important earlysource of private sector activity in economies that are recovering from extreme economicmalfunction. However, the four case studies alsoshow that macroeconomic success does notautomatically guarantee trickle down mechanismsthat reduce poverty and inequality. Correctingmacroeconomic policies is a necessary but hardly asufficient condition for more broad-based socialdevelopment. Economic reforms at the centralgovernment level are no substitute for fundamentalreforms and capacity building at the local andregional level. But in these circumstances, whatshould the companies’ and donors’ roles be interms of economic and social development?

2.2 Mining’s Role and History in these CountriesThe exploitation of mineral wealth has a very longhistory in all four countries.

In the case of Ghana, European interest in goldmining dates back to the late fifteenth century andpre-dates the later dominant slave trade. Prior tothe European interest, there is also evidence of agold trade with North Africa. Gold has again beenof commercial and export significance since theend of the 19th century, with artisanal (galamsey)mining providing a source of livelihoods for someon an ongoing basis. However, commercial miningsuffered a major decline in the period from theearly 1940s until the mid 1980s when the revivalwhich is the main focus of the Ghana case studybegan in earnest: it is one important consequenceof a systematic program of economic reform begunin 1983. Today the industry is dominated by foreignmultinational companies albeit with some limitedstate ownership. Gold is easily the most importantmined product.

In the case of Peru, the Inca civilization and goldand silver were important focal points for the

governed by presidential democratic systems,where the powers of the executive tend to outweighthe ability of the legislature to hold the executive to account. However, administrative traditions,electoral rules and sub-national governancestructures differ across all four countries.Undoubtedly, these differences condition theincentives of politicians, government officials, theelectorate and private interest groups and affectpublic policy processes in complex ways.

All four countries have shared the experience ofsevere macroeconomic mismanagement in recentdecades. For extended periods especially in the1970s and 1980s they all maintained seriouslydistorted macroeconomic and structural policies –the antithesis of the so-called ’WashingtonConsensus’ package. In the cases of both Chile andGhana these damaging macro and structuralpolicies started to be corrected successfully only inthe mid-1980s. In Peru and Tanzania the correctionhad to wait until the 1990s. In three of the fourcases, the correction of economic policies waspresided over by political regimes that wereseriously autocratic and in which abuses of basichuman rights and other principles of goodgovernance certainly featured as unpleasantaccompaniments: Pinochet in Chile, Fujimori inPeru and Rawlings in Ghana.

From the viewpoint of this study, the co-existencein the case study countries for some years ofimproving macroeconomic and structural policies


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‘As the review of theresults of the casestudies will show, afrequent complaint ofthe critics of mining inthe four case studycountries is thatcompanies areinsufficiently taxed.’

Spanish settlement in the 1500s. Lima was thegeographical focal point for Spanish expansion anddomination of western South America and theCaribbean. In modern times, state ownedcompanies came to dominate the sector by theearly 1980s. As in the case of Ghana, they presidedover a period of relative decline of the sector –although Peru remained an important globalsource of many minerals. Today the industry ismainly privately owned and foreign multinationalcorporations dominate the sector. Peru is againrated as one of the world’s most important sourcesof key minerals: second in silver, third in zinc, fifthin copper and sixth in gold.

Chile’s history of mining also dates back to theperiod of Spanish colonial rule and the exploitationof precious minerals in the mid sixteenth century.A later boom in the sector – and especially in theAtacama region where the target mine for the casestudy is located – occurred in the 1860s when a usewas found for sodium nitrate in the manufacture ofexplosive substances. But with the collapse of themarket for nitrates after World War I, the Chileaneconomy also suffered a severe downturn. Foreignowned mining companies were nationalized at thebeginning of the 1970s when the Allendegovernment came to power. By the mid 1970s thiswas reversed following Pinochet’s military coup.Although Pinochet’s liberal economic reformsintroduced in the second half of the 1970s hadopened the way for new involvement of majorforeign companies, significant new investment didnot take place until after the resumption of acivilian government and the restoration ofdemocracy at the end of the 1980s. The Escondidamine that is the subject of the case study begandevelopment in 1988.

In the case of Tanzania, East African coastal tradein gold has a very long history. In modern times,the most famous mine – the Williamson diamondmine, established by the Canadian geologist of thesame name – began production in 1940. But thismine was nationalized during the wave of reformsassociated with President Julius Nyerere’sassertion of a socialist economic policy after 1967.Other prospective mining investments were alsodeterred by that same anti-capitalist sentiment.But the general economic reforms of the 1990s,and the promulgation of significant new mineralslegislation later in that decade, led to a radicalchange. Since then mining investment has boomedand new foreign direct investment, much of it

linked to mining, has risen rapidly to attain a levelof around $300 million per annum. Gold mining hasquickly surpassed diamond mining as the mostimportant mining activity.

The potential for commercial mining has been andremains substantial in all four countries. Based onthe latest Fraser Institute survey for 2004/05, thebest practice ratings for the four countries andcertain comparators are shown in Table 1. The datashow the survey scores (the expert assessment ofmining potential assuming ’best practice’ policies –a score of one being the maximum) and theassociated rankings of countries against 64comparators in 2004/05. It can be seen that theindustry specialists who responded to the surveyrate both Peru and Chile very highly in terms oftheir pure potential. Ghana and Tanzania areranked at about the half-way point in thedistribution of mining locations which includesseveral advanced economies.

As the review of the results of the case studies willshow, a frequent complaint of the critics of miningin the four case study countries is that companiesare insufficiently taxed. However, the investmentsthat they have already attracted and seek to attractin future need to be won in competition against alarge number of alternative options that areavailable to the investors. Seen in this light thereare significant variations between the fourcountries. Again the survey results from the FraserInstitute as summarized in Figure 4 can help usbetter understand this. The Figure shows that Chileis perceived to have a very favourable tax regime


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Score Rank

2005/2004 2004/2003 2003/2002 2005/2004 2004/2003 2003/2002

OceaniaIndonesia 0.97 0.97 0.89 6 / 64 6 / 63 17 / 47New Zealand 0.58 0.46 0.53 58 / 64 50 / 53 43 / 47Papua New Guinea 0.96 * 0.83 9 / 64 * 26 / 47Philippines 0.89 0.88 0.92 28 / 64 26 / 53 14 / 47

AfricaBotswana 0.84 * * 31 / 64 * *Burkina Faso 0.70 * * 50 / 64 * *DRC (Congo) 0.90 0.88 * 26 / 64 27 / 53 *Ghana 0.83 0.94 0.84 33 / 64 15 / 53 25 / 47Mali 0.83 * * 32 / 64 * *South Africa 0.91 0.93 0.93 23 / 64 19 / 53 13 / 47Tanzania 0.81 * * 35 / 64 * *Zambia 0.91 * * 21 / 64 * *Zimbabwe 0.60 0.83 0.76 53 / 64 31 / 53 33 / 47

Latin AmericaArgentina 0.93 0.95 1.00 16 / 64 12 / 53 1 / 47Bolivia 0.72 0.88 0.86 46 / 64 28 / 53 21 / 47Brazil 0.90 0.98 0.98 25 / 64 5 / 53 3 / 47Chile 0.93 0.96 0.98 13 / 64 9 / 53 2 / 47Ecuador 0.77 * 0.77 39 / 64 * 31 / 47Mexico 0.91 0.93 0.91 19 / 64 18 / 53 15 / 47Peru 0.96 0.98 0.97 7 / 64 4 / 53 6 / 47Venezuela 0.76 0.81 0.82 42 / 64 32 / 53 28 / 47


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11Table 1: The Fraser Institute Survey: Best Practice Mineral Potential Index4

4 The survey was addressed to 1121 exploration, development andmining–related consultancies around the world. The response rate meantthat organizations accounting for 15% of the total exploration spend of2004 were included in the answers that were analyzed. The ‘best practice’index assumes that the policy regime in each country is set at thestandard of best practice in the industry. By thereby abstracting from thereal world difference in policy regimes, the index provides an indication ofthe ‘pure’ mineral potential of the country.

TurkeySpain

IrelandIndia

PhilippinesTasmania

UtahIdaho

NevadaOntario

ChileArizona

ManitobaChinaYukon

SaskatchewanWestern Australia

AlaskaQueensland

South AustraliaNew South Wales

AlbertaNorthern Territory

SwedenMexicoBrazil

VictoriaFinlandQuebec

Nfld./LabradorNew Zealand

Nova ScotiaNew Brunswick

New MexicoPeru

ArgentinaNWT

EcuadorMontana

British ColumbiaMinnesota

MongoliaSouth Dakota

ColoradoNunavut

WyomingWashingtonKazakhstan

Burkina FasoPapua New Guinea

WisconsinGhana

Venezuela*Botswana

BoliviaZambia

MaliSouth Africa

TanzaniaIndonesia

DRC (Congo)California

RussiaZimbabwe

Strong deterrent to investment

Would not pursue explorationdue to this factor


12 Figure 4: The Fraser Institute Survey: Respondent’s Assessment of Tax Regimes

Percent who consider this factor a deterrent to investment * Fewer than 10 responses

0 10 20 30 40 50 60 70 80 90 100

with only a very small number of respondentsregarding tax as a significant deterrent toinvestment. Peru has a slightly less good rating butin this case too only a small number (around 10%)regard tax as a major deterrent. However, thesituation is starkly different in both of the twoAfrican economies. Both Tanzania and Ghanaappear a very long way down the rankings on thisparticular issue, with 20-30% of all respondentsregarding the tax regime as problematic.

Significantly, the new mineral legislationintroduced in Ghana in 1986 and in Tanzania in 1998has stimulated the large upsurges in mininginvestment seen in those two cases. But it is clearfrom Figure 4 that the tax dimensions of thesecountries’ competitive position still represent asomewhat negative factor in the eyes of investors.

2.3 The Mines Reviewed in the Case Studies Ghana – Obuasi Mine The mine that has been studied in depth is theObuasi gold mine owned by AngloGold Ashanti.Obuasi is the oldest mine in Ghana (with a historytracing to the 19th century). It is also the first deepmine to be developed in the country, although thecompany also operates some open pit sites in thesame area of the Ashanti region. Open pit mining ismore common in other regions of Ghana andespecially in Western Region, the second mainmining area of the country. With a level of goldproduction of around 400,000 ounces annually,Obuasi accounts for about 20% of all Ghana’s goldproduction although this ratio is likely to fall asnew mines open up in other regions.

The town of Obuasi where the mine is located isnow a significant town of 150,000-200,000 persons.However, prior to the arrival of the mine, there wasno significant population in the area. So in somesense Obuasi is a ’mining town’ although its age –more than 100 years – means that it is a wellestablished settlement rather than a temporarycommunity. The long-established history of themine means also that its links with the communityas well as its reputation are deeply rooted. This isgood in one sense but also means that themanagement has less opportunity to utilize newerapproaches to community relations than do theother newer mines that form the basis of the othercase studies: established practices are a part of thereality the company operates within. The location inAshanti region means also that the mine is withinreasonable proximity of other major areas of

settlements and communities: it is not a remoteout-post.

Peru – Compania Minera AntaminaIn contrast, the Antamina copper mine in Perurepresents a major new investment. Antamina wascompleted only in 2001 at a cost of some $2.3billion. Production began later that same year. Four years later, the mine is already the seventhlargest producer of copper and the third largestproducer of zinc in the world. The mine is operatedby La Compania Minera Antamina S.A. (CMA) andhas four major shareholders, namely Falconbridge(33.75%); BHP Billiton (33.75%); Teck-Cominco(22.5%); and Mitsubushi Corp. (10%).

Antamina is located in the Ancash region of Peruthat has a population of around 1.1 million (4% ofthe Peruvian total). The mining operation is basedin the province of Huari which lies in the Andeanmountains, approximately 285 km north of Lima.This is a densely populated region. In the miningarea, the population has traditionally relied uponagriculture and there are relatively few privatemanufacturing businesses that can serve the needsof the mine. Since 2001, the mining contribution toGDP has risen to almost 17% of the total for theAncash region – a huge jump from a very low base.The relative remoteness of the mine in terms ofboth physical distance and altitude means that it issomewhat more disconnected from mainstreamcommunities than is the study mine in Ghana. Butbeing much newer it has had good opportunities toapply more modern approaches to communityrelations than Obuasi.

Chile – EscondidaThe target mine in Chile is also relatively new. The ore body at the Escondida copper mine wasdiscovered in 1981. The decision to exploit this orebody was the first such decision in the post-Allendeyears and was a response to the early (but largelyfailed) liberalizing attempts of the Pinochet regime.The investment in question was and remains thelargest single foreign mining investment in Chile.The construction of the facility only commenced in1988 with the first ore being processed in 1990.The ownership of the mine now lies with BHPBilliton, the majority shareholder and operator ofthe mine, and with Rio Tinto, the JapaneseEscondida Company and the International FinanceCorporation (IFC), a subsidiary of the World Bank,as other major shareholders.


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‘the new minerallegislation introducedin Ghana in 1986 and inTanzania in 1998 hasstimulated the largeupsurges in mininginvestment seen inthose two cases. But it is clear fromFigure 4 that the taxdimensions of thesecountries’ competitiveposition still representa somewhat negativefactor in the eyes ofinvestors.’


14 Escondida is located in the north of Chile in theAtacama Desert 170 km southeast of Antofagastafrom whence the processed copper is exported. The mine, which is the world’s largest producer ofcopper, is still undergoing a process of expansion.Production at the new Escondida del Norte open pitstarted late in 2005. In total some $4 billion hasbeen invested in the facility since 1988.

Tanzania – North Mara The target mine in Tanzania is the North Mara goldmine, operated and wholly owned by Placer DomeInc. (PDI) of Canada, which acquired it in 2003 fromAfrika Mashariki Gold Mining (AMGM) company, aprivately-owned Australian company which builtthe mine in 2001. PDI was taken over in January2006 by another Canadian mining company, BarrickGold Corporation, which also owns the Bulyanhuluand Tulawaka mines in Tanzania. North Mara is oneof the five principal mines that have been startedup in Tanzania by foreign investors since the reformof the mining legislation in 1998.

North Mara is situated in the Tarime District ofMara Region, some 100 km east of Lake Victoriaand 20 km south of the Kenyan border. The mineconsists of three open pit deposits with separatemining licenses, one of which is currently beingmined. The mine was officially opened inSeptember 2002. North Mara's updated 2005production forecast was estimated at 245,000ounces. Cash and total costs per ounce wereestimated at $310 and $400 respectively. Provenand probable mineral reserves as of December 31,2004 were estimated at 3.9 million ounces.Approved capital expenditure for 2005 was $40million. This was required to complete thetransition to owner mining which will requireadditional loading, truck, and ancillary machinerycapacity during 2005, and to fund the costsrequired to start the pit at Gokona.

OverviewOverall the target mines are all very large andcertainly significant in their local economies. The mines in Ghana and Tanzania are both goldmines. Those in Peru and Chile are for copper andzinc (Peru). Obuasi in Ghana stands out from theothers as being the only really old mine in the studyand this affects both its location (a bit less remoteand so more integrated with mainstream non-mining communities) and the likelihood that itwould operate in a somewhat more conventionalmanner as regards its relationships with local

communities and partners. These contrasts need to be kept in mind as the discussion proceeds.

Economic Impacts andPoverty Reduction:Outcomes and Causes

3

the linkages between: (i) overall growth and socialdevelopment; and (ii) mineral developments. Next,the changes in economic policy and governance that might have been associated with the observedimprovements in performance are discussed. Finally,the implications of these findings for traditional‘resource curse’ arguments are considered6.

Ghana and TanzaniaThe recent economic history of Ghana is particularlydramatic (Figure 5). At Independence in 1957 it wasone of the richest countries in Africa and also heldlarge foreign exchange reserves. Over the next

3.1 Growth Performance This section reviews the GDP growth and socialdevelopment (including poverty alleviation) recordof the four countries over the period of the past 20years – most of the well-known empirical studiesof the ‘resource curse’ base results on a period ofabout this length5. It also compares that growthrecord with the preceding decades using data overa 50-year period, to see how typical or otherwisethe recent past has been in terms of growth. Thesedata are then mapped against what has happenedin the mining sector (in terms of the growth ofinvestment, production and exports), to establish

3. Economic Impacts and PovertyReduction: Outcomes and Causes


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Introduction of new minerals code

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19731975

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19851987

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Figure 5: GDP Growth in Ghana and Tanzania

Source: Groningen Growth and Development Centre

Ghana Per Capita Growth Rates: 1950 – 2003 (PPP 1990$)

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Tanzania Per Capita Growth Rates: 1950 – 2003 (PPP 1990$)


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quarter of a century it suffered from extremevolatility and generally declining incomes percapita – the country became very much poorer,highly indebted and also lost its earlier incomeadvantage over countries such as Botswana andNamibia. The decline during the period of thevarious military governments in the 1970s wasparticularly acute. However, the EconomicRecovery Program (ERP) introduced in 1983,produced an unbroken period of positive per capitagrowth that has now extended for over 20 years.Ghana has performed significantly better than Sub-Saharan Africa in this more recent period.

Tanzania too has been a hugely unstable as well asa very poor economy. This instability was seen inthe pre-Independence growth record before 1961and it continued in the early years of Independence.Growth performance worsened further in the 1970sand 1980s as the flaws which many attributed toPresident Nyerere’s socialist policies becameincreasingly evident. Tanzania took much longerthan Ghana to commit to economic reform. Butthese reforms when introduced in the second halfof the 1990s have been broadly successful and haveestablished a period of stable per capita growth inthe past ten years. On average, over the period

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Figure 6: GDP Growth in Peru and Chile


Peru Per Capita Growth Rates: 1950 – 2003 (PPP 1990$)

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19531955195719591961196319651967196919711973197519771979198119831985198719891991199319951997199920012003


Chile Per Capita Growth Rates: 1950 – 2003 (PPP 1990$)

1980 to 2002 Tanzania has also done better interms of growth than has Sub-Saharan Africagenerally.

Peru and ChileThe growth records in Peru and Chile showsubstantially different patterns (Figure 6). Chilefaced huge economic instabilities both in the early1970s and the early 1980s. These were associatedfirst with the Chicago-style shock therapy adoptedin the early years of the Pinochet regime (leading toGDP falling by 24% between 1971 and 1975), andthen by the severe 1981-83 recession that was theculmination of the failed liberalization experimentand severe exchange rate overvaluation of theearlier years.

This second crisis also forced the government tobail out banks and other parts of the private sectorleading to a brief period of re-nationalization afterthe wholesale privatizations of the 1970s (when 472out of 507 state enterprises were sold off veryquickly by the Pinochet regime). But since then thegrowth rate of per capita incomes has beengenerally positive, albeit with significant year-to-year variations. This improvement has also beendriven by a standard but better executed packageof stabilization and structural reform policies.

By contrast Peru faced its most severe economicinstability not during the leftist military regime inthe 1970s, but during the democratic period in the1980s and especially during the Alan Garciapopulist regime from 1985. Peru’s economiccollapse in that period is similar to thecorresponding collapse in Ghana during the 1970s.By 1990, the Peruvian economy had effectivelycollapsed at the macroeconomic level andgovernment tax revenue (at only 6% of GDP) wasnot sufficient to cover even the government’spayroll bill (Du Bois, interview 2005). After thiscollapse was halted by the reforms introduced bythe Fujimori regime at the beginning of the 1990s,Peru has seen significant growth in a few years,albeit with a still high level of instability.


18 3.2 Linking GDP Growth with the Growth of MiningThe significance of this long record of undulatinggrowth performance is to show that, even in thethree countries with a long-established miningpresence, mining companies have faced extendedperiods of weak performance in their hosteconomies and policies that were broadlyunfavourable to their own profitability and tofurther investment. In all four cases, thenationalization of mining company assets was anextreme element in the inhospitality that thecompanies encountered. The causes of theseextended periods of economic mal-function andpoor or negative growth were different in thedifferent countries. But in each case the miningindustry was invariably affected negatively by thegeneral political and other forces.

GhanaThe inter-relationship between economic growthand the resurgence of mining activity sinceeconomic reforms were put in place is most clearin the Ghana case. The general economic reformsof the 1980s and 1990s started by the ERP includeda new, investor friendly minerals code(promulgated in 1986). Since 1986 over $5 billionhas been invested in new mining projects – a hugecontrast with the previous 40 years when no newmines were opened, and existing minesdeteriorated. Although mining’s share of GDP roseby only 1-2% to 5.5% by 1995, gold prices weregenerally low during this period, and this reducedthe mining industry's statistical contribution to GDP7, since profits and consequently value addedwere low. At the same time, mineral exports rapidlyovertook cocoa as the country’s leading exportearner – gold’s share of total merchandise exportsrose from 18% to a high of 34% (although reformshave also led to export recovery in the cocoasector). Mining has also been by far the largestsource of foreign direct investment into Ghana inthis period, and has become a significantcontributor to the government’s budget, providingup to 17% of total tax revenue in the years after1990.

Since mining was largely stagnant in Ghana in theyears through Independence and up to the late1980s, its performance in those years canreasonably be seen as symptomatic of thegenerally acute problems in the economy andcertainly not a cause of them. But can it be said

5 For example, in the Sachs and Warner (1995) study the data period is1970 to 1989. 6 It is noted that comparisons with earlier periods are complicated by thefact that all of the case study countries have seen major mininginvestment in recent years. The impact of this investment on othersectors of the economies has not yet materialized fully. In addition,increased activity in the construction industry constitutes a major part ofthe impact during the investment phase, and this impact is difficult toquantify since it is often not evident how much of an expansion in theconstruction industry can be attributed to mining investment.

7 Value added is constituted by compensation to labor and capital and thelatter is reduced by a lower gold price.

‘The economic policies and improvedgovernance that havestimulated the general economicimprovement have also been extremelyimportant to therenaissance of themining industry.’


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that mining was a driver for, or catalyst of the post-1983 economic growth recovery that is shownso clearly in Figure 5? A direct cause and effect isdifficult to prove categorically, although regressionanalysis does show a positive and significantcoefficient on mining output in a GDP growthequation. What is more plausible is that thefortunes of mining have been closely linked withthose of the economy at large. The economicpolicies and improved governance that havestimulated the general economic improvementhave also been extremely important to therenaissance of the mining industry.

TanzaniaSimilar propositions are also plausible in theTanzanian case. Although economic reforms inTanzania and the associated growth recovery camemuch later than in Ghana, these have beenaccompanied by a major investor-friendly reform of the mineral legislation (1998/99). In the contextof broad based economic reforms this has helpedto stimulate a large rise in foreign directinvestment (FDI) and investment in mining. Over$1.3 billion has been invested in the sector since2000. From an extremely low base, FDI in Tanzaniahas now attained an annual average of 3% of GDPand mining investment is easily the largestcomponent of this.

The package that has brought about the economicimprovements has combined stronger macro andsectoral policies with increased private investment

– albeit in a narrow range of sectors. This hasclearly been a major influence on the improvedgrowth performance shown in Figure 5. Once againthe mining resurgence, especially in terms of therise of FDI and private productive investment, is animportant part of this package but obviously not thesole cause of the improvements.

In both of these country cases, the results lead usto an important proposition about the role ofmining in early stage private sector development in countries that have previously been seriouslydemoralized economically and extremelyantagonistic to private and especially to foreigninvestment. Specifically, mining, and gold mining in particular, may be one of the first sectors thatcan sustain growth in a previously failing economyonce some minimum package of economic andinstitutional reforms have taken place. Unlike manyother productive sectors, gold mining needs quite alimited institutional and infrastructural base to beable to prosper. (This is not to recommend such asecond-best package but merely to observe that itmay be adequate to achieve some forwardmovement). Key requirements include for examplesecurity and property rights for the investors, areasonably reliable commercial regime especiallyfor international trade (including a competitive realexchange rate8) and taxation that is not punitive.Conversely, gold mining does not need: a robustdomestic market, as the output is exported; nor asophisticated transport, communications anddistribution infrastructure, because gold is notperishable and can be flown to refineries (and oftenis for security reasons). What this also means isthat initial reform packages may have beensufficient to boost mining activities, but may havefallen some way short of generating a conducivegeneral environment for domestic investmentincluding by small scale entrepreneurs.

PeruIt is more difficult to find similarly neatpropositions about the mining – GDP link in thePeru case. However, there is one importantsimilarity with the two African cases. In 1990 theunderlying philosophy towards the private sector in Peru took a complete U-turn. This includedradical reform of economic policies in many areas,but again including far more investor-friendlylegislation for mining. The government endorsed

8 For mining companies this is largely a question of the exchange rate atwhich they are allowed/required to convert foreign currency earnings inorder to purchase necessary domestically supplied inputs.

SummaryThere is no disputing the fact that a variety ofcriticisms are levelled at mining in all four countrycases. However, the summary thus far in all fourcase studies suggests that when mining companiesencounter favourable conditions for renewedinvestment and growth (to tap the potential shownin the Fraser Institute assessment), their activitiescan indeed potentially support improved overallGDP growth. It is difficult to establish a strongcausal link from mining activity to growth ofincomes, not least because mining is typically arelatively smaller part of GDP (5-8%) than it is ofexports and foreign direct investment, because it isan export oriented capital intensive activity.However, in the years of economic malaise in thefour countries, there is no evidence from any of thefour cases that the poor macroeconomicperformance could be attributed to the presence ofmining. Equally, when mining investments enjoyeda revival after systematic economic reformprograms, there is no evidence that thatresurgence undermined general economicrecovery. On the contrary mining was oneimportant dimension of that recovery in all cases.The new mineral investment opportunities weretapped and the growth recoveries occurred atdifferent times in each of the country cases. But the broadly positive relationship between thetwo is evident in most of the cases.

There are a number of reasons why differentapproaches might find evidence of greaternegativity in outcomes than shows up in these casestudies. For example, econometric studies of the‘resource curse’ that did not correct for the timespecificity involved – and instead enforced acommon time period on all the countries – wouldbe likely to find a less positive relationship.Similarly, the counterfactual – what might thecountries have been like without mining – is hard tospecify. Any counterfactual that abstracted fromthe extremely difficult pre-mining situation of allfour countries might well find greater reasons toquestion mining’s contribution. Finally, the mannerin which certain issues have been resolved by theprevailing governance of the time give rise toimportant potential criticisms. This last point is oneto which the case studies and this present reportdevoted considerable time.

this by privatizing some 90% of its own miningassets which had been acquired during the left-wing military regime of President Velasco from1968. The change in investor sentiment wasdramatic. The stagnation of the 1970s and 1980s –limited new investment and sector outputsustained by the pre-1968 investments9 – gave wayto a very large new inflow with FDI volumes in theten years after 1993 totalling some $6.7 billion. As this investment has come on-stream, thesector’s contribution to GDP has risen significantly:to around 7% of the total by 2003. The World Bankprojects output growth at the rate of some 6.6% for the next few years.

The graphical evidence in Figure 6 fails to showsuch an obvious association between therenaissance of mining and the GDP growthrecovery seen in Ghana and Tanzania. However, inthe Peru case study an attempt has been made toassess what the Peruvian economy might havebeen like by 2003 in the absence of the miningrecovery. These estimates based on growth ratesfrom 1994 to 2003 should be regarded as indicativeonly10. But they suggest that in the absence of themining recovery, per capita income would havebeen around 6.4% lower by 2003. These numbersignore some of the complementary effects ongrowth in other sectors that arise from miningsector activity, and so if anything can be regardedas understating mining’s contribution.

Similar estimates for Tanzania from a recent IMFresearch paper (Treichel, 2005) for the period 1996to 2003 show a mining sector contribution of 0.3percentage points out of an average GDP growthfor that period of 4.8% (i.e. mining contributed over6% of the total growth). This may seem modest, butseen in the context of a country that through the1980s and early 1990s had more often seeneconomic decline (see Figure 5) it is far from trivial.Furthermore the period used by Treichel includesseveral years prior to the real take-off of newmining activity in the new millennium: so again, ifanything it understates the mining sectorcontribution.


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9 In fact output fell for extended periods. For example the value-addedfrom mining in 1988 was 14 percent lower than it had been in 1980.10 It is recognized that only a refined computable general equilibriummodel can offer the basis for doing this calculation ‘properly’.

income growth seen after the ERP to reductions in poverty.

• However, Ghana’s long-established regional (especially Northern) poverty and inequalities of incomes have persisted – so while mining has not caused this pattern, the generally improved policies that supported mining’s renaissance have not ameliorated it.

• The lowest absolute levels of poverty are now in families where the head of household is engaged in mining, followed by those engaged in transport and communication. Agricultural activities that provide livelihoods for most people still see higher levels of poverty.

• A household is less likely to be in poverty, if the head of household is in private formal employment. A distant second best employment is public sector employment – a big change from control-era of the 1970s. Food crop and subsistence farmers remain, as in 1991 the most likely group to face poverty. Unlike export based farmers, they have seen only a very modest improvement in the decade covered by the GLSS results.

• In the four of Ghana’s 110 Districts that account for most of the mining activity, poverty levels are generally lower than in other districts within the same region, as well as in the country as a whole. However, that poverty advantage is not general across all occupational groups in those four districts.

• Finally, results based on a recent 2003 Core Welfare Survey suggest that the main mining districts are doing generally better than the country as a whole in relation to issues such as

‘consumption linkages,particularly spendingby mining companyemployees on localgoods and services, are by far the mostimportant mechanismby which wealth’trickles down’’


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3.3 Social and Poverty OutcomesAll four case studies also looked beyond aggregateGDP growth – the main focus in much of the‘resource curse’ literature – to also examine socialimpacts. Wherever possible the case studiesexamined appropriate survey and other data toassess the extent to which income gains at thenational level have raised incomes and reducedpoverty in the economies nationally but especiallyin mining areas.

The results suggest a mixed record of outcomes,which is not surprising given the variety ofmechanisms through which these impacts can betransmitted. Mining may affect national levels ofpoverty strongly but indirectly through the fiscallinkage. Tax revenues from mining will strengthencentral government budgets and may allowincreased spending on poverty reduction programs.A positive net effect on government tax revenue onthe order of 10-17%, as in Ghana, is obviously notnegligible from this perspective, although there isof course no guarantee that the additional financialresources will actually be allocated to povertyreduction programs, nor that the programs will beeffective. At the local level, consumption linkages,particularly spending by mining companyemployees on local goods and services, are by farthe most important mechanism by which wealth’trickles down’, giving rise to new employmentopportunities and leading to reduced poverty, asseen in the cases of mining regions studied in Chileespecially. But certainly the effectiveness of thenational and local transmission mechanisms variesconsiderably among the case study countries andregions.

The Ghana case study yields some strong resultsbased on the Ghanaian Living Standards Surveys(GLSS) for 1991 and 1999. The overall context isone in which the incidence of income poverty hasfallen from 52% of the population in 1990 to 40% in1999 – but more than this in the mining districts. In Sub-Saharan Africa as a whole, poverty rateshave remained broadly stagnant: 47.6% in 1990 and 46.4% in 199811. Further relevant points includethe following:• A reduced national poverty headcount index in

the ten year period (from 52% in 1992 to 40% in 1999(12)) suggests a strong link from the national

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11 Besley and Burgess, 2003.12 Mackay and Aryeetey (2004) using the GLSS data estimated the growthelasticity of poverty incidence for Ghana at 0.98, a figure that comparesclosely with the results for many other Sub-Saharan countries.

expansion of mining since the early 1990s15, theregion has also experienced rapid economicgrowth. By 2003, Region II had a GDP per capita of$11,996, more than twice the per capita GDP of thecountry as a whole in spite of the very inhospitablenatural conditions. The rate of growth in GDP percapita has also been significantly higher in RegionII than in the country as a whole.

Given the high level of income and the significantlyhigher growth rate, it is not surprising that RegionII has also achieved the largest reduction in theaverage rate of (income) poverty in the country,with the incidence of poverty being reduced by 60%in the fourteen years from 1990 to 2003, ascompared to a lower but still impressive reductionof 41.4% in the country as a whole. According tosurvey data supplied by the Instituto Nacional deEstadisticas16 (see Figure 7), by the year 2000Region II had the lowest poverty rate in the country,at 10.9% of the population, compared to 20.6% forthe country as a whole.

In Region II the favourable poverty reduction recordhas also translated into improved social welfareand better than national average performance in anumber of other dimensions such as literacy(98.2%); education (11.2 years of schooling onaverage); and security in old age.

More comprehensive results on the social conditionof the population are available both for the HumanDevelopment Indicator (HDI) variables developed bythe UNDP and for a broader set of social indicatorsgrouped together as a ’Human Security Index’ byan academic research group in Chile. Studies forboth 1998 and 2003 made a distinction between the’objective’ index of human security, which usedquantifiable measurements of seven dimensionsbased on statistical data, and the ’subjective’ index,which measured six dimensions based on thepublic’s responses to survey questions. The UNDPstudy results show that Region II had the secondhighest objective index of human security, afterRegion XII, Magallanes, in the extreme south of thecountry. Region II scored particularly high in the

waste disposal, water and sanitation. This is especially true of the two most mining-dependent districts in Ghana.

These very positive results suggest that the stronggrowth (including the strong performance of miningas one of the leading sectors in the past 10-15years) has fed down to help achieve the significantpoverty alleviation that Ghana has seen bothnationally and in some of its regions/districts.Unfortunately these results do not replicate inTanzania.

In the Tanzania case study the available datasuggest that the incidence of income poverty didnot fall significantly between the early 1990s and2000/01. This was the central finding of the firstPoverty and Human Development Report13, usingthe results of a 2000/01 household survey14. Slight improvements in the incidence of incomepoverty, using either of the two official poverty lines(basic needs and food-based), may have occurred.However, it was only in Dar es Salaam that themeasured change was statistically significant: theproportion of those in poverty falling from 28 to 18%. In the country at large the fall in ’basic needspoverty’ was only from 38.6 to 35.7%. In part thislimited gain may reflect the fact that the improvedmacro management of the economy (and the boomin mining) is relatively recent and did not reallybegin to affect growth in incomes even on theaverage until the late 1990s (i.e. the 2000 TanzaniaSurvey is very recent relative to that turnaroundwhereas in Ghana the corresponding surveyenables us to assess a full decade of relativelyimpressive growth). But as in Ghana, the overallgrowth performance in Tanzania has been insectors, including mining and tourism, where thelink with the mass of (agricultural) poverty is fairlytenuous. Those engaged in the more rapidlygrowing sectors including mining may have seenthe same improvements as in Ghana but there havenot yet been enough of these – or enough indirecteffects – to reduce poverty overall.

The Chile case is more strongly supportive of theproposition that large-scale mining can supportpoverty reduction and social improvements moregenerally. Region II of Chile where most mining islocated has a population of 498,000 people. Since 1990 it has grown by almost a quarter withthe growth concentrated in Antofagasta, theregion’s capital, which now has a population of273,300 people. During the period of the rapid


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13 United Republic of Tanzania, Poverty and Human Development Report,2003.14 See National Bureau of Statistics, Household Budget Survey, 2002.Unfortunately this published summary of the survey does not provide anyregional or district data of the type that was available for Ghana. UnitedRepublic of Tanzania, Poverty and Human Development Report, 2003.15 For a long time the Codelco’s Chuquicamata mine was the only largecopper mine in Region II. It has been in operation since 1910. In the late1980s, the Escondida mine became the first foreign owned mine in theregion. Several others followed during the 1990s and early 2000s. 16 www.ine.cl

The Peru case provides yet another variant on thepattern exhibited by Ghana and Chile, albeit adisturbing one. The 2004 UNDP Report on HumanDevelopment in Peru emphasizes that inequalityand poverty have remained Peru’s greatestchallenges. More than a half of the populationcontinues to live in poverty and nearly a quartersuffer extreme poverty, including inadequatenutrition. Poverty also has a particular rural andthus an indigenous element. Extreme povertyaffects more than half the rural populationcompared to less than 10% of the urban dwellers.Despite the impressive macroeconomic turnaroundsince 1990, this situation has not fundamentallychanged in many decades. International observershave commented that the country has been unableto reduce social disparities, high poverty rates, and income and regional disparities, and that thepresent welfare system has been ill-suited toaddress this situation. Social exclusion seemsdeeply entrenched, and the recent successes in the mining industry do not seem to have changedthis reality.


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dimensions measuring education and security forold age. In the later repeat study by Ordhum (2004),which included calculation of the objective index inthe four northernmost regions, Region II had thehighest ranking for the objective index.

Recognising that Chile has by far the highest HDIrating and ranking of the four case study countries,these detailed results for Region II indicate that thepresence of the dominant mining industry has, ifanything, helped to improve further an alreadygood absolute performance. In Chile as in Ghanathe main remaining questions about the macro andsocial effects of mining relate to the counter-factual. Given the huge resources extracted frommining during the recovery years, could the gainsin income and poverty alleviation have been evenlarger?

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* Región Metropolitana de Santiago

Figure 7: Changes in Income Poverty in Chile by Region - 1990-2003

Regions

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all cases). Left wing critics would see this as partof the capitalist agenda – liberalizing policies andinvestor-friendly sector legislation are both neededin order to generate profits for powerfulmultinationals.

On the other hand, a more narrowly technicalassessment would see this combination of policyreforms as more logical. If a country has significantmineral potential, as all four of our countries do(see Table 1), and a severe shortage of goodinvestment prospects for the private sector (to saynothing of a dearth of the institutions needed tofoster broad based private sector development)then the active promotion of mineral investmentcan provide for early growth gains that are noteasily found elsewhere. (Only Chile of the fourcountries has found it possible to achieve similargains in, for example, the agricultural sector). Such a strategy does two things, it could be argued: • It reduces the country’s exposure to the intense

international competition needed to attract foot-loose manufacturing and service-sector investments, and

• it avoids the immediate need to complete the institutional and policy package needed to become broadly attractive to new private sector investment (though again it is emphasized that no one would advocate an incomplete package of reforms as ideal) and enables this to be done over a longer period.

Chile is the possible exception to this package ofpolicies since the major investor-friendly reformsof its mineral legislation came early in the Pinochetera in 1974 – well before the realized resurgence oflarge scale investment in the sector. Although thislegislation has been subject to several changessince then, the legislation is widely regarded asgenerous to investors – a perception confirmedboth by the Fraser Institute surveys (see Figure 4)and by other assessments17.

The mining company behaviour that has beenrevealed by the very rapid increase in newinvestment in the other three countries since thereform of their mineral legislation (in 1986, 1990and 1998 for Ghana, Peru and Tanzaniarespectively) indicates that the tax regime issufficiently generous given the large mineralpotential in all three countries. The latest Frasersurvey locates all three countries easily in the top

SummaryThe broadening out of the initial benefits of mininginvestments to benefit the host society moregenerally is a critical success factor of a mining-oriented development strategy. But the casestudies show that it is not one that occursautomatically or without some ’appropriate’ pushfrom policy interventions. Thus, the crucialquestions are: through which mechanisms have thesocial improvements in Chile and Ghana beenrealized; why were they not greater in Ghana; andwhat has hampered the corresponding gains in thecases of Peru and Tanzania; and through whichtrickle down (or other) mechanisms one can expectmining activities to contribute to general povertyreduction and redress income inequalities?

The case studies provide some evidence that theincome gains (partly associated with a resurgenceof mining activity) can definitely contribute tobroadly generalized improvements in poverty levels and to social welfare more generally. They do not reveal any neat formula as to what themechanisms of success have been. This conclusionemerged clearly from both the Ghana and the Chilecases, where the improved growth record has beenof longer duration than is the case in eitherTanzania or in Peru. Chile’s poverty gains haveclearly been linked to broad-based employmentgeneration rather than to any redistributivestrategy. The October 2005 workshop re-iteratedthe point that there has been no special taxtreatment in that country that can explain thesignificant mining contribution to broad-basedsocial improvement. Ghana’s relative success isless easily characterized. The time period is tooshort to reach any strong conclusions for Tanzaniaand perhaps also for Peru. It is in any case clearthat the detection of a positive relationship – evenin the ’successful’ mining countries - is only thefirst step in the analysis. Explanations and thus thelessons to be learned require much deeperprobing. Chapter 5 provides some furtherelaboration and suggestions on this matter.

3.4 The Policy Drivers of the Growth RecoveriesMining Legislation and Property RightsAn important similarity in three of the four cases –Ghana, Tanzania and Peru – relates to the mannerin which a fundamental reform of minerallegislation has been an accompaniment of, or aclose sequel to, the launch of systematic policies ofmacroeconomic stabilization and structuraladjustment (under IMF and World Bank guidance in


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17 Otto et al, 2000.

to have avoided a major regression into theseriously over-valued exchange rates that theyfavoured (or slipped into) in the past. Major swingsin prices have been matched in most cases byappropriate nominal devaluations. They have alsosustained reasonably reliable commercial regimes.

This may also help to explain why Chile is anoutlier in this regard and why it experienced a longlag between the introduction of investor-friendlylegislation in the mid-1970s and the resurgence ofmining investment in the late 1980s. It is welldocumented in the economics literature that theliberalization experiments of the 1970s – the so-called tablita approaches – led to massiveovervaluation of the real exchange rate not only inChile but also in Argentina and Uruguay18. The hugecurrent account balance of payments deficits thatresulted from the tablita experiments werefinanced for a time by equally large private sectorinflows – mainly into real estate and non-tradedinvestments19. But a collapse was inevitable andcame in the period 1981-1983. Only after theassociated crisis did the authorities in Chile beginto get their macro-policies right. Based on thisexception, it seems reasonable to conclude that thefavourable mineral legislation is a necessarycondition, but not of itself sufficient to stimulate aneconomic recovery based on internationallytradable goods – including minerals – when thereal exchange rate is seriously over-valued20.

Improved GovernanceWhat do the studies say about the role ofgovernance and public institutions? It isincreasingly argued both by some of the authors of the econometric studies (e.g. Niemayer, 2004)and also by high-profile special studies – mostrecently the Extractive Industries Review (EIR)commissioned by the World Bank – that improvedgovernance is critical to the realization of the fulleconomic and social benefits of mininginvestments.

‘a fundamental reformof mineral legislationhas been anaccompaniment of, or a close sequel to,the launch ofsystematic policies of macroeconomicstabilization andstructural adjustment’


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30% of 64 countries ranked according to theirmineral potential, but adjusted for the actualregulatory regime. Chile ranks second in thisregard behind only the state of Nevada in the USA!

Macroeconomic PoliciesWhat about the necessary macroeconomic policies – what is the minimum required package?The evidence from all four cases suggests that acritical standard factor in the turnarounds has been the ability to avoid the seriously uncompetitivecommercial regimes and real exchange rates of the past. The other standard components of soundmacroeconomic management – reasonableinflation stability and affordable fiscal deficits –indicate less clear-cut consistency across the threecountries.

For example, the four countries differ in the extentof the inflation stability that they have achievedsince their reform programs began. In Peruinflation has consistently been at or below 10% atleast since 1995 (as compared to several thousandper cent at the end of the 1980s), while in Ghanarates as high as 30-50% have been seen in the pastdecade (as against rates that sometime exceeded100% before reform began in 1983). Similarly, inboth these cases and also in Tanzania, the IMF hasbeen frequently critical about the size of fiscaldeficits even after reforms were espoused andlargely implemented. But in the face of thesedifferences and problems, all four countries seem

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18 Corbo and de Melo (1984), van Wijnbergen (1986).19 Although the profitability of internationally traded products wasdefinitely compromised by this package, it is debatable whether this ofitself was the only critical issue behind the reluctance of miningcompanies to invest at that time in response to the apparently favorablemining legislation. In addition, it is likely that the companies at that timedoubted the long-term stability of the Pinochet regime. In addition, the1970s and 1980s was a period when companies focused on the generallyaccepted safe havens such as Australia and Canada.20 Even in Ghana, 50% of procurement and all labor costs etc are local, so high local prices in comparison with international ones (which areaffected by exchange rates) would have an impact on profitability andinvestment attractiveness.

four indicators. Table 2 gives the scores for all fourcountries for 1996 and 2004.

The contrasts between Chile and Peru areparticularly large. Furthermore these largedifferences have persisted since the first recordingof the indicators in 1996. Since then, in spite of itsreasonably good economic performance, theindicators for Peru in several dimensions haveworsened – the gap with Chile thereby becomingeven wider. Voice and accountability have improvedsomewhat – the citizens generally have more say in how they are governed – but this has beenassociated with a deterioration in the effectivenessof government (see also Figure 8).

Figure 8 draws a closer comparison between Peruand Chile, which in addition to the World BankGovernance Indicators also take into account theUNU World Governance Survey (these add sixfurther but over-lapping composite indicators).The analysis shows that the changes in Peru sincethe fall of Fujimori have resulted in moreparticipation and trust of society in the politicalprocess (evidenced by the variables ’voice andaccountability’ and ’political society’), butweaknesses in the workings of the public serviceand administration and in the legal systemcontinue to persist. Interestingly, the capacity ofgovernment to effectively formulate and implementsound policies (measured by ’governmenteffectiveness’ and ’regulatory quality’) improvedduring the Fujimori regime – a regime that facedwidespread criticism for its authoritarianism. But when that regime collapsed, the democratictransition resulted in a deterioration of governancein this dimension.

Comparing this with the Chile experience, it isentirely plausible to suggest that Chile’simprovements in the working of the public serviceand the administration were achieved during thePinochet government but that the participation andtrust of society in the political process onlyimproved after the transition to democracy in theearly nineties. The important question couldtherefore be why Chile has not experienced asimilar deterioration in the effectiveness of publicservice and administration to that seen in Peru.

Each of our four case studies has evaluated thisproposition initially by reference to the sixcomposite indicators of governance21 that are now routinely assembled by the World Bank22. The results indicate that the economic recoveriesachieved in all four countries at various dates from 1983 (Ghana) to 1996 (Tanzania) have beenassociated with improved governance in some ofthe dimensions measured by the World Bankindicators23. However, it is striking that:• In only one case – Chile - have the governance

scores become ’good’. In the other three cases they have merely improved; and

• In the other cases the improvement has covered some aspects of good governance but hasby-passed several others that seem equally important (to individual welfare, social cohesion etc).

So, for example in the case of Ghana, the scores onthe six governance indicators are estimated to havegone up by an average of 0.7 points (on a scale thatruns from minus 2.5 (worse) to plus 2.5 (best) )from the nadir of the military governments at theend of the 1970s to the second part of the 1990swhen the indicators started to be formallyproduced. Nonetheless, by 2004 the scores stillaverage only around zero. This is a considerablybetter score than for many other countries in theSub-Saharan region but still far from being anindication of high quality governance – even 20years after Ghana’s turnaround began.

Similar observations can be made for Peru andTanzania. In the Tanzanian case the eight yearperiod from 1996 to 2004 shows significantimprovements in government effectiveness, voiceand accountability, the control of corruption andthe rule of law, but also a deterioration in politicalstability and regulatory quality. In the Peruvian casewe also see a significant improvement in two out ofthe six indicators – voice and accountability andpolitical stability – but a deterioration for the other


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21 Daniel Kaufmann, one of the originators of these indicators, hasrecently argued that the (larger) margins of error associated with theseindicators have declined and are now substantially lower than thoseassociated with individual measures of phenomena such as corruption.See “Back to Basics - 10 Myths about Governance and Corruption”,Finance and Development, September 2005. 22 These are Voice and Accountability; Political Stability; GovernmentEffectiveness; Regulatory Quality; Rule of Law; and Control of Corruption.They are scored from minus 2.5 to plus 2.5 against a wide range ofindicators that together make up the six composites. 23 These findings are supported in broad terms by the recent EconomicCommission for Africa Report, Striving for Good Governance in Africa,that tracked four positive trends in the region: democratic transitions,political inclusiveness, voice and accountability, and economicmanagement.

Peru 2004

Peru 1996

Chile 2004

Chile 1996

Key

-1.5 -1.0 -0.5 0 0.5 1.0 1.5 2.0


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Indicator Peru Peru Chile Chile Tanzania Tanzania Ghana Ghana (96) (04) (96) (04) (96) (04) (96) (04)

Voice and Accountability -0.73 -0.04 0.93 1.09 -0.77 -0.35 -0.35 0.39

Political Stability -0.90 -0.68 0.75 0.89 0.02 -0.38 -0.10 -0.06

Government Effectiveness -0.18 -0.58 1.20 1.27 -1.18 -0.37 -0.07 0.17

Regulatory Quality 0.65 0.17 1.52 1.62 -0.52 -0.55 -0.14 -0.28

Rule of Law -0.35 -0.63 1.26 1.16 -0.70 -0.49 -0.12 -0.16

Control of Corruption -0.10 -0.35 1.28 1.44 -1.03 -0.57 -0.47 -0.17

Control of Corruption

Rule of Law

Regulatory Quality

Government Effectiveness

Political Stability

Voice and Accountability

Table 2: Governance Indicators Compared – 1996 and 2004

Key: a score of -2.5 is the worst, with a score of +2.5 being the best

Figure 8: Governance in Peru and Chile

Source: World Bank

be argued to be a part of the dynamic that has allowed better governance gradually to emerge. The same applies to Chile.

• Generalizing the previous point, it is highly unlikely that failed or even weak states can expect to see ’good’ governance happen or be imposed overnight particularly if there are no economic improvements to strengthen the arms of the reformers. Improving governance is a difficult and complex political process for which it is unlikely that one generic blueprint exists.

In terms of the content and scope of theconventional governance indicators the fourcountry case studies have shown that currently nodistinction is made between the various verticaltiers of government (national, regional, provincial,district). They shed little light on how theweaknesses in public authority – that three of thefour countries still suffer – are changing if at all atlocal levels. Thus governance indicators to date,shed little light on how public authority reachesdown the various vertical tiers and affects theinteractions between local public and privateorganizations, and citizens.

This last point is critically important for a properunderstanding of the local impacts of large-scalemining investments. By their very nature, theseinvestments are extremely ’local’ in nature (almostall of Ghana’s mining is located in just 4 of 110districts and much of Chile’s is in Region II). But the minimal governance improvements needed to justify these investments commerciallyare likely to be implemented at the ’national’ level. So countries such as Peru and Ghana withreasonable economic policies may be able tooperate for extended periods with major gaps intheir governance capabilities that may compromisethe local if not the national benefits of suchinvestments. It is argued below that manyremaining problems with mining can be traced tothese gaps.

SummaryOnly in the case of Chile can one say that there is a consistently good score across all six indicators(as of 2004). It is clear that good economicperformance does not automatically lead to agenerally better quality of governance. Nor has’good governance’ in all of its dimensions preceded the mineral recoveries. There also appear to be tradeoffs between the differentdimensions of governance. Because the time series for governance indicators is still very short,it is extremely difficult to draw any conclusionsregarding how countries can manage such trade-off to achieve improvements in all aspects ofgovernance.

However, a number of general propositions doemerge from the case study review of the role ofgovernance as measured by conventional indicators: • The improvements in governance necessary to

underpin the economic recoveries seen in three of the four countries has been quite limited relative to what an objective observer might regard as the benchmarks of good practice24. Chile is now an outlier in this regard but may not have been when its mining and economic recovery began.

• The economic, social and even the poverty gains from the associated policies – even if these include only incomplete governance reforms – have been quite significant in at least some of the countries. This suggests that even relatively minor differences in governance may yield significant results in terms of exploiting more fully the potential benefits of mineral revenues. In these cases, while the remaining shortcomings of the governance arrangements cannot be ignored, the improvements in living standards may be more important.

• Improved governance, even in the success cases, emerged as an evolutionary process that can extend over a very long period of time once some minimal political and economic stability is established: Ghana is a prime example. Ghana certainly did not have ’good’ governance in all, or even most dimensions when its successful economic and mining recovery got underway in the mid-1980s. That recovery, and the enhanced prosperity that has accompanied it, can plausibly


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24 Furthermore those minimal improvements might even leave in placethe high level of authoritarianism seen in both Ghana (Flt Lt Rawlings in1983) and Peru (Fujimori in 1990) that proved necessary to drag both ofthese countries back from the brink of their economic meltdowns.

As noted in the Analytical Framework, the recentliterature has adopted the distinction articulated by Richard Auty26 between ’internal’ and ‘external’explanations for the poor performance of some natural-resource-intensive economies. The external explanations include long-termdeclines in the terms of trade, the volatility ofexport revenues that can also destabilize the publicfinances and the Dutch disease phenomenoninvolving the decline in the competitiveness ofmanufacturing and other non-mineral tradableactivities. The internal explanations lay the blameon ‘bad’ policies that can exacerbate the externaleffects. Chief amongst these are ‘misguided’industrial policies offering protectionist barriers tosupport uncompetitive new activities in theeconomy27. Then there are a variety of importantpolitical-economy effects.

The four country case studies do not conclude thatthese tendencies are all absent. Rather, the longterm (50 year) comparisons that have been madesuggest that the resurgence of mining activity inrecent years in all cases has been accompanied bysmaller problems in most of these areas than inthe years when mining was stagnant or in decline – see Box 2. For example in Peru and Ghana, Dutchdisease problems at the national level seem tohave been avoided and exchange rate policymovements have largely compensated for inflationarychanges, taking one year with the next (since themid-1980s and the early 1990s respectively). This represents a major improvement on theearlier years. It is true that neither economy hasseen a really big surge in non-mining tradableinvestment nor output, that would evidence a trulycompetitive real exchange rate for manufacturesand other tradables. But at the same time, thegrowth of non-mineral tradable GDP has beenpositive in real terms in all four countries in therelevant time periods and higher than that of theirregional comparators in all but one case (Peru).Chile, after the macro disasters of the late 1970s,has seen a rapid growth of non-mineral GDP and a very clear diversification of its manufacturing toaccompany the resurgence of mining investments.Some instability in revenue flows has persisted insome countries but the revenue/GDP proportion


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3.5 Conclusions: Implications for the ‘ResourceCurse’In the analysis so far, the countries chosen asexamples of successes have indeed been confirmed as successes up to a point. The miningresurgence in each of the four cases has not madethings worse, and has in some ways helped tomake things better. While this has someimplications for the ‘resource curse’ debate – seeBox 1 (e.g. by confirming that its propositionscannot be generalized to all countries, and that the component ills of the ‘curse’ are avoidable25),the focus of this study is not primarily to establishthe existence of success stories, but rather to draw lessons from them to improve the situationelsewhere.

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25 See the Literature Review for fuller details to elaborate Box 1.26 Auty, R. (2001). “Why resource endowments can undermine economicdevelopment: concepts and case studies”, Paper Prepared for the BP-Amoco Seminar, Lincoln College Oxford University, November 28-29.27 We do not here consider the issue of depletion and over-consumptionthat was referred to in the Analytical Framework because we did notassemble any relevant information.

Most proponents of the resource curse propositions invoke one or more of the following componentarguments:• Large earnings from mineral resources can lead to the

Dutch disease phenomenon involving exchange rate overvaluation and so to decline in the competitiveness of manufactures and other (non-mineral) tradable activities.

• Dependence on such earnings are problematic if the prices of the minerals in question are volatile in the short term or subject to sustained decline in the long term.

• The presence of mineral wealth can encourage governments to adopt misguided industrial policies that offer protectionist barriers to support otherwise uncompetitive new activities.

• An economy blessed with abundant but depletable natural resources may over-consume. One reason is that incomes in the short term may fail to account properly for the depletion (depreciation) of the nation’s capital thereby resulting in consumption levels that are unsustainable – the correction when it comes is inherently damaging to livelihoods.

• Some countries blessed with natural resources may be more prone to poor governance and in some cases will experience a ‘predatory’ state characterized by corruption, political conflict, and inequalities largely created by state actions.

These arguments together can lead to the broaderconclusion that notwithstanding the short term gains from large-scale mining activity, the long term effectsmay be low or even adverse. This is because the presenceof mining can create incentives (in the private sector andthe governing authorities) that are inimical to the creationof both the appropriate economic institutions and theimpulses to modernization that are normally associatedwith sustainable development.

Box 1: The Resource Curse – In Brief?

has been so much higher (25% + of GDP) especially in Peru and Ghana where the pre-reformlevels of only 5-6% of GDP effectively eliminated effective government, that these instabilities have been absorbed with much greater ease. This is less clear-cut in the case of Tanzania. Local manifestations of the Dutch diseasephenomenon have probably been the biggerproblem in at least some of the countries.

This section has also assessed the politicaleconomy aspects of the ‘resource curse’ that were also surveyed in the Literature Review. The observation of the countries’ performance with respect to standard governance indicators,shows mixed results. But they certainly do notshow in any case that the mining recoveryworsened governance in any systematic manner.

Chile now achieves high scores on all governanceindicators, and the other three countries have also shown some improvements over time. But governance indicators alone tell very littleabout the underlying political processes that havebrought these results about and the possible short-term trade-offs between different aspects ofgovernance. The indicators measure the outcomeof complex policy processes, whose underlyingmechanics too often remain unknown and under-explored. The systematic collection ofgovernance indicators most importantly contributesto identifying and narrowing gaps in understanding.But to stop there and merely assume that thecountries and their governments can simplychange the rules by which their economies andsocieties are governed independently of broaderpolitical-economic developments would beinsufficient and unhelpful. Hence the furtherthoughts on this matter later in this report (mainlyChapter 5).


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The type of shock usually associated with mining is the positive price or volume shock, where the challenge tomacroeconomic policy is to avoid appreciation of the realexchange rate resulting from excess liquidity in the formof mineral export receipts. It would be tempting toconclude from the fact that the case study governments all appear to have mastered this challenge that themethods for doing so have now been integrated into thestandard toolkit of economic policy. However, there arereasons for believing that such a conclusion could beover-optimistic.

First, during the period on which the case studies havefocused, metals prices were generally low, thus posinglittle problem for the governments concerned in the wayof price shocks. Second, export volumes were generallygrowing but the amount of foreign exchange retained inthe host economies was generally lower than it is likely to be later, once loans have been paid off and equipmentdepreciated. Accordingly, the capacity of the countries to avoid Dutch disease type phenomena has so far beensubjected to a weaker test than they may face later.Certainly it would be wrong to be complacent about this,particularly in the case of countries with less diversifiedexport economies and notably Tanzania and Ghana.

For similar reasons it may also be argued that the casestudy economies provide only a partial test as far as thecontribution of mining to development and povertyreduction is concerned. At the national level, one of themain contributions by mining is an indirect one, throughthe tax payments that mining companies make and the use of those tax payments by governments in povertyreduction and other programs. However, all of the case study countries have recently passed through periodsof significant mining investment. Tax payments from theseinvestments have so far been relatively small. There aretwo reasons for this. First, metal prices have been athistorically low levels during the past decade. The massiveprice rises in 2004 changed the situation radically and are leading to increased tax payments. However, thoserevenue flows have yet to be converted into developmentexpenditures. Second, most modern mining taxationregimes allow companies to deduct depreciation fromtaxes at an accelerated rate. Thereby, companies recovertheir initial investment rapidly. Often, it is also assumedthat the tax rate applied on profits is higher than it mightbe otherwise, this being the implicit quid pro quo acceptedby the companies in return for having the assurance ofrecovering costs early.

Since all four case study countries are likely to experienceconsiderable increases in government tax revenues frommining in years to come, the full challenge of the resourcecurse may lie ahead. Equally, for the time being, there isonly an incomplete basis for studying how effectively taxpayments have been recycled into development.

Box 2: Keeping the Resource Curse in Check

Economic and SocialContribution of theTarget Mines

4

four case-study countries share a common level ofdependence on mining, they are substantiallydifferent in many other respects. These differencespresent a significant analytical challenge inattempting to comment on emerging patterns orcausality. For example, if no clear patterns emerge,is this directly related to the disparate nature of theoperating environments? Similarly, if clear patternsdo emerge, does this suggest that the operationalcontext is of secondary importance relative to theprimary influence of mining?

Section 2.3 described some of the key differencesbetween the four case study countries andintroduced the corresponding target mines. Some brief additional social context is summarizedin Table 3 for ease of comparison and this is brieflydiscussed below.

4.1 IntroductionIn this section of the synthesis, the discussionmoves from the national/sub-national debatesurrounding mining-related social and economicoutcomes, to the more local level of the vicinity ofthe target mines within the case-study countries.More specifically, it reviews observed patterns of: • Employment (including direct, indirect and

induced) and dependency; • Broader economic impacts, in terms of

procurement, enhanced human capital and the contribution to government revenues of the host economy;

• Social and community impacts, in terms of infrastructure provision and local socio-economic development trends.

As outlined at the beginning of Chapter 2, while the


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4. Economic and Social Contribution of the Target Mines

Ghana - Obuasi Tanzania - North Mara Peru – Antamina Chile – Escondida (Gold) (Gold) (Copper-silver) (Copper)

Physical context Tropical lowland Tropical lowland Andean environment Andean environment environment environment (4300 m.a.s.l) (3050 m.a.s.l)

Proximity of Obuasi essentially a Several villages in Some local villages No ‘local’ communities.communities to mining mining town close proximity to the but ‘community’ is Nearest town is

mine, in densely fairly dispersed: Antofagasta (170 km)populated agricultural although a major town area is nearby

Tradition of mining Long tradition of Artisanal and small Although lengthy Long tradition of miningmining (over 500 -scale mining (ASM) tradition of ASM, (dominant economic years) ongoing for some time, Pierina (1998) and activity for over 150

but industrial mining Antamina (2001) years) – few if any ‘local’is recent projects mark arrival populations

of mining on industrial scale

Prevailing attitudes Attitudes shaped by Broadly supportive, Mining in Peru is has Attitudes generallylocally - Mining and co-dependency – but some hostility become politically positive; concerns social cohesion generally positive and to mine based on charged, both locally include potential for a

supportive of mining, ‘prior claims’ of ASMs and nationally ‘copper crash’, incomebut high demands on to some prospect disparities and effectsthe company for social areas on prices, and limitedsupport that it cannot tax returns to regionalways fulfil

Table 3: Social context of the target mines

Source: Field work data

and medium scale mining from the period prior tothe nationalization of the mining industry, and alsothereafter when state-owned companies exploitedthe assets of previously private investments andsome private companies exhibited disregard forgood environmental practices.

Attitudes - Mining and Social Cohesion The attitudes towards mining vary greatly and thecase studies sought to identify these by combininginformation from a variety of existing and newsurveys of local communities. The reasons are toocomplex to tease out in this synthesis report in anydetail. Here is a brief summary of some key points:• In Ghana, local attitudes towards mining are

generally positive according to the interviews conducted during that case study – despite the often expressed desire for the mine to ‘do more’ – reflecting the co-dependency between the existence and future of both mining and community.

• Communities in Tanzania are broadly supportive of North Mara28, but hostility certainly exists based on ‘prior claims’ of artisanal and small-scale miners (ASMs) to certain prospect areas.

• In Peru, the question of whether mining should take place and under what circumstances has become highly politicized, and the discussion now focuses on the extent to which communities should deserve a say in (or in the extreme a power of veto over) how mining develops29. While Antamina has not been immune from actions that stem from this situation, it has not been subject to some of the more extreme incidents that have affected other mining operations in Peru.

• In Chile, the generally positive attitudes to mining in general and Escondida in particular, reflect a far less politically charged environment than in neighbouring Peru, which in turn reflects a more stable political environment (see Chapter 3). It also reflects the unusual situation whereby the nearest community of Antofagasta (some 170km distant) benefits substantially from the presence of the mine, with few if any of the potential negative impacts associated with proximity to mines.


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Physical contextThe main distinction is between the tropicallowland mines of Ghana and Tanzania and theAndean higher-altitude mines of Peru and Chile.Altitude may seem like a crude distinguishingfactor, but it has a profound influence on the socialand economic characteristics of communities livingat broadly similar latitudes. Lowland tropicalcommunities live in more productive environmentswith greater opportunities for agricultural surplus,which in turn is a determinant of broader economic potential. Population densities are alsogenerally higher. In contrast, the economies ofAndean communities are constrained by lowerproductivity (a combination of soil, water andaltitude/temperature constraints). Escondida,although over 1000m lower than Antamina is within the Atacama and extremely dry – the harshclimatic conditions result in even lower populationdensities than at Antamina.

Proximity of communities to mining The proximity of neighboring communities to thetarget mine sites varies widely, and this in turninfluences community attitudes towards mining. In the case of Ghana, the development of the town ofObuasi and AngloGold Ashanti’s Obuasi mine havebeen interlinked for over a century. In Tanzania,there are several villages in the vicinity of theNorth Mara mine site, and some households havehad to be relocated as a consequence of thedevelopment of the mine. In Peru, communities aremore dispersed in the vicinity of the Antaminaproject, although mine construction also requiredsome resettlement of local people. [Huaraz, whichis quite close, has more than 100,000 people]. At Escondida, the harsh climatic conditions andwater scarcity are such that the nearest settledpopulation of Antofagasta is some 170km distant.

Tradition of miningThe communities in the vicinity of the target minesites are all familiar with mining to some degree,but this ranges from the industrial to the artisanal.In Obuasi, industrial mining has been integral tothe history (and will be to the future) of Obuasi. At Escondida in Chile, communities are too remotefor the mine to be visible – figuratively or literallyalthough the local population is very familiar withmining and has been so for more than 150 years.In Tanzania communities have experience of smallscale and artisanal mining, but have not experiencedindustrial mining until quite recently. In Perucommunities recall negative experiences with large

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28 UDSM Consultancy Bureau and URS Sustainable Development, SocialBaseline Study and Impact Assessment of the North Mara Mine, preparedfor Placer Dome and issued July 2005, and also surveys of variousstakeholders conducted for the case study in August 2005.29 In this context it is worth noting a conclusion reached by Gavin Wrightand Jesse Czelusta that if minerals are conceived of as fixed stock andmineral abundance as a pure “windfall” unconnected to past investment,then the problem becomes one of sharing out the bounty rather than oneof creating more bounty based on the resources. Wright and Czelusta(2003).

reflects differing approaches to calculating inducedemployment at the various mine sites and theparticular difficulties of obtaining direct evidence inthe case of the Ghana study. Although that casestudy revealed little evidence of formal non-miningemployment of any significance in Obuasi, therewas clear evidence of informal entrepreneurialactivity focused on consumer and personalservices. Something must be fuelling this demandand mining is the only apparent candidate.

Another striking employment characteristic is thegenerally low numbers of expatriate staff, which isin marked contrast to some of the more criticalperceptions of job allocations within the miningsector. At Antamina, which employed the largestpercentage of expatriate staff by a considerablemargin, the numbers of expatriate staff have halvedin the past 5 years – and just 2.5% of head officestaff are now expatriate.

Equally striking is the still low percentage offemales employed within the sector, which washighest in Chile at just 3.7%. These gross numbersmask some higher numbers at the local level – forexample, 12% of staff at the Antamina mine (and22% at its port facility) are women. Nonetheless,there is little doubt that the industry remains

4.2 Incomes and Employment: Direct and IndirectA summary of the data on incomes andemployment for the four target mines is presentedin Table 4. The disparate characteristics of themines (e.g. in terms of the types of minerals, sizeof the operation, etc.) and their wider economiccontext (e.g. diversity of the local/regionaleconomies) makes it difficult to draw manyconclusions in terms of emerging patterns orcausality.

One common characteristic of all four mines is thatthey employ large numbers of people. Despite thehighly mechanized nature of modern industrialmining, the absolute numbers of people employed(either directly or indirectly) are substantial. This isparticularly true at Obuasi in Ghana, where theeconomy of the town (population 150,000 – 200,000)is almost entirely dependent on the mines.Employment at Obuasi seems to be high relativeparticularly to the corresponding numbers at North Mara. However, this may be partly explainedby the type of mining and the geology – deep, hardrock mines being particularly labor intensive.

The relationship between employment and inducedemployment is also markedly different at Obuasithan it is in the other target mines. This probably


34

Ghana Tanzania Peru Chile

Employees 5955 (89%) 498 (43%) 1402 (51%) 2810 (55%)

Contractors 718 (11%) 660 (57%) 1336 (49%) 2345 (45%)

Total 6673 1158 2738 5155

Indirect employment 1000 - 50002 724 15402 23452

Estimated induced employment 20,000 – 50,0003 n.a. 4500 - 6800 8500 - 12900

Dependents: Employee/total The estimate is at Tanzania mean n.a. 8183/35700least five per household size: 4.9,worker Mara 5.9,

NMM 6.73 – average estimate: 6

Expatriate/Domestic 0.3/97.7 (%) 17.1/82.9 8/92 (%) 1/99 (%)

Female/Male1 0.7/97.3 (%) 9.6/90.4 1.5/98.5 (%) 3.7/96.3 (%)employees only

Local/Regional/Nat. n.a. n.a. 15.1/1.7/83.2 (%) 0/77/234

Table 4: Employment information for the target mines (numbers or percentages in brackets)

Notes1 These figures mask the generally higher rates of female employees in office environments.2 This includes permanent contract employees located at these mine sites.3 These are estimates prepared by the consulting team in the absence of available data. This is why a range rather than a point estimate is provided. See the Ghana case study report for an explanation of the derivation of the estimates. 4 The 77% could arguably be considered local as they are based in the nearest town (Antofagasta – 170km).

The contribution of the target mines to theirrespective internal revenue services also variesmarkedly, reflecting both the variable tax regimesoutlined in Chapter 3 and widely varying levels ofprofitability. For example, Obuasi recorded noprofits in 2004 compared to Escondida, which paid$423m in taxes, almost 75% of which wasaccounted for by supplemental taxes on dividendsto proprietary firms.

4.4 Social Investment ImpactsIn addition to their direct contributions to output,employment, government revenues and exports,the four target mines have also adopted a range ofcorporate policies relating to social investment andhave supported a diverse range of relatedinvestments in social and economic infrastructure.It is important to recognize that these policies andpractices involve varying degrees of ’structure’ andpartnering arrangements with local communities.The differentiating factors include: • Nature of company commitment generally to

sustainable social investments;• Length of operation of the mine;• Extent of government involvement in the running

of the mine (either historical or current); • Proximity of local communities; and• Prevailing attitudes towards and demands made

of mining companies (as outlined in section 4.1).

The importance of these factors varies between thefour target mines, as outlined within the individualcase studies. The main features are summarized inTable 6.

Of the four target mines, both North Mara andEscondida have had a stated commitment to miningwithin a sustainable development framework fromthe outset, (for North Mara, from the PDI takeover,six months after operations commenced). This hasbeen reflected in social investments in line with


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largely male dominated, although some change inthis situation was noted at some sites (for exampleat Obuasi). The gender dimension of employment isalso being very positively influenced by some of theactions of Placer Dome in Tanzania.

In the cases of all four mines the case studyinterviews indicated that employment in the mine is regarded as a relatively attractive form ofemployment as it is better paid and offers betterfringe benefits (eg housing, education andhealthcare). The broader impacts of this and otherfactors are explored in section 4.4.

4.3 Broader Economic ImpactsA summary of the data illustrating the broadereconomic impacts of the four target mines is givenin Table 5. Despite the disparate characteristics ofthe mines noted above, some features arenoteworthy. Firstly, the value of procurement fromeach of the four mines is substantial (ranging from $110m to $483m per year. Secondly, thepercentage of domestic procurement varies widely,from a high of approximately 80% for Peru andChile to a low of about 47% for Ghana. Thisdisparity most likely reflects a host of factors,including:• Varying levels of mining-related economic

infrastructure in-country;• Differing levels of private-sector engagement and

government intervention in support of (and private-sector engagement in) the development of such infrastructure;

• Disparities in corporate policies/practices relating to domestic (local/regional/national) procurement;

• Corporate practices with respect to outsourcing; a high proportion of domestic procurement may simply mean that everything that can be outsourced has been.

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Domestic procurement ($m/%) 52 (47%) 63 (46%) 176.4 (77.7%) 392.7 (81%)

Procurement (total, $m/year) 110 137 229 483

Contribution to IRS ($m) 15.6 7.5 19.5 423

Value added/ Retained value n.a. n.a. 245.5/227 2662/1744

Mining sector contribution to GDP and exports 5.2% and 34% 3.2% and 40% 7.6% and 50% 3.5% and 42%

Table 5: Broader economic information for the target mines ($million or percentages in brackets)

Source: Information and calculations from case studies

Table 6 also includes brief notes oncompany/community conflicts. It is clear thatprevailing attitudes towards a company can in turn influence demands for social infrastructure. In practice, such demands are often couched in thelanguage of ‘compensation’. Some companyofficials describe what they see as a potentiallydestructive dynamic – companies conceding to atleast some of the demands without establishingwith the community either whether compensationis justified or whether it is their formalresponsibility to pay it. This in turn creates anincentive for additional compensation claims whenfuture problems present themselves. While theexternal observer may see the claims of localcommunities as crystal clear, the realities on theground are notoriously difficult to sort out in allsectors and not just in mining. This dynamic seemsto be more relevant in the Peruvian and Tanzanianproject contexts, than in Ghana or Chile. In bothPeru and Tanzania in particular, national NGOs(and sometimes international NGOs) have in turnprovided strong support for the communities’claims for ’compensation’.

reasonably well-defined strategic priorities31. By contrast, in the case of Obuasi, the long historyof mining (and former state ownership of the mine)has meant that sustainable development concernshave featured in the company’s formal socialinvestment strategy only relatively recently.Nevertheless, Obuasi has engaged in a wide rangeof social initiatives over the years, and has become the de facto provider of a great deal ofsocial and to a lesser extent economicinfrastructure. The mine has also invested heavilyin environmental improvements in the last twodecades. Significantly much of its early support to economic development has been national innature rather than local – possibly a reflection ofthe early stage lack of a suitable local frameworkfor such support. Escondida has also beenintegrating sustainable development principles into its strategic engagement with the widercommunities of Antofagasta and San Pedro deAtacama in recent years. This in turn is reflected in its more recent social investment initiatives.


36 Table 6: Social investment policies and initiatives and challenges of the target mines

31 See for example the individual case study reports and corporate socialand environmental reports.


Policy on sustainable Limited historically, Placer Dome corporate Sustainability policy in None initially, but development issues but recent merger policies on place from the outset, Escondida is developing

(AngloGold Ashanti) sustainability in line and foundation increasingly structured marks increasingly with ICMM principles, established in 2002 approach (e.g. foundation structured approach now apply (PDI acquired in 1996)

mine 6 months afteropening)

Social investment Many and varied. Some pre-date Placer Made by Antamina and A mix of environment initiatives by company Company is the de facto Dome, but increasingly Ancash Foundation in (locally) and social

provider of much structured approach line with strategic initiatives, focusing onsocial and economic applied on social and priorities Chile’s Region II (San infrastructure economic aspects Pedro de Atacama and

Antofagasta)

Company community Relate mainly to Some hostility to mine Mining in Peru is Few of note. conflicts anxieties about land based on ‘prior claims’ politically charged, Beneficiaries of social

issues. Some relate to of ASMs to some locally and nationally investment mostly expectations for prospect areas remote from any funding community potential adverse related projects. impactsRecurring conflicts with ASMs

Engagement of external No formal process for National NGO (LEAT) National NGO has Noneadvocacy groups engagement, but filed suit on behalf of supported claims of

numerous informal 5 villages claiming threats to downstream contacts breaches of their fishing interests

mining rights


other studies suggest that the local impacts of thedirect contribution of mining can be quite largerelative both to the national impact and certainlyrelative to the community spend of the companies32.This result seems to have a parallel in Ghana asevidenced by the lower levels of poverty in themining regions and districts of the country relativeto their non-mining counterparts. In addition, thelowest levels of absolute poverty are found inhouseholds where the head is employed in mining.Chile exhibits a similar pattern, whereby Region II(where the economy is dominated by mining) hasexperienced per capita GDP growth of twice thenational average in the past 15 years, and povertyrates that are now half the national average. Thispattern is not repeated in Peru. Despite substantial(20% approx.) increases in mining output within the


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4.5 Comparing the Overall Social and Community‘Project Impacts’ The social and community impacts of the targetmines are in part a function of the direct impacts ofmining on incomes and employment – typicallyquite strong – as well as the broader economicimpacts discussed in sections 4.2 and 4.3. They arealso fundamentally influenced by, and cannot beentirely unbundled from, national policies formining revenue redistribution (discussed inChapter 5), and the effect these have onregional/local level government investments insocial infrastructure. The overall social andeconomic impacts of the target mines aresummarized in Table 7.

One aggregate indication of overall project impactsis to consider the extent to which mining hasinfluenced poverty indicators locally. Results from

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32 See for example di Boscio (2004).

Table 7: Overall social and economic impacts of the target mines


Links between mining Mining regions and Performance of mining Not possible to ascertain GDP per capita of poverty indicators districts have generally regions in general and whether mining Region II is more than

lower poverty levels Mara in particular for improved or undermined twice the national than non-mining poverty indicators varies regional HDI relative average ($11,996 regions and districts. around national to national average compared to $5,216).The lowest absolute averages. For this and Region II has lowestlevels of poverty in other reasons, national poverty rates in ChileGhana are in government makes no (10.9% or just over halfhouseholds where the special contribution to the national)head is engaged in mining areasmining

Status of economic Limited ‘local’ Too early for PDI local The limited size of the Significant local development and procurement and much procurement and small economy and young age procurement, resultingdiversification of the support for business enterprise of the mine mean that from deliberate targeting

economic diversification policies to show effects. it is premature to and fostering of suppliers,has mainly been at the Local businesses assess definitively. combined with efforts tonational level stimulated by local The initiatives take time enhance capacities and

spend. Regional and to have an impact competitiveness ofnational suppliers suppliers throughbenefiting cooperative program

with them

Status of social Company support for Steady growth of Company investments Company investments infrastructure and social infrastructure company-assisted have been made in in infrastructure sustainability dating back to state improvements to social community (e.g. education and

ownership has created infrastructure. infrastructure adjacent health) within Region II some aspects of a Participatory policy for to the mine in order to via a Foundation, withdependency culture new projects works improve the long term increasing emphasisand has arguably towards sustainability. sustainability of the on partnering forharmed the prospects Increased communities sustainabilityfor post-closure communicationssustainability of local infrastructure boostingeconomies at present local social as well as

economic development


after local mines shut, and how the closure processshould be managed. Ideally, such issues should beconsidered with local and national governmentsduring the planning phase for new mines, andupdated regularly thereafter. In particular,assessments need to be made concerning whethermining companies have a role in supporting localeconomic diversification and helping to design theframework for productive post-mining uses. One very difficult aspect of this is whether the mineexpects to be (and whether the host authorities andcommunities expect it to be), a long term presencein the locality. An alternative is that both partiesanticipate it to be a purely temporary settlementand act accordingly.

The mines studied showed different characteristicsin this respect. Antamina in Peru is perhaps a clearexample where the mine community arguably couldstill be regarded as temporary, whilst Obuasi inGhana, given its history and current size, is clearlytreated as a permanent settlement.

Finally, in the view of the consultant teams, thesustainability of the social infrastructure developedeither partially or primarily by the target miningcompanies is weakest in Ghana and Peru, albeit fordifferent reasons. In Ghana, AngloGold Ashantifaces a significant challenge in making thetransition from an expected provider of socialinfrastructure and services to partnering with other organizations on a more sustainable basis.In Peru, Antamina faces a significant challenge offinding effective development partners to work with to enhance the sustainability of socialinfrastructure – faced with a government that iseither unwilling or unable to exert authority overagreed corporate-community commitments.

Ancash region (where Antamina is located) and theCajamarca region (both over a 12 year period), thecorresponding improvement in the HumanDevelopment Index (HDI) in both cases was aboutaverage for all regions of Peru. The factors whichmay explain this disparity are discussed further inChapter 5.

The status of supply chain development is alsomixed for the four target mines. At Obuasi, thelimited local procurement is notable, despite a longhistory of mining. The recent resurgence ininvestment within the mining sector in Ghanaoffers the prospect for strengthening the domesticmining supply chain by mining firms on a collectivebasis. Anglo-Gold Ashanti has played a pivotal rolein some economic diversification initiatives in thepast, but these have often been undertaken at thenational level and away from Obuasi. In Tanzaniaalso, the relatively undeveloped ability for the localmarket to supply sophisticated mining supplies hasmeant that almost half of supplies continue to besourced internationally. In Chile, the very high levelof domestic procurement is indicative of a morehighly developed mining supply sector, which isconsistent with the central role of mining in theChilean economy. In this respect, the similarly highlevels of domestic procurement in Peru areencouraging, and suggest that local procurementpolicies are having an impact.

With respect to economic diversification – and thelong-term sustainability of mining communitieswhen mines close – the picture is somewhatdiscouraging, except in the case of Chile. In thecase of Chile’s Region II, a concerted effort toreduce direct dependence on mining is supportedby both the mining industry and the governmentand may have contributed to the impressive growthof non-mining economic activity, although much ofthis activity would probably not be viable in theabsence of mining. Elsewhere, the case studiesreveal little evidence at present of consistentplanning by mining firms in partnership with theother stakeholders, including local, national andinternational development agencies, to consider afuture after mining (although it is stressed that thefutures of the four mines studied appears securefor next decade or two).

In part, the lack of diversification in most of thecase study countries and areas may be a reflectionof a lack of guidance and available techniques toassess whether mining communities are viable


38

Understanding theRoutes to EnhancedOutcomes

5

public sector entities and tiers of government(Could there be more to redistribute?).

Recent years have seen a heated debate in theChilean Congress, particularly over the adequacy ofthe level of tax payments for foreign companies.The Fraser Institute survey results (Figure 4) showsthat the tax regime in Chile is indeed one of themost generous in the world. Some argue that taxlevels are too low, given the very large amounts ofvalue-added, exports and FDI that have beeninvolved in recent years. From 1991-2003 the tenlargest foreign owned companies paid a total of$2,136 million in tax, or an average of $164 millionper annum (del Pino et al, 2005). In comparison thestate-owned company Codelco paid an average of$746 million per annum over the same period34.

Criticism over the adequacy of the tax regime hasalso been documented in Ghana. The World Bank’sOctober 2003 OED Report notes that althoughmining’s contribution to direct tax revenueaveraged 12% of total government tax revenues in the previous few years, actual tax payments in2001 amounted to $32 million only. For an industry turning over in excess of $600 million per annum, this is arguably a small contribution. Of the $32 million, more than half arise from a 3%royalty levied on gold production. Furthermore,turnover has risen in the most recent years. One ofthe active NGO observers (FIAN) puts forth asimpler argument: Before the reforms of the 1986mining law the tax rates were 50-55% – today therates are only 35%. However, this criticism ignoresGhana’s comparative competitive position(illustrated in Figure 4), which suggests thatsignificantly higher tax or royalty rates couldundermine the competitive attractiveness of Ghanafor mining investment and production: and so lower tax yields35.

In the other two case study countries, the adequacyof the tax regime does not feature as prominently

5.1 The Problematic IssuesThe previous sections of this report havesummarized the economic and social benefits thathave accrued from the very large investmentsmade by mining companies in the past 10-15 yearsin all four chosen ‘success case’ countries. Despitethese benefits the case studies have also revealedvarious unresolved issues33. These issues will beexamined in further detail in this section beforecertain lessons for the mining industry are drawnin Chapter 6.

The six most problematic issues featuring acrossthe four case studies are the following: • The adequacy/fairness of the tax regime for

mining in the host country.• The revenue allocation system. Does this

constrain or support the efficient and effective use of public resources, including those generated by mining?

• Conflicts over land use and property rights.• Environmental damage and concerns. • Conflicts between large-scale and artisanal

mining.• Dealing with prospective mine closures.

The next few paragraphs first describe these sixmost problematic issues for the four case studycountries. Then the rest of the Chapter analyzesthe possible reasons for these issues to arise. Itdoes this by making explicit use of the (revised)governance Taxonomy of the Resource EndowmentToolkit as developed in Phase 1 of the project.Against this background it summarizes key pointsin order to guide the discussion about how theeconomic and social impact of mining could befurther improved.

Adequacy of the Tax RegimeIt seems well understood by the countries thatactively seek international investment in miningthat internationally ’competitive’ if not necessarilylow taxes are critical to attracting and retainingFDI. Nonetheless, vigorous debate on the adequacy of the tax regime has featured in at leasttwo out of the four case studies. It is a concernmainly at the national level (Could governmentcollect more funds, for example to provideessential public goods and services that supportentrepreneurship?). But it also impinges on theallocation of government revenue across different


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33 It is emphasized that these issues do not relate particularly to the fourspecific mines reviewed in section 4, but to mining in the countries moregenerally.

34 Of the ten foreign companies only Escondida paid taxes throughout the period. Two other companies paid taxes for the first time in 2003. Five others had not started to pay tax because they started up late andwere still benefiting from the provision for accelerated deprecation. The issue appears to be on the way to at least a partial resolution sinceafter much lobbying, proposals were approved by Chile’s Chamber ofDeputies in April 2005 to increase the tax take (mainly by way of a specialtax of 4-5% on operating (gross) profits). These measures are estimatedto add $400 million to government revenues over the period 2006-2010.Together with the unwinding of the start-up depreciation allowances, del Pino (2005) estimates that the tax take from the ten foreign majorswill rise to $871 million per annum over the same period.35 If this proposition was true in 2003 it must have been even truer in1986, when the basic fiscal arrangements for mining were put in placeand when Ghana’s economy was still seriously malfunctioning.

5. Understanding the Routes toEnhanced Outcomes

between central and sub-national political actors.Legal stipulations and government practices forrevenue reallocation and public financialmanagement systems vary greatly across the fourcountries. These allocations in turn condition theimpact of public spending on economic and socialdevelopment and thus the impact of miningrevenue.

From the public finance perspective Tanzaniapursues the most purist approach. The Tanzaniangovernment treats all its mineral revenues as part of the national resource envelope. It does not entertain any explicit policy to transfer any part of revenue back to those areas that aredirectly impacted by mining. Thus, there is nohypothecation of particular revenues for specificpurposes and all government spending is subject to central government’s resource allocationstrategies and public financial managementprinciples. Since there are many other regions farpoorer than those in which mining takes place, theTanzanian authorities take the view that thecountry’s expenditure needs ought to be assessedagainst this national background. As Tanzania’slocal government authorities evolve, it is perhapsnot so certain that this position will be upheld sopurely in the future. Specifically, there may besome recognition that new mining investmentsoften create local problems and opportunities,which local government authorities have someresponsibility to solve or realize (for example,increased public service levels to accommodatelabor migration, or maximise local economicopportunities that arise because of the presence ofmining activities)36. However, these arguments stilldo not require the hypothecation of mining revenue.They could also be dealt with through an efficientpublic financial management system, wherepredictable and adequate flows of funds areallocated to those sub-national entities that haveand can deal with the particular issues at stake.

Contrary to the Tanzanian practice, Ghana hascreated a specific fund (the Minerals DevelopmentFund or MDF) designed in part to provide for theredistribution of some earmarked portion ofmineral taxation back to communities affected by

‘Large fiscal revenuesfrom mining canprovide significantleverage with respect to poverty reductionspending, particularlysince mining normally entails verymodest governmentexpenditure.’


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an issue. In the case of Peru, mining companiescontribute just over 5% of total domestic taxes, butabout 30% of total income tax collections. The taxtake is expected to increase as new projects comeon-stream and depreciation allowances unwind.Recent developments have included theintroduction of a mining royalty for the benefit ofregional governments and there is political debateabout whether tax exemptions granted by previousgovernments should be re-negotiated.

In Tanzania, critics of the mining industry claimthat the industry pays only a 3% royalty on gold andthere is little recognition of any other taxation andrevenue payments. Few people know anythingabout the overall mineral taxation regime and thereis a widespread view that large-scale miningresults in large profits for foreign companies andlittle contribution to the host economy.

Revenue AllocationWhile mining’s contribution to the total tax-take isone important dimension of a country’s benefitsfrom resource extraction, the allocation of revenuebetween different government entities and differentvertical tiers of government attracts as much if notmore attention. Large fiscal revenues from miningcan provide significant leverage with respect topoverty reduction spending, particularly sincemining normally entails very modest governmentexpenditure. The allocation of revenue is also asource of great debate and tensions, particularly

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36 It is important to distinguish these points from the responsibilities ofmining companies to deal with direct/indirect impacts of mining: e.g. control of groundwater contamination, re-settlement of displacedpopulations in an acceptable manner, etc. In reality, the dividing line ishard to draw. For example, who is responsible when a mining companyrehabilitates mine tailings only to find that artisanal miners rapidlyengage in informal mining on the same land?

‘Competition for landbetween agricultureand large-scale miningis a serious political and economic issue inthose mining countrieswhere mineral andmetal resources are not located in remoteareas.’

macroeconomic reforms. Economic recovery hasvery much focused attention on central governmentreforms, but without complementary investment inlocal institutional, administrative and, quiteimportantly, political capacity. The country casestudies emphasize that decentralization processescan fundamentally change political dynamics withinand between government organizations, and notleast with respect to accountability relationshipsbetween executive decision makers, legislativerepresentatives and the electorate. The debate isnot only about whether decentralization andhypothecation are good or bad. It also involvesquestions about which institutional solutions canbest serve to strike a positive balance betweendifferent political interests and the administrativecapacity to utilise allocated funds in aneconomically and socially beneficial way.

The Ghana study has shown, in the view of theconsultant teams, why the political incentivesunderlying the redistributive rules of the MDF areunlikely to result in public spending that can beconsidered efficient and effective. In the Peruviancase, there is currently no certainty that higherintergovernmental transfers from the CanonMinero (as well as regional government’s receipt of the newly introduced mining royalty) will deliverreal and more benefits to broader segments ofsociety. Neither is it guaranteed that spending willenhance economic opportunities for the largenumber of Peruvians living in poverty, unless local

mining. It is the explicit mandate of this Fund ”tocompensate for any detrimental effects miningmight have in their areas of operation and tosupport development in the local communities”.However, a case study finding has been that theMDF – in the view of the consultant teams – worksfar less well than intended. It may have evencreated its own problems, by raising expectationsin local communities that have subsequently notbeen met. The 2003 World Bank’s OED Reportstresses that MDF inadequacies have led to seriousfailures to address a variety of local problems,including for example the absence of practicalmechanisms to create alternative job opportunitiesfor unemployed or displaced workers37. The Ghanaianexperience shows that even where mining revenueis earmarked to directly mitigate the negativeeffects of mining, such hypothecation does notwork if administrative systems do not support theefficient and effective use of the directed funds.

In Peru there is a mechanism, the Canon Minero,which directly redistributes mining revenuecollected by central government to sub-nationalgovernments. In recent years the rules applicableto this mechanism have been subject to variouschanges, partly in reaction to politically necessaryefforts to push for greater decentralization ofgovernment, and partly to demonstrate to sub-national governments the virtues of acceptingmining operations in their jurisdictions. Thesechanges have also reflected the various politicalforces that have exercised influence over howpublic revenue is shared. Communities affected bymining and mining companies themselves havelobbied for greater transfers back to miningregions. On the spending side the Peru case studyhas also exposed severe weaknesses, in the view of the consultant teams, in administrative andpublic financial management capacity at theregional and local level. These weaknesses, it isargued, have compromised the use of resources to support economic and social development,irrespective of whether these resources havearisen from mining or from other economicactivities.

The situation in Peru is not unlike that in Ghana. In both cases aggregate fiscal management hasimproved since the countries adopted major


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37 In this context, the OED report refers also to attacks by unemployedlocal youths, in 2001, on local traditional chiefs including looting anddestruction of palaces in two towns in Wassa, where most of the field-work for their report was carried out.

(foreign) mining companies. Contention may arisebecause formal property rights are inconsistentwith traditional claims (for example in communalfarming areas), or simply because local communityrepresentatives have not been (sufficiently) involvedin policy decision-making processes that haveaffected ’their’ land. Weakly governed countriesmay use clumsy methods to enforce thedisplacement and resettlement of populations towhich they commit in their agreements with thelarge companies.

In the case of Peru property rights have beencontested, not least because government policydecisions have sometimes been perceived to lackpolitical legitimacy. In Ghana NGOs have arguedthat many concessions in Wassa West (WesternRegion) and elsewhere are far too large – up to 150sq kms – and that as a consequence the livelihoodsof thousands of rural households can be impactednegatively. Mining companies seem to havegenerally complied reliably with agreements onland re-settlement, but perceived flaws inimplementation have sometimes been damaging.Although the 1986 Minerals law attempts tobalance the interests of farmers and miningcompanies, in practice there have been manyuncertainties that have provoked conflicts38.

With new mines established in the past 5 to 7years, Tanzania has also not been spared fromserious conflicts over land use. Modern corporateapproaches to community relations and corporatesocial responsibility were either absent at crucialtimes or were not sufficient to settle fundamentaldifferences over land use rights. Where theinterests of large companies appear incompatiblewith those of small-scale entrepreneurs, clear andaccepted governance structures, decision-makingprocesses and communication channels are vital tobalance these interests and to achieve enforceablecompromises. Tanzania in the mid-1990s when themajor controversies arose seemed not to have


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administrative and financial management capacityis improved considerably. The possibility is clearlythat more political pressure will provoke populistpolicy decisions, including iterative re-negotiationsof Canon Minero and other tax rules, and continuedpressure on mining companies to contributedirectly to local communities and local governmententities.

Finally the Chilean case is particularly important in this context. Chile has so far had only modest tax payments from private mining companies.Therefore, such payments are not what in this casehave made for a positive impact of the miningindustry: a point that was strongly emphasized byboth mining and government stakeholders duringthe October 2005 workshop. Although Region IIshows the most dramatic reduction in poverty,there is no indication that this has happenedbecause the region retained or received large sumsof revenue generated from taxing the miningindustry. Instead, what appears to be key in Chile ishow other economic sectors have benefited fromthe presence of mining and have delivered inputs to mining and associated economic activities. In other words it is the production and employmentgeneration associated with mining and not theredistributive measures that have delivered thehigh pay-off to mining.

Conflicts over land useCompetition for land between agriculture andlarge-scale (especially surface) mining is a seriouspolitical and economic issue in those miningcountries where mineral and metal resources arenot located in remote areas. This is the case forGhana, Tanzania and also Peru. The poorestfamilies in those countries are typicallyagriculturalists or pastoralists, often dependentsignificantly on subsistence production. For themlivelihoods and income situations have oftenimproved little despite macroeconomic recovery.This even applies to mining districts in Ghanawhere otherwise poverty gains have beenimpressive. Only Chile of the four case countrieshas shown broad-based improvements in povertyreduction not primarily through redistributivepolicies but rather through the creation ofalternative employment opportunities.

Conflicts over land use are an issue that hinges oncontentious property rights. Local communitiesmay not always concur with central governmentdecisions over the property rights granted to

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38 The World Bank OED report provides an example of the displacement of 20,000 rural people from 14 villages that took place in the late 1990swhen the new GFGL surface mine at Tarkwa was opened. The resettlement,they argue, was conducted carefully and at very high costs to thecompany. However, compensation naturally benefited those families who could show that they were losing houses, crops or other specificproperty. It did not much help single young persons who owned noproperty. Nor did it help many sharecroppers who lost access to land that they previously cultivated. Another example quoted by the FoodFirstInformation and Action Network (FIAN) concerns the Iduadriem-Mine ofGhana Australian Goldfields involving a 20% IFC stake. Their papercomplains that this investment resulted in the destruction of villages andthe loss of access to clean drinking water for some. Only after protests bythe Wassa Association of Communities Affected by Mining (WACAM) andothers, was an action plan to help the victims put in place.

adequate structures in place to address the majorissues satisfactorily. This situation persists into2006 with eruptions of conflict between artisanaland small-scale miners and large mines overaccess to prospective ground. Often, the artisanalminers have no legal licences to mine, but cannotunderstand why they are denied access to landwhich appears to be lying fallow when they have noother means of income.

Environmental Damage and ConcernsFrom a historical perspective, mining operationshave created significant environmental damage inboth more advanced and developing countries. For example O’Brien (1993) stresses the verysubstantial water pollution and other damage thatarose from Chile’s mining operations in the earlypart of the 20th century. Today the practices ofmultinational companies and improvements innational regulatory frameworks provide for a muchmore sensitive and managed approach to mining’senvironmental externalities. But environmentaldamage and concerns in communities still exist.The Peru case study stresses that environmentalconcerns are often a result of so-called ’legacyissues’ or ’orphaned mines’, where state-owned or private companies closed down mines in thepast and left environmental damage unresolved.Technical challenges also remain, for examplesolutions to air pollution associated with coppersmelting are technically very demanding. As recently as 1994, Chile’s Codelco had to shutdown the huge Chuquicamata mine for an extendedperiod, because of alleged environmental violationsand excessive fumes. It is only in the relativelyrecent past that Chile has instated coherentnational policies to address environmental issues.

All case study countries have seen significantimprovements in environmental legislation inrecent years. But the main challenges remain withthe implementation and supervision of highstandards. It is from this angle that environmentalissues remain a prime target of criticism of miningcompanies – whether individual criticisms aremerited or not, certainly these issues remain liveas far as public perception is concerned. In Ghanainternational mining companies are still reported toviolate environmental standards, although theseviolations are often viewed as a legacy of oldtechnologies, which are being phased out. The FIAN paper cites three cyanide spills ininternationally owned mines in 2001. It is allegedthat victim communities have not been properly


compensated for suffering loss of water amenityand illness. The major contemporary concerns areassociated with the very large increase in surfacemining activity and related requirements forrehabilitation. Ghana’s Mining Commission has nowimposed tough standards of rehabilitation onmined-out areas. When mining was mainly anunderground activity this issue did not arise.Multinational mining companies argue that they arebearing a disproportionate burden of enforcementrelative to domestic firms, because they areproactively trying to comply and also pay fines39.

Tensions with Artisanal MiningLinked to both conflicts over land rights andenvironmental damage is the tension betweenlarge-scale capital-intensive mining and artisanalminers, involving thousands of mainly young males.The driving force behind this tension is often high(youth) unemployment due to lack of alternativeeconomic opportunities. The informal miningsector has a high absorptive capacity for unskilledlabor and with a low import content it makes a bigcontribution to the sector’s overall net foreignexchange earnings. This is especially the case forGhana’s galamsey mining. On the other handinformal mining is also responsible for significantenvironmental degradation40.

There have also been high profile cases of theforcible ejection of artisanal miners fromconcession areas held by mining companies andclaims of serious injury from these actions in somecases, for example in Tanzania. Whether theindividual allegations are substantiated or not, thelarge international companies tread a fine linebetween, on the one hand providing technical helpto any artisanal mining that is legal and, on theother dealing with incursions of the illegaloperators onto their concessions. Similarly thedegradation of rehabilitated mined-out areas byillegal activity has been a bone of contention wherethe companies have sometimes borne the brunt ofcriticism. In general the mining companies are

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39 For discussion of the proposed Integrated Strategy that emerged fromthe Extractive Industries Review, see Liebenthal et al (2003). 40 The OED report notes that there are thousands of abandoned pits inmineral-rich areas in need of restoration. The stock of such degradedland increase every year and there is every prospect that the scale ofartisanal mining, and the damage associated with it, will increase furtherin future. Additionally the working practices are extremely harmful to theparticipating miners. This is because few if any precautions are takenagainst the inhalation of the dust particles that arise from the crushing ofthe rock, nor in the handling of the highly toxic mercury that is used toseparate gold from the ore. Furthermore, much of the artisanal miningoccurs in unsupported and unsafe mine shafts: the risk of injury anddeath is high. Child labor is reported as “not uncommon”.

reluctant to give help and support to the artisanalactivities in their concession areas, but there are afew examples of where such responsibility is takenon at least in part.

Preparing for Mine ClosureProspective mining closures are a source ofconsiderable community anxiety. The case studieshave seen this most clearly in Ghana, where anumber of closures have happened in recent yearsand have been the source of much difficulty. Mining companies in Peru are also conscious of thesocial and economic impact that mine closure willhave on the local community. Some companies areactively trying to prepare for this, both in terms ofenvironmental rehabilitation (e.g. reforestation and pastoral use) and in terms of socialsustainability of community projects supported bythe mining industry. The indication from Ghana isthat effective structures are not in place toanticipate closures sufficiently early and to developeconomic programs to minimize their disruptiveeffects. This was also an area of work that theOctober 2005 workshop defined as a priority forfuture action in other country contexts.

5.2 Governance Structures: Causes and SolutionsThe six issues discussed above are linked to avariety of causes. Certainly, it would be an over-simplification to associate them with any singlefactor or to pass general judgements ongovernment policies, company practices andcommunity concerns. However, the four casestudies have all shown that the risks that theseissues pose for the success of mining, (particularlywith respect to conflicts with communities) hingeon the institutions and structures through whichcentral government mediates between differentpolitical and administrative entities, businessinterests and community concerns, eithersuccessfully or unsuccessfully41.

In this context, Chapter 3 has stressed that much ofthe ongoing debate on the economic and socialbenefits of mining investments now focuses on thequality of governance. In recent years, all four casestudy countries have seen improvements ingovernance indicators as measured by the WorldBank. However, the case studies also show that it

‘Today the practices ofmultinational companiesand improvements innational regulatoryframeworks provide for a much moresensitive and managedapproach to mining’senvironmentalexternalities.’

is difficult to imply that there is a clear linearprogression along which governments improvetheir governance from bad to good. Nor is it thecase that it is solely up to central government toimprove the quality of governance. Sometimespolitical dynamics appear to require trade-offsbetween one aspect (or level) of governance andanother, and there is more than one way in whichsuch trade-offs are struck in practice. It is alsoclear that the sort of political developmentsthrough which countries like Chile have achievedhigh scores on governance indicators in later years, would not have earned them good scores in earlier years.

In the cases of Ghana, Peru and Tanzania still low (2004) scores on the quality of governance42

depict clear ongoing weaknesses in governancestructures. These are in turn related to the politicaland social challenges that those countries arefacing in mediating between different interestgroups, building national consensus andovercoming collective action problems that restraineconomic and social development. Case studieshave shown that many of these challenges arefaced at the sub-national (often the very local)level. They have also shown that in the context ofsuccessful macroeconomic recovery programs,public sector and financial management reformshave paid insufficient attention to this level.


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41 Some of the issues are about revenue distribution broadly conceived(e.g. compensation for resource rent and for ground damage, the rentdistribution as between different tiers of government and the paymentsnecessarily made by companies to secure their explicit and implicitlicenses to operate). We have not used this here but the approach isdiscussed in McPhail (2002). 42 World Bank governance indicators.


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Ghana

Calls by local NGOs that mining is under-taxed compared to taxregime applicable inearlier decades

Some mining revenuere-allocated throughMinerals DevelopmentFund, but practicalresults aredisappointing.Administrative andpublic financialmanagement at thesub-national level isinsufficient

Local complaints that areas covered bymining concessions aretoo large and threatenlocal communities’livelihoods. Conflictswith agricultural/pastoral land use andresettlement

Environmental abusemainly in the past, thusenvironmentallegacies.Improvements inlegislation andpractices in recentyears

Conflicts with galamsey mining, bothlinked to contentiousproperty rights andalso the negativeenvironmental impactof such mining

No concept for mine closure and economicand socialsustainabilitythereafter

Tanzania

Little local knowledge of actual tax regime leadsto claims that foreigncompanies make largeprofits and pay little tax

Central government does not hypothecateany mining revenue tosub-national levels.Public financialmanagement at sub-national level is notstrong, but has beensteadily improving sincethe introduction of adecentralization processin the late 1990s

Conflicts with agriculture and pastoralland use. Questions ofresettlements. Alsoconflicts with artisanalminers over access toland not being activelyused by miningcompanies

Not a major current priority except foroccasional sensationalaccusations of poisonedmine water beingreleased with badeffects

Conflicts with artisanal mining, to the extent offorceful removal ofinformal miners fromconcession areas

Not an issue at present, as the sector is veryyoung

Peru

Recent introduction of mining royalty for thebenefit of regionalgovernment anddiscussion on re-negotiation of taxexemptions grantedearlier

Reallocation of substantial amounts ofmining revenue throughCanon Minero to sub-national mining areas.Politicization ofredistributionprinciples withoutguarantee that betterresults will beachieved. Localadministrative andfinancial managementcapacity is weak

Mining legislation conflicts withtraditional claims overland/mountains. Someconflict withagriculture/pastoralland use

Environmental legacies and various pastincidences ofenvironmental abuse.Improved legislation,but problems withenforcement ofregulation

n.a.

Some encouraging thinking onenvironmental andsocial sustainabilityafter mine closure fornew mines. Uncleargovernment policies to support this

Chile

Recent debate in Chilean Congress whetherforeign miningcompanies are under-taxed

n.a.

Less likely that land conflicts arise due tolocation of mining indesert areas althoughlimited conflicts haveoccurred in other partsof the country

Environmental legacies and various pastincidences ofenvironmental abuse.Improved legislation

Insignificant, small scale mining tends to be partlymechanized

Not an issue at the moment

Adequacy of the Tax Regime

Allocation of Resources

Conflicts over land use/rights

Environmental damage and anxiety

Artisanal mining

Mine closure

Table 8: Problematic Issues


placing a stronger emphasis on local governmentaction. They impact more directly on the livelihoodsand economic opportunities of those living in thevicinity of mining activities. But again they relate tothe key areas of governance as listed above – socialcohesion, basic public service delivery and privatesector development. New mining activities createmany local challenges. Population numbers arelikely to increase, giving rise to a need for newinfrastructure to meet the extra demands onhousing, water supply and sanitation. Mining, andespecially open-pit mining, produces physicaldamage however carefully it is conducted. Largenumbers of people are likely to be displaced fromtraditional economic activities, includingagriculture and pastoral land use. Mines also havea finite life, requiring local communities to usetoday’s prosperity (based on mining) to buildeconomic capacity that can mitigate the loss oflivelihoods and other benefits once the minesclose. The link to central government is indirect,mediated from bottom-up through the country’spolitical-administrative and its legal and regulatorysystem.

The second axis of the taxonomy specifies thefollowing five higher-level characteristics ofefficient governance:• State Strength: legitimate and capable state

authority at all levels of government. This includesa government whose policy decisions are credible and broadly accepted, and an administrative apparatus than can implement these policies;

• Limits to State Strength: institutional checks and balances that support the legitimacy of government and the professionalism of the administrative apparatus and guard against the abuse of state power at all levels of government;

• Compatibility of formal and informal institutions, rights and rules;

• Legitimacy of formal economic institutions supporting a stable economy;

• Technical capacity: of the public sector, the civil service and policy decision makers at all levels of government.

The discussion in the next few paragraphs bringstogether relevant issues from the two axes of thetaxonomy.


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Aggregate governance indicators do not distinguishbetween different tiers of government and thusshed little light on how weaknesses in publicauthority reach down the vertical government chain and impact on the overall quality of thegovernance system43.

Table 8 briefly summarized the six problematicissues across the four case studies. The reminderof this Chapter then analyzes these issues byapplying the (revised) governance taxonomy of theResource Endowment Toolkit. The emphasis lies in building our understanding by exploring thesimilarities and differences in institutions andgovernance structures across the four countries.

The revised governance taxonomy of the ResourceEndowment Toolkit is presented in acomplementary report to this Synthesis Report.The taxonomy involves two main axes. The first ofthese identifies certain critical cross-cutting areasof governance, namely:• The Legal and Regulatory Framework• The Political-Administrative System• The Fiscal Regime and Economic Policies• Social Cohesion and basic Public Service Delivery• Private Sector Development

All six problematic issues as shown in Table 8 cutacross more than one of these five areas ofgovernance. However, there may be a pattern ofaffinity. For example, whether the tax regime andthe resources allocation systems are adequate ornot are questions that are posed at the center ofgovernment. They affect both the Legislature’sapproval of fiscal legislation and the public financesystem governing the actual use of public funds.There are also links to social cohesion, basic publicservice delivery and private sector development.But these links are indirect and mediated from top-down through the country’s political-administrativesystem.

Similarly, the questions on conflicts over land,environmental damage, artisanal mining and mineclosure are of more immediate local concern,

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43 This point is also stressed by Kaufmann, Kraay and Mastruzzi (2005):Governance Matters IV: Governance Indicators for 1996-2004, WorldBank, 2005. Kaufmann, Kraay and Mastruzzi find that while there is astrong link between a country’s score on governance indicators andincreased per capita income “these aggregate indicators need to becomplemented by in depth, in country, governance diagnostics based onmicro surveys of households, firms and public officials. There is need tostress reforms in transparency, altering incentives to institutions to focuson prevention and deterrence, and working more closely with other keyactors, including the heretofore neglected private sector”.

Formal economic institutions and technicalcapacityFirst, there is one clear area of commonality across all four countries: With economic recoveryall four countries have been able to put in placeformal economy institutions and aggregate fiscalregimes that guard the essential requirements of a stable economy. This includes broadly soundmacroeconomic policies, reasonably low inflation,stable exchange rates and aggregate fiscalsustainability. Technical capacity has beenimproved in key organizations, such as centralbanks, and ministries of finance, and also inspecialist agencies targeted at governing particularaspects of the economy (e.g. utilities). Governmententities that govern the mining sector and managemining concessions have generally also beenstrengthened. On the other hand while technicalcapacity has improved at the central governmentlevel, capacity building has not necessarily beenachieved to the same extent at the sub-nationallevel. Most noticeably this applies to fiscalmanagement, general public administration andlocal level political decision-making processes.

In the case of Ghana the analysis of the local public finance system suggests to the consultantsthat the system is less well equipped than it couldbe to deal with the issues raised by the presence of significant mining activities, although at thenational level the reforms of public budgetmanagement have been impressive. Theseimprovements have not extended to the local level,where the prospective increase of the number ofsurface mines will pose significant challenges inthe next few years.

Problems with the mitigation of local challengesassociated with mining arise in part from theMineral Development Fund (MDF), the notional keyinstrument to respond to problems caused bymining. First, it releases funds on a relatively smallscale and second, in an unpredictable fashion44. As a result local action is less good than it might bein relation to conflicts over land use, environmentaldamage or the creation of alternative economicopportunities. In this situation, mining companiesoften feel the obligation to provide services to fillshortfalls through additional, but discretionarycontributions (to schools, hospitals etc).


But the inadequacies of the MDF would not matterquite so much if the general system of local financeand public administration could provide a firmerbasis for government responsiveness to communityconcerns and for local financial self-sufficiency.Local political, administrative and financial systemsprovide relatively poor basic services, even wherethe local (mining) communities are hostingindustries generating several hundreds of millionsof dollars of income every single year: the scruffyappearance of Tarkwa and Obuasi is frequentlymentioned. The problem is often that local fundingcomes through a variety of grant sources, whichdepend on a chain of centralized decisions (bygovernment and donors), which are insufficientlyresponsive to local needs.

For example, Ghana’s Heavily Indebted PoorCountries (HIPC) Fund covers very substantialamounts and should explicitly be targeted to’poverty alleviation’. They also have ’environmentalsustainability’ as an important subsidiary objective.However, there seem to be no mechanisms in theGhana Poverty Reduction Strategy (GPRS) to connectthese funds in any reliable manner to the specialneeds of communities affected by mining. In themost recent GPRS Annual Progress Report it isdifficult to find any mention of mining as an issue45.

The Peru study also observes that the reforms ofthe 1990s clearly improved technical capacity in key economic institutions and semi-autonomousspecialist agencies. However, the consultant teamfelt that administrative and financial managementsystems in the districts, provinces and regions stillleave much to be desired. Political change at theonset of the 21st century has set in motion adecentralization process, which has changed thepolitical dynamics within and between Peruviangovernment organizations and with respect tovertical accountability between the electorate, theCongress and the Executive. This shift of the powerbalance has facilitated greater lobbying ofCongress by local regions, provinces and districts.However, as local capacity remains weak, much ofthis lobbying seems unfortunately to be poorlyinformed by strategic thinking about priorities. The decentralization process has been leftsomewhat incomplete. Halfway decisions havecreated a confused picture concerning the overlap

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44 The rather diffuse allocation formula for mining royalties does notprovide enough resources to effectively address the purpose for which theMDF was first set up. Some parts of the allocations also serve to supportthe trappings and lifestyle of some leaders of traditional stools ratherthan being used to help the local communities.

45 That Report acknowledged that the Districts found HIPC funds timelyand useful for development because they are readily available in DistrictHIPC accounts so that projects can be executed rapidly and contractorspaid promptly. However, it also acknowledges that the whole processcould be significantly enhanced to increase the developmental impacts.

impact of reallocated funds remains unsatisfactory.This in turn heightens communities’ anxietiesabout the impact of mining operations on theirlivelihoods and employment opportunities.

It is entirely plausible to assume that in itsrelatively recent past Chile has also lackedtechnical capacity at the sub-national level.However, it comes out very clearly in the Chilestudy that the significant poverty reduction hastaken place through increased employmentopportunities and not through redistributivemeasures. Sub-national revenue distribution (as inGhana’s MDF or Peru’s Canon Minero) does notfeature as the key channel to achieving a morepositive socio-economic outcome. Yet Chile is themost successful of the four cases, and this arguesthat the revenue re-distributions should possibly be de-emphasized in the longer-term. In the short-term a strong emphasis on such redistributivearrangements seems mainly motivated by theshort-term desire to ‘show’ one’s contributions tounsatisfied local communities, with the unintendedconsequence of sometimes undermining longer-term objectives. Tanzania, as a relative newcomer,currently faces similar challenges, not least in thecontext of a decentralization program that seeks tobuild greater local government authority. However,there are differences in the other three aspects ofefficient governance that could also explain whyproblematic issues affect the four countries indifferent ways.

State strength, its limits and the compatibility ofinstitutions and rulesThis section argues that apart from Chile, the casestudy countries all grapple in one way or anotherwith the problem of state strength and limits tostate strength and with the associated compatibilityof institutions, rights and rules. Since the transitionto a civil government in 1990 Chile has achieved anapparently sound balance between the differentaspects of efficient government, and this hasallowed the country to achieve easily the highestscores on the World Bank’s governance indicators.Social and political conditions in Peru and Ghanastill need further efforts to improve the overallefficiency of governance structures, and this is alsothe case in Tanzania. However, Tanzania’s tightparty organization and internal party accountabilitycould set somewhat more favourable conditions tostrike the balance in the future.

‘without strongeradministrative andfinancial managementcapacities at the locallevel, the developmentalimpact of reallocatedfunds remainsunsatisfactory.’

of responsibilities between central governmentagencies, in particular sector ministries, andregional government. Where responsibilities havebeen transferred, they often lack adequate andpredictable funding.

Some aspects of the redistributive system of theCanon Minero show similarities to the Ghanaiansituation. As noted earlier the Canon Minero isprogressively placing more revenues at thedisposal of sub-national governments, but thecapacity to handle these funds has not beendeveloped as fully as it might have been. Localexpectations regarding higher spending are raised,but the predictability and certainty of these flows is not guaranteed. Neither is there much evidenceof systematic improvements to local capacity todesign and implement social and economicdevelopment strategies to use these fundseffectively. The incompleteness of this processleaves much space for a populist call for re-allocation and for serious backlashes of publicopinion when expectations are disappointed.

In summary, in Ghana and Peru the lack oftechnical capacity at the sub-national levelimpinges indirectly on the problematic questionsaround the allocation of resources, including thosearising from mining investments. In both countriesinstitutional mechanisms (MDF and Canon Minero)have been established which are in theory designedto compensate affected communities for theadditional challenges that they might face becauseof the presence of mines. But without strongeradministrative and financial managementcapacities at the local level, the developmental


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46 ’Necessary’ ,that is, given the chaos in governance that precededRawling’s assumption of power.

‘Where rights areaffected, the issue ofadequate compensationfor losing them iscrucial, particularly ifresettlement isrequired.’

In Ghana, the early stages of the Rawlings reformsin 1983 were inherently (and probably necessarily46)centralizing in nature given the failed state thatpreceded them for much of the 1970s. A strongstate was built at the center of government and key reform decisions were relatively easily made by a limited set of actors. However, centralizingtendencies have persisted as poverty and themanagement of large HIPC funds have acquiredmore influence since the late 1990s. Donor programshave tended to put emphasis on improving politicaland administrative capacity and accountabilityinitially at the center.

Today the Ghanaian state still seems to facedifficulties extending public authority down thevertical line to local government entities. Regionsdo not posses regional government authority and atthe level of districts and municipalities, authorityoverlaps with traditional stools. Neither of theseentities seems to the consultant team to haveadequate formal powers, capacity or resourcesfully to address local economic and socialconcerns. The focus on central government alsoapplies to the emergence of a more democraticsystem. Whilst the electorate has been given amore genuine voice in national elections, it hasgained less influence over the decisions of localpolitical power holders. So while the Ghanaianstate may exercise a strong presence in the capitaland other urban centers, it is less effective at locallevel. In these circumstances it seems that localcommunities where mines operate continue to seemining companies – rather than local government– as their dominant development partner, forfinance, management and technical support.

Tanzania is in a somewhat different and also amore favourable situation in that traditionalpolitical structures have been dismantled and nolonger compete significantly with local governmentauthorities. Since the introduction of thedecentralization process in the late 1990s thesearrangements have also been subject to variouslocal-level capacity building initiatives. A recentstudy funded by the Department for InternationalDevelopment (DfID) finds that the strong remains ofthe former one-party structure represent animportant source for holding local governmentofficials to account. This continues to provide amechanism to exercise government authority but


also to limit executive strength countering thepotential abuse of power47.

The situation in Peru is again not dissimilar to thatin Ghana. The political-administrative system hassupported a strong executive with the ability toreform and change economic and other policiesfrom the center, but often to the detriment ofpolitical legitimacy. Certainly this was the situationthrough the 1990s when Peru’s economicturnaround was achieved. The Fujimori governmentimplemented change (successfully in manyrespects) not through an efficient administrativeapparatus, but through central authoritarian rule,and as advised at the time, through the creation ofsemi-autonomous government agencies thatfunction as islands of efficiency against thebackground of an otherwise unreformed publicsector. During the more recent periods ofdemocratic rule, governance in some dimensionsseems to the consultant team to have deteriorated.In the absence of efficient institutions andgovernance structures, there has arguably beenplenty of space for short-term populist demands to compete with and often override coherent long-term development perspectives. In theFujimori years it would appear that centralgovernment strength counterbalanced generallyweak state authority and legitimacy until theabuses of executive power became manifest andput pressure on political reform to return oncemore to a civil government. It is noticeable that themost vigorous push in state capacity buildingbeyond the borders of the capital, Lima, took placeduring the period of the leftist military regime inthe late 60s and 70s.

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47 DfID (2005) Understanding Patterns of Accountability in Tanzania, FinalSynthesis Report (unpublished document: OPM, Chr. Michelsen Instituteand REPOA).

to face challenges in implementing policies that arenot deemed to be legitimate. Thus, although formalinstitutions, rights and rules may make perfecteconomic and legal sense, if there is not a generalbuy-in to their legitimacy they are likely to becontested or overridden by more powerful informalarrangements. This proposition is clearly centrallyimportant in relation to conflicts over landuse/rights, conflicts with artisanal mining andenvironmental concerns. It has been demonstratedin the case studies of Peru, Ghana and to a lesserextent Tanzania. In Chile the country endured anextended period of authoritarian rule that enforcedunpopular policy changes through coercive means,reaping the full economic and social fruits onlywhen the transition to democracy had succeeded. A difficult question is to what extent the conditionsfor that particular economic success are replicablein other mining countries. In particular, how canthey be obtained without the negative aspect ofcoercive government authority?

The Peruvian case study quite strikingly noted that all the significant changes in mining legislationhad come about by executive decree. In the othercountry cases those same decisions were similarlyhighly centralized. This was readily justified at thetime in all cases. However, problems can obviouslyarise when internally weak states lack positiveauthority and legitimacy to enforce such rights, but also if they do not guarantee adequatecompensation and alternative economicopportunities (for those who lose land and otherresources). To simulate alternative economicopportunities requires state strength in terms ofthe ability to enforce complementary reforms,which at first may also be unpopular withparticular constituencies (e.g. agricultural landreforms or redistribution of rents from licensing).In turn compensating for the consequences of such measures requires limits to state strength,such as legal certainty over entitlements.

Where rights are affected, the issue of adequatecompensation for losing them is crucial,particularly if resettlement is required. Wherealternative economic opportunities are not crediblyin sight, conflicts are also most likely to emerge.These challenges require adequate capacity toanalysis, anticipate and plan in the relevant local(not central) authorities. It also calls for an assuredrevenue stream to finance the demands placedupon the communities by the presence of mining as well as coherent and accepted strategies to

In the case of Chile contemporary successes areshaded by a very different political history in the1970s and 1980s. Many economic andadministrative reforms were initiated andimplemented under the rule of the Pinochetgovernment that applied coercion and abandonedmany principles of good governance whenopposition arose. Many of the benefits of thesereforms (e.g. agricultural reforms) were not reapedimmediately, but only once political confrontationshad somewhat settled. The country’s economicsuccess gathered strength after the transition todemocracy. The particular institutions and politicalprocesses through which the country has sincebeen governed by different coalition governmentsare known to have contributed to improved nationalconsensus-building around diverging interests.These arrangements have certainly includedinstitutional limits to state strength. They have re-established civil government but have alsoprevented the politicization of policy decisions.Economic success has led to a parallelimprovement of living standards, mainly throughthe creation of employment opportunities. By themid 1990s Chile’s scores on governance indicatorshad improved to an already remarkable level.Those scores were almost certainly far lessimpressive a decade earlier when the miningrecovery began48.

In Tanzania the balance between state strengthsand limits to that strength may not function asideally as in Chile, but it would appear that thechecks and balances that are exercised within theorganization of the ruling government party couldserve as a safeguard against an economicallydestructive decision.

The question of whether governance structuresachieve a successful balance between statestrength and limits to state strength at all levels ofgovernment impinges also on the compatibility ofinstitutions, rights and rules. Unless coercivemeasures are used governments can always expect


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48 Also in Peru and Ghana it appears to be fundamentally difficult toestablish governance structures and policy processes that manage tomediate between different political, economic and social interests groupsand to overcome collective action problems. In this context the questionaround the adequacy of the tax system takes on a different tone than itdoes in Chile. In the case of Chile the country’s well-engaged legislatureis discussing whether a different balance could be struck betweencompetitive incentives for the industry (which according to the Fraserindex are very favorable) and the country’s sovereign right to taxeconomic activities for the purpose of funding public spending. While thisrethink may not serve the interests of the industry, there is less of a riskthat the debate will be politically exploited and undermine the financialviability of the industry. Arguably, in Ghana and Peru this risk is greater.

accommodate to change.

It is a particular problem if state authority is soweak that it is absent. This has transpired in thePeru study regarding the widely acclaimed’Dialogue Table’, which initially had beenconsidered a good example of how to resolveconflicts around land issues49. State authority isvital to overcome collective action problems, such as the one illustrated by this example. The Ghanaian malfunctioning of the MDF shows asimilar dilemma linked to overlapping authoritiesof local government authorities with that oftraditional stools: neither of the two serving as adecisive institutional focal point to resolve differinginterests between business and communities.

SummaryThe four case studies illustrate that the amounts of resources received by either central governmentor sub-national government entities are only partof the story of why the major identified problemswith mining arise and then fail to get resolved. A particular mechanism of funds allocation is noguarantee that local communities receive actualbenefits from those funds. To the contrary it canalso lead to heightened expectations that cause the politicization of policy decisions whendisappointment unfolds. This in turn can make iteven more difficult to establish constructive andstrategic consensus about how governmententities, companies and communities should worktogether to employ the revenue and economicopportunities that mining operations generate forthe achievement of sustainable development goals.

Although this section has concentrated on capacityissues at the level of government, the October 2005workshop participants drew attention to someparallel capacity problems in influential donoragencies such as the World Bank as well as in thecompanies themselves.


5.3 Sequencing and Targeting of GovernanceReformsThe four case study countries have all achieved asuccessful resurgence of their mining industries inthe past 10-20 years. This has been associatedwith, and certainly concurrent with much bettergeneral economic performance and, in at least twocases, with substantial improvements in thepoverty and social welfare profile for the country asa whole, especially in the mining-affected regions.However, the case studies have also shown that thegovernance structures and institutional deepeningnecessary to extend the benefits to a broadspectrum of society and eliminate the mainnegative effects have in most cases been leftincomplete. In particular, regional and localgovernments have not been equipped withadequate sources of finance, with reasonabledegrees of democratic legitimacy bestowed by theirlocal populations, and with the necessary technicaland management capabilities to evaluate andimplement solutions to address specific localproblems where these have arisen.

Two important inferences can be drawn. Firstly,attracting mining investments can help reforminggovernments of erstwhile weak states to kick-startmacroeconomic performance and income growth.(In fact they may be amongst the few availableoptions for this critical task, since such statesinvariably face problems attracting other sources of FDI, for which longer-term and deeperinstitutional changes may be needed). Secondly,however, such an approach needs eventually to be matched by full governance reform if all thepotential social benefits from mining are to berealized, and all the potential downsides to bemitigated.

Although there is both good and bad news in theseresults, the thesis that the case studies collectivelysuggest is that mining investments in countrieswith proven mineral capacity represent a potential’early win’ for reforming governments of erstwhileweak states that have committed their countries toaccept higher levels of private sector activity inorder to build incomes. The counter propositionthat such states have the luxury of choosing from awide range of productive sector activities for theirearly new investment is readily rejected. Thatwould require a far larger gamut of economicpolicy, governance and institutional reforms thancan feasibly be delivered by weak (albeit reforming)administrations.

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49 Communities and BHP Billiton have signed an agreement in which thelatter committed to return to the communities land equivalent to theamount of territory that was expropriated by the state and acquired by the company, plus an additional 25 to 50% of land depending on thequality of the land. It also most importantly provided for an annualcontribution to local development projects on the part of the company of3% of annual pre-tax profits or a minimum of $1.5 million. In spite of this agreement, new conflicts and demands soon arose, with over 2000people storming administrative buildings demanding that the $1.5 millionannual investment in social infrastructure agreed in 2003 should beincreased to $20 million.

a similarly benign manner. The decentralizationprocess has involved significant shifts of poweraway from a previously stronger central executive,but there is not much evidence that capacity at thelower tiers of government and the quality of thelegislature’s decision making process haveimproved. With a less fortunate democratic historyto look back to, current governance structures inPeru still seem to the consultants to leave muchroom for populist ad hoc decisions substituting fortrue strategic decisions. In Ghana, the politicaldynamic still seems to the consultants to leave too much authority at the center and to under-represent the needs of local government: againlocal development strategies suffer. The Tanzanianexperience provides an interesting contrast asaccountability of central government down thevertical chain to the local level appears to beexercised via a still-strong and unifying partystructure. (See Tanzania accountability study ascited earlier).

5.4 The Conditions for Enhanced OutcomesThis synthesis report does not claim that all theproblems and criticisms of mining in ’successful’countries would be neatly resolved if the missingelements of governance and institutions were to be remedied: even if there were some simple wayto address them. But it seems fairly clear thatsome of these problems could largely be resolved. This perspective raises doubts about some of theapparently straightforward solutions that othershave suggested to redress the problems associatedwith mining.

For example, one recommendation that iscommonly heard is to ensure that localcommunities receive sufficient benefits fromextractive industry projects (presumably meaningbenefits over and above employment, procurement,and the direct income gains that always arise frommining). Such a recommendation easily leads to theidea of explicit revenue sharing with localcommunities, and to the requirement that miningcompanies engage in consent processes with localcommunities etc. But the analysis from the fourcase studies suggests not only that some of this isfar too prescriptive, but that it also ignores the keypoint that in the absence of local governmentcapacity which has the support of local populationsand is also able to mobilize reasonable technicalcompetence, the outcomes of suchrecommendations are at best unpredictable (videPeru). Some such recommendations also imply a

‘mining investments can help reforminggovernments oferstwhile weak statesto kick-startmacroeconomicperformance andincome growth.’

Chile has achieved the broadest improvement ingovernance structures and institutions of all fourcountries. Arguably, that country had the advantage of returning to a comparatively longdemocratic history once the deep politicaldifficulties of the 1970s and 1980s had beenresolved. The implementation of substantialagricultural reforms also helped Chile tosignificantly diversify its productive base. To datePeru, Ghana and Tanzania have struggled to showsimilar results. However, if mining can be madeinto a viable commercial proposition with only aminimal package of economic and governancereforms (as the evidence from Ghana, Peru andTanzania would suggest) then there is an obviousneed to be alert to the problems that will arisebecause important aspects of governance cannotbe instantly put into place. The aim is not to ignorethese aspects but to actively try to put them inplace, as the economic benefits of mining activitiesunfold.

The evidence in general suggests that centralizinggovernments (such as those of Fujimori, Rawlings,Pinochet) are unlikely to give much ’voice’ let alonereal influence to the public at large except on an ad hoc basis – i.e. favouring particular supporters,factions or ethnic groups. In Chile many of thecrucial reforms were enforced under theauthoritarian Pinochet government. But sincedemocracy has been restored governancestructures and political processes have evolved toachieve policy outcomes that now balance diverginginterests and overcome potentially destructivecollective action dilemmas. In Peru it is lessobvious that the country’s governance is evolving in


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‘This synthesis reportdoes not claim that allthe problems andcriticisms of mining in’successful’ countrieswould be neatlyresolved if the missingelements of governanceand institutions were to be remedied: even ifthere were some simpleway to address them.But it seems fairly clearthat some of theseproblems could largelybe resolved.’

presumption in favour of hypothecating someportion of minerals revenues. However, as we haveseen, two of the four case study countries haverejected such an approach for what appears to bean entirely legitimate reason, namely that hostmining communities are relatively prosperous andthat public funds would be better spent elsewhere.In one case in particular, namely Chile, there areno special tax regimes lying behind the broadbased economic and social successes of the miningregions.

To put the point in a different way, the case studiessuggest above all that there are no simple’governance’ solutions. Centralized governmentmay be inevitable and also defensible in the earlystages of the reform of weak states. The improvedgovernance that is relatively easy to enforce viadonor conditionality is almost certain to becentralising in nature. Some of the more difficultsteps may require long evolutionary processesrather than ’big-bang’ decisions and enforcement.But even if excessive centralization is avoided, local government may not be representative of thecommunity, and the community and its legitimate’representatives’ may be genuinely difficult toidentify. Moreover, the community changes overtime and so do its values and aspirations. Mininginvestments will likely insert themselves into thecountry while various aspects of the country’sgovernance are incomplete or unsatisfactory. But if, as demonstrated in these four cases,economic and social benefits are availablenonetheless, the challenge for all parties is todesign the actions that will make the most of thissecond-best situation, and not reject the gains that can be achieved. It is this contingent policyformulation that is the subject of Chapter 6.


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Implications forCompanies, Governmentsand Donors

6

6.1 IntroductionAfter the completion of three of the four case studyreports, the study teams sought collectively to distilthe main implications that emerged for the keypolicy-makers – governments, companies anddonors. Although the insights obviously differacross the four cases, there is sufficientcommonality to present them as a set of pointersfor possible future actions that are likely to apply toa variety of mining countries. It is emphasized thatnone of the three parties listed are likely to be ableto unilaterally mobilize the various actions thattogether can enhance the socio-economic impactof mining. In most cases partnerships of varioustypes are called for.

This Chapter is organized by theme beginning withlocal economic development. A convenientsummary of the ideas that have been worked out isprovided in Table 9 at the end of this Chapter. It isemphasized that all these ideas emerge from theconsultant case studies and are not necessarilyshared fully by the ICMM. They are presented atthis stage for discussion in order that they can beprogressively refined as a set of possible guidelinesfor future policies.

6.2 Mining and Local Economic DevelopmentCompaniesThe analysis of the case studies and especially theresidual problems encountered in even successfulcases, suggest that the boundaries of corporateactions in host countries need to be broadenedrelative to what is currently done in some of thecases. This broadening starts from the propositionrecently advanced by Ian Davis of McKinsey and Co,echoing ideas that can be found in a few muchearlier company policy statements50. He arguedthat in countries where the rule of law and theprovision of basic public services are absent orincomplete, a narrow view of corporateresponsibility (such as the “business of business isbusiness”) can be positively unhelpful. A narrowview that keeps the companies focused only ontheir own business and their formal legalagreements is likely to leave them facing a varietyof criticisms (fair and unfair) of the type that aresummarized in Chapter 5. Getting ahead of theseevents with clear corporate arrangements to headthem off (and not just mitigate them when they


happen) seems to have both business and politicaljustifications. The October 2005 workshop alsobroadly endorsed the view that companies need tobe more ’futuristic’ in their approaches to localcommunities.

From the viewpoint of the risk analysis conductedby the companies, there is a need to extend presentpractice regarding commercial and political risk tobetter understand governance risks. This arisesbecause of the gaps in the institutional andgovernance structures of host countries that thecompanies may be expected to fill. This extensioncalls in turn for a clear ex ante definition of theimplicit social contract under which the companypresence in the local economy is admitted, and notjust of the formal legal contract that will typicallybe struck with central/national government.Arriving at this definition of what is expected of the companies is not easy and there can never beblue-prints given the differences in countrycircumstances. But it will certainly call for a veryclear knowledge of the regional, local andcommunity governance structures that operatewith any authority (and legitimacy) in the areas ofboth the direct impact and the wider influence ofthe mining investment. The capacity of thesevarious levels of government to engage in potentialpartnerships with the mine will need to beassessed, as will the nature of the communicationthat can be employed to foster such partnerships.Alliances with parts of government that lacklegitimacy may be a source of future problems andas such should be approached with great caution.

Once the capacity (and limitations) of the main localgovernance organizations is clear, some forwardlooking arrangements to design and manage thecompany relationship with each of them is alsocalled for. These arrangements need to articulateclearly the limits of what all parties can and willdeliver in any given time frame (how often they will meet, how much they commit to spend oncertain objectives, etc). Transparency will then becritical to ensure that the package of agreements is fully communicated to the various stakeholders.The ideal would be a high level of companyconfidence that anything they agree has thesupport of the community at large and not justtheir supposed representatives.

This will necessitate an early stage assessment(with local bodies and intended beneficiaries) of theconstraints and opportunities for economic

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50 Examples include Titus Salt and the Cadburys. Sir Ernest Oppenheimer,founder of Anglo, said pre-war “The aim of this group is, and will remain,to make profits for our shareholders, but to do it in such a way as tomake a real and lasting contribution to the communities in which weoperate.”

6. Implications for Companies,Governments and Donors

drew attention to one important example namely,to the effectiveness of Chile’s ’Executive Cluster’approach to bringing together differentstakeholders to identify partnership arrangements,procurement opportunities etc.

It is also recognized that the suggestions madehere have important cost implications and also that these costs will vary depending on specificcountry situations. There is no intention to proposea ’one-size fits-all’ approach. Equally it is knownthat some companies have started to think alongsimilar lines to those set out here – thesuggestions, in other words, are not wholly new.

Finally, in this context, the companies shouldinclude their established approaches to enhancinglocal procurement of goods and services – as isdone in for example both Chile and Peru. The building of a sustainable domestic supply chain(national, regional and local) will be far morestraightforward if this is developed in the context ofan overall vision and strategy for local economicand business development.

GovernmentsIt is clear from our case studies that governance insome low- and middle-income countries needsideally to include more reliable and sustainedarrangements for the properly sequenced51

decentralization of fiscal authority to local andregional governments. Decentralization will alwaysbe a difficult political issue, but the insights fromthree of our four case studies suggest that greaterdecentralization, accompanied crucially by thenecessary improvements in local governmentcapacity, would be positive in terms of theenhancement of the impacts of mining projects.The timing and arrangements to build necessarylocal capacities will need careful identification inany particular country and this report does notpresume to define a general guideline about thesematters. Governments will need to work closelywith donor agencies for technical support inbuilding capacity where none presently exists orwhere it is weak.

‘From the viewpoint ofthe risk analysisconducted by thecompanies, there is aneed to extend presentpractice regardingcommercial and politicalrisk to better understandgovernance risks.’

development and diversification in the area inaddition to mining. This assessment should be ajoint effort, preferably involving other miningcompanies in the same area as well as thegovernmental and donor bodies. Where no regionaldevelopment plans exist, serious discussionsshould be held about the further institutionalreforms that might be necessary to establish theseor, where plans do exist but are unsuited toaddress the challenges created by mining, toimprove their relevance and quality. In all casesthis will involve dialogue with all levels ofgovernment and also with donor agencies.

The October 2005 workshop also added the pointthat even well-managed mining companiessometimes employ local staffs that areinsufficiently tactful and respectful of local needsand clumsy in their approaches.

There is no suggestion that mining companiesshould actually undertake regional economicplanning – but they can take responsibility to lobbyfor, and later technically support, its introduction or improvement. There is a growing body ofexperience around the world about how this can be done effectively, and some donors and NGOshave performed effectively in support of well-developed plans. The logic here is that any support– financial and technical – that the miningcompanies can themselves offer in relation to newdevelopment projects will be far more effective ifthese are embodied in a coherent and broadlyaccepted strategy. The October 2005 workshop


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51 Sequencing is critical since decentralization from top-down withoutbottom-up political and administrative capacity building can bedisastrous. Many decentralization programs have stressed fiscaldecentralization at a point in time when central government control was too weak to even monitor the use of earmarked grants sent out tosub-national governments. In such cases fiscal centralization is almost aprerequisite for fiscal decentralization at a later stage. Many specialisttransfer funds appear to suffer from exactly the same problem.

Once the broad strategy is defined, it ought to bemuch easier to define both the desirability and theprecise scope and modalities of specializedtransfer funds (such as the MDF and the CanonMinero) designed in part to compensate localcommunities for the presence of mining in theirareas (i.e. compensation beyond that for which thecompanies accept the direct responsibility in theirformal agreements). In particular the role of suchspecial funds should be clearly specified (e.g. arethey really for compensation or also/instead for’development’). Either way, they will work better ifthey are regarded as specialized auxiliary sourcesof funds to top up those funds that decentralizationprovides to the localities in their own right. The funds and their disbursement mechanismsalso need to provide a predictable and reliablerevenue stream to regional and local authorities toenable them to function as effective developmentpartners.

In the short term the companies and thegovernment will need to work with whateverstructures are already in pace when the mininginvestment occurs. But for the medium and longerterm, serious thought should be given to theestablishment of ‘Local/Regional DevelopmentAgencies’ to coordinate and help realize theeconomic and social opportunities, and buildlonger-term sustainable institutions52. This wouldlikely need to work on a far broader geographicaland administrative scale than some of the existingplanning units in some countries (e.g. regions notdistricts). Again there are good examples fromaround the world of how such agencies can interactwith mainstream central and local government.

DonorsThe donors have played an important and uniquerole in all four case study countries in helping toestablish the economic policy and industryregulatory environments that can foster theresurgence of mining. They need to continue to playthis role as in the past.

In addition there are other traditional donor rolesthan can play a key part in enhancing the impactsboth economic and social. For example, donorsshould continue to support public sector capacitybuilding and transparent/robust public expendituremanagement at all tiers of government. This report


has argued that the balance needs to be shiftedtowards greater attention to the regional and localtiers of government. Donors ought to recognizethat they can become part of the problem if theirinsistence on very tight controls on expenditurescentrally results in less rather than moredecentralization to empower local communities. A longer-term agenda is to build reasonableplanning, financial and implementation capacity atlocal levels, but this does not take away from itsimportance. In situations where local capacityconstraints may initially undermine the potentialrealization of economic and social opportunities,donors should also be willing to develop newfunding and support programs to bring ‘rapid-reaction’ capacity to bear. This capacity could ofcourse interact with the other ideas alreadydeveloped to help achieve faster progress at locallevels (e.g. technical support to any Local orRegional Development Agency).

The case studies have suggested that effectivemining development (with good developmental andsocial impacts) can emerge from incompletesecond-best packages of economic policy andinstitutional reform: this is not to recommendsecond–best approaches but merely to observe thatthey can achieve worth-while gains. Donors areencouraged to try to internalize this idea andassess the consequences for the early stagepriorities – especially as regard the reforms ofgovernance – and the matters that can be left untila little later.

6.3 Mining, Poverty Reduction and SocialImprovementGovernment and DonorsHere the agenda seem to start more logically withthe government and the donors. Both parties areencouraged to take real account of the moreobvious linkages between their mainstream povertyreduction agendas targeted at the achievement ofthe Millennium Development Goals (MDGs) and theagenda, especially for poorer families, in miningregions. Many of the ongoing difficulties in miningareas relate to the difficulties faced bymarginalized groups – small-scale farmers inGhana and Tanzania – once mining extends itsscope. Even in the more successful mining areas ofGhana, we still find less successful groups wherepoverty levels have reduced little if at all. And yetthe two agendas of the donor organizations –poverty reduction strategy support and miningsector support – rarely seem to intersect

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52 Again there is an important sequencing issue. It is more important tobuild and strengthen administrative capacity within existing organizationsrather than to build new institutions without improving the former.

Some companies probably need to be moreexplicitly aware also of the unintended negativeeffects of some policies. Perhaps the mostimportant is the possibility of a local version ofDutch disease as incomes for mining and someother workers go up, but prices for other familiesgo up commensurately without these familiesenjoying the corresponding income gains. This isbest addressed in the context of broad-based andcompany-supported development strategies thatcan in principle incorporate such factors.

6.4 Social Investment and CompensationCompaniesThe companies and their regulators need to makeit very clear what are the areas of disruption tolocal communities for which they are formally and legally required to provide compensation. In addition, companies should also seek to identify,through stakeholder consultation, other areaswhere there may be expectations that companieswill ’step in’. Again this is a part of identifying their’implicit contract to operate’. Even where theseexpectations are unreasonable, or relate toproblems not caused by mining activities,companies are better off by being fore-warnedabout them. The case studies suggest that eventhose stakeholder expectations that areunreasonable still need to be carefully understoodif operations are not to be adversely affected.

If a productive dialogue with local and regionalcommunities can be established (as suggestedabove) then there is a greater chance that socialinvestments can be tailored to meet thesecommunity needs and expectations, and thus havea greater chance of being regarded as a positivedemonstration of company commitment to local

‘However, within theNGO community it canbe noted that churchesand other faith groupsare often the mosttrusted civil societyrepresentatives.’

significantly. Although the anti-poverty strategiesinvariably refer to ’private sector and SMEdevelopment’ the actions involved seem to havelittle connection to the specific needs and potentialof mining areas. Nor do these strategies relate inany very obvious ways to the type of initiatives forlocal economic development that are discussedabove.

So it would seem eminently sensible for bothgovernment and donors to ensure that a strongalignment exists between, on the one hand, miningand economic development initiatives of government(including locally elected government) and donors,and on the other hand poverty alleviation initiativesin general. The availability in the local areas ofmining companies, whose corporate socialresponsibility (CSR) commitments will invariablyinclude budgets for both social and developmentspending, should make this task easier to carrythrough effectively. But again it needs a tripartitepartnership if it is to get off the ground. NGOsmight also be brought into the debate about theprecise nature of the poverty problems and theappropriate modalities for solutions – as indeedthey are now for the mainstream Poverty ReductionStrategy Papers (PRSP). However, within the NGOcommunity it can be noted that churches and otherfaith groups are often the most trusted civil societyrepresentatives. The latter point has beenconfirmed by the recent Tanzania accountabilitystudy and also by surveys undertaken in Peru.

CompaniesCompanies investing in very poor countries shouldrecognize in all their planning that the alleviation of (local) poverty will be seen as one part of theirimplicit contract to operate, even if it is notincorporated in the formal legal agreements.Hence they should try to become well acquaintedwith the specific poverty and social problems oftheir areas of impact and influence: for example,what is the evolving status of the MDG variables?They should also engage at the highest levelspossible in the national and local debates about the improvements that are needed and targeted.Their own CSR spending should treat the effects on the social indicators in their areas asimportant factors to be regularly monitored and communicated to senior management.Wherever possible the development programsdiscussed earlier and worked out with localstakeholders should explicitly articulate the MDGtype gains that might be realized.


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‘Donors could beimportant partners inthis part of the agendaboth in supporting thedefinition of the prioritysocial needs and inproviding supportingfinance to some ofthem’

communities. But the companies need to be veryclear in that dialogue about the distinction between’compensation’ for any harm done and ’socialinvestment’ that is a voluntary contribution to thecommunity’s agreed development agenda.

One area for companies to avoid if at all possible is ad hoc, opportunistic responses to particularcomplaints to try to ’buy-off’ the objections. This can be avoided by a clear and up-frontparticipation in local strategy formulation wherethere is trust built between sides. But thiscomment would not rule out one-off programmaticinvestments with a high rate of social return (e.g. malaria control, AIDS prevention or educationprograms, etc.) that are not associated withcomplaints against the company. It is in any case tobe expected that such issues would arise naturallyin any process of jointly defining local strategy andpriorities.

GovernmentsGovernments both local and national need toremain very aware of, if not directly involved in anysocial investments undertaken by the miningcompanies. Above all, government agencies have tobe the ’nagging voice’ that points out the ongoingrecurrent costs of such facilities and forces allparties to define the long-term sustainabilitystrategies for the services once the miningoperations have closed. This is likely to be donebetter if local governments have trueempowerment as well as some realistic budget oftheir own that they can insert into the provision ofthe services alongside the contributions ofcompanies. For each service the financing andother roles of all parties need to be clearly spelledout as do the arrangements for long-termsustainability.

The government parties also need to be active atthe local and regional level to help establish orfacilitate coherent planning and policyimplementation. This must allow balancedpartnership between companies, local governmentagencies and community organizations includingNGOs. It could also include the introduction of‘high-capacity’ short-term interventions tostrengthen the work of Local DevelopmentAgencies (as suggested earlier).

DonorsDonors could be important partners in this part ofthe agenda both in supporting the definition of the


priority social needs and in providing supportingfinance to some of them – consistent with broader national priorities for health. For example, donors are often well placed to provide a broadoverview of needs and priorities and to help in thedevelopment of national master plans for theimprovement of provision in a particular sectorsuch as primary health care. Both localgovernments and companies providing socialinvestment need at the very least to be aware ofthese overviews and priorities.

6.5 Dispute Resolution and TransparentCommunicationCompaniesThe logic of the preceding paragraphs is thatmining companies can expect a significant pay-off(in both a business sense and a political sense)from organizing their engagement with localcommunities as a core component of themanagement strategies of significant operations(as opposed to a peripheral activity or publicrelations add-on). The large up-front investment in identifying the potential government andcommunity partners and mapping out the likelysocial and other issues of significance in themining area, can be seen as an investment with a future pay-off in terms of far lower social andother conflict with those communities.

Even with good practice in the areas alreadydiscussed however, conflicts will inevitably ariseand will need to be addressed. When they do the

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6.6 Artisanal and Small-Scale Mining (ASM)Government and DonorsThis is one of the most difficult and contentiousissues encountered in two of the case studies –Tanzania and Ghana. But solutions need to besought if the broader sentiments about mining’sperformance are not to be coloured as negativelyas now by this issue in these and similar countries.

The main responsibility must lie with governments.In particular they need to be proactive in providingeffective institutional and policy frameworks formanaging ASM and migrant workforces, in supportof poverty alleviation. The objective should be todraw as much as possible of ASM into a legalframework that provides reasonable regulatorystandards (e.g. for health and safety) whilerecognizing the powerful motivation that drivesmany thousands of young men and women to seekincome through this route. This suggests a varietyof creative mechanisms (e.g. small scale miningcompanies/cooperatives) and work with privatesector to realize opportunities.

Donors can and should help by advising governmentsabout possible alternative arrangements to bestintegrate artisanal and small scale miningactivities into more formal systems and intonational and regional development plans.

CompaniesCompanies need to play a supporting role in orderboth to do what they can to ameliorate the situationfaced by ASM and also to limit the negative impactsthat ASM can have on their own reputations andalso operations. In particular, they should seek to work cooperatively with artisanal and smallscale miners in tandem with government initiatives.At the stage of starting a new investment, thecompanies need to be fully aware of the basis onwhich they are provided with a ’clean title’ to landin their operating license and understand that this could be contentious to some previousincumbents of the land – including artisanalminers. Diplomatic handling of the disputed issues at this stage can avoid the far moredamaging legal squabbles later on. Once mining is underway they might consider fostering growthof organized small-scale mining companies/cooperatives to work on more marginal (for large-scale companies) deposits, and provide capacityand technology support as well as seed funding as a part of their overall contribution to localeconomic development.

following suggestions are relevant:• Make available and publicize ways in which

communities can express concerns to mining companies, and make these confidential if necessary,

• Integrate credible dispute resolution mechanisms from the early stage of development of the mine’s development and start-up,

• Link dispute resolution to local trusted and legitimate institutions (where possible) to enhance credibility. Do not rely exclusively on national institutions especially where the governance gaps are significant or where national institutions command limited respect,

• Structure all communication arrangements to support the broadest possible base of participatory development, with frequent face to face discussions and a broad stakeholder base, and

• Engage in open and regular dialogue to communicate a balanced perspective on the contribution of mining to economic and social development (e.g. with government, donors, and communities).

Governments and DonorsThe national government has the ultimateresponsibility for ensuring that disputes, when they arise, are handled with due process.Government can help in this by adoptinginternational best practices where they exist (for example, World Bank guidance on resettlementof communities), and for disseminating relevantinformation to all affected parties in a structuredmanner. If local and regional governments are trulyinvolved as respected partners in the routinedialogue between the various stakeholders, theyalso have a responsibility for confirming all theagreements that were entered in to by thoseprocesses.

DonorsThe donors probably have a smaller role here butcan use their good offices to bolster the actions ofgovernment as just listed. Above all they shouldhelp to ensure that there is ‘space’ to identify,document and resolve disputes within legitimatepolitical institutions. Donors also have a role indeveloping capacity in dispute prevention andresolution techniques, for example through thepreparation of guidance documents and provisionof training.


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‘The mining companiesneed to examine theirown abilities to workwith relevantcommunities on theground, with particularattention to howdifferent companies inthe same country mightact together moreeffectively to achievesound communityoutcomes.’

6.7 Moving Towards ImplementationThe October 2005 workshop was extremely helpfulin identifying some of the elements that might beneeded to move these ideas closer to practicalimplementation. It was argued that much of what isproposed is already being put into action by therelevant stakeholders at least in some countrycases. Hence the issue is not to start afresh but tore-inforce and communicate good practice morewidely across countries and companies.

There was a broad agreement that the processneeds to be articulated on at least three levels,namely: International (with organizations such asICMM and the World Bank playing key leadershiproles); the National level (with closer cooperationbetween chambers of mines and organizationssuch as social development funds); and at theregional/district level. International organizationssuch as the World Bank need to examine their ownabilities to integrate their own different activitiesmore effectively (for example, a stronger linkbetween their mining sector and the broaderpolicies to achieve the MDGs), and to buildstronger capacity to facilitate the recommendationsthat they themselves make to governments andcompanies. The mining companies need to examinetheir own abilities to work with relevantcommunities on the ground, with particularattention to how different companies in the samecountry might act together more effectively toachieve sound community outcomes. The nationaland local level actions need to be linked moreexplicitly to other non-mining sectors so as tostrengthen supply chains and help to enhance boththe local infrastructure benefits of mining and thelevels of entrepreneurial activity. Finally, it wasargued that there is a much larger potential rolefor improved education and communication (aboutthe effects of mining, attitudes towards it etc), soas to achieve greater buy-in from more affectedparties.

6.8 Summary of RecommendationsA summary of the recommendations presentedabove is given in Table 9.


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63Table 9: Summary of Recommendations to Enhance the Impacts of Mining

Companies

C1 Mining and economic development

• Support the Extractive Industries Transparency Initiative (EITI).

• Extend conventional risk analyses to take account of (and support where practical) capacity weaknesses at different levels of government for economic development planning and management.

• Assess constraints and opportunities for economic development and diversification at an early stage, and incorporate business development initiatives, including reinforcing the management and technical skills of potential suppliers and other businesses into feasibility studies

• Focus procurement on building a sustainable domestic supply chain (national, regional and local). Consider introducing policies of active prioritization of local, regional and national companies.

• For economies with a broad base of mining activity, engage in collective action with other mining companies to support the growth of sustainable enterprises to meet critical demands of the sector.

• Link mining infrastructure development to regional development plans to support longer-term economic diversification.

C2 Mining and Poverty Reduction

• Implement sustainable development principles with explicit focus on poverty reduction potential.

• Participate in national development dialogues (e.g. PRSPs) to identify opportunities for mining to contribute to poverty reduction.

• Engage in capacity building around achievement of specific MDGs.

(Host) Government

G1 Mining and economic development

• Adopt the EITI.• Define policy for whether redistribution

of mining revenues to host areas should take place and on what basis (e.g. compensation or development). If yes, ensure that disbursement mechanisms provide a predictable revenue stream to regional and local authorities to enable them to function as effective development partners.

• Support participatory planning to identify opportunities for economic diversification – if this is not possible, identify contingencies for mine closure.

• Adopt a participatory approach to regional development planning (including private sector), and ensure that infrastructure provision is balanced by human resources development.

• Specify inputs, impacts and expected outcomes for sub-national spending of mining revenues, and clearly allocate responsibilities.

• Consider the establishment of Local/Regional Development Agency for specified time period (5-10 years) to maximize realization of economic and social opportunities, and build longer-term sustainable institutions by end of tenure.

G2 Mining and Poverty Reduction

• Explicitly recognize the mining sector’s potential contribution to poverty-reduction, and integrate into planning, monitoring and implementing poverty reduction efforts.

• Link sector policy to strategic planning and resource allocation mechanisms, e.g. PRSP, HIPC, Country Assistance Strategy (CAS)

• Ensure strong alignment exists between the mining and economic development initiatives of government, and its poverty alleviation initiatives.

Donors/Development Organizations/Voluntary Sector

D1 Mining and economic development

• Explicitly recognize that mining has the potential to ‘jump start’ private sector commercial investment in states undergoing economic re-structuring (and where economic infrastructure may be limited).

• Help implement sound investment climate and good macro and micro policies to maximize contribution of mining to economic development.

• Support public sector capacity building and transparent/robust public expenditures management at all tiers of government. [Note: with possible ‘mortgaging’ of future mining revenues in support of effective expenditure management.]

• For situations where local capacity constraints may undermine the potential realization of economic and social opportunities, develop innovative funding and support programs to bring ‘rapid-reaction’ capacity expertise to bear (e.g. pool of expertise to act as Local/Regional Development Agency).

D2 Mining and Poverty Reduction

• Address sustainable development implications of mining within collaborative policy decision-making processes and initiatives, such as PRSP, HIPC, CAS, etc.

• Engage at various levels of government to ensure that opportunities provided by ‘predictable’ mining revenues are linked to MDG attainment.

• Ensure NGOs are involved in buildingand delivering social investmentcapacity.

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64 Table 9: Summary of Recommendations to Enhance the Impacts of Mining continued

Companies

C3 Social Investment and Compensation

• Engage in participatory processes to identify negative local ‘impacts’ and avoid, mitigate or compensate. Make clear distinction between impacts and social investment.

• Engage in participatory processes to identify social investment needs or priorities – and partner for sustainability.

• Assess existing infrastructure and delivery mechanisms/organizations as basis for determining more sustainable social investment opportunities.

• Avoid short term opportunistic ‘investments’ (e.g. to ‘buy-off’ local objections) which can undermine medium term development outcomes. However, do not rule out ‘one-off’ or programmatic investments with a high rate of social return (e.g. malaria control, AIDS prevention or education programs, etc).

C4 Dispute Resolution and Communication

• Integrate credible dispute resolution mechanisms from the early stage of development.

• Link dispute resolution to local trusted institutions (where possible) to enhance credibility.

• Structure communication to support participatory development, with a broad stakeholder base.

• Engage in open dialogue to communicate a balanced perspective on the contribution of mining to economic and social development (e.g. with government, donors, and communities).

C5 Artisanal and small scale mining (ASM)

• Work cooperatively with artisanal and small scale miners in tandem with government initiatives. Consider fostering growth of organized small-scale mining companies/cooperatives to work on more marginal (for large-scale companies) deposits, with capacity/technology support and seed funding.

(Host) Government

G3 Social Investment and Compensation

• Clearly define policy on expectations of companies with respect to compensation and facilitate partnership approaches for social investment.

• Build capacity at the local and regional level for coherent planning and policy implementation to allow balanced partnership between companies, local government agencies and community organizations (e.g. including introducing ‘high-capacity’ short term interventions such as Local Development Agencies (see G1 above).

• Plan for longer-term sustainability of company or NGO supported social infrastructure.

G4 Dispute Resolution and Communication

• Assume leadership in resolving conflicts related to mining and create mechanism to resolve disputes within legitimate political institutions.

• Avoid short-term ‘fixes’ that undermine longer term planning for economic development and poverty alleviation.

• Adopt international best practice for resettlement (e.g. World Bank guidance, particularly where governments ‘clear’ sites for companies).

G5 Artisanal and small scale mining

• Be proactive in providing effective institutional and policy frameworks for managing ASM and migrant workforce, in support of poverty alleviation. Use creative mechanisms (e.g. small scale mining companies/cooperatives) and work with private sector to realize opportunities.

Donors/Development Organizations/Voluntary Sector

D3 Social Investment and Compensation

• Engage in participatory processes to identify social investment needs and priorities.

• Partner on community-focussed social investment initiatives (NGOs) and engage as honest broker where necessary (donors) in support of effective partnerships.

• Provide loans (guaranteed against the subsequent flow of mining revenue) to support rational development of social infrastructure.

D4 Dispute Resolution and Communication

• Ensure that there is ‘space’ to identify, document and resolve disputes within legitimate political institutions.

• Support all parties to achieve a balance between the rights of affected groups and individuals (accounting for vulnerabilities) with the broader potential for economic development and poverty alleviation.

D5 Artisanal and small scale mining

• Help government integrate artisanal and small scale mining activities into national and regional development plans. Advise governments on how best to formalize ASM activities.

Main Conclusions

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7.2 Context to Conclusions Growth: Mining can, under the right conditions,support growth recoveriesEven though this was not a purpose of this project,the four case studies certainly suggest that whenmining companies encounter favourable conditionsfor renewed investment and growth (to tap theundoubted mining potential of the host countries)their activities can indeed support improved GDPgrowth – and at the very least not hold it back. It is difficult to establish a strong causal link frommining activity to growth of incomes, not leastbecause mining is typically a relatively smaller partof GDP (5-8%) than it is of exports and foreigndirect investment. However, in the years ofeconomic malaise in the four countries, there is noevidence that their poor macroeconomicperformance could be attributed primarily to thepresence of mining. Equally, when mininginvestments enjoyed a resurgence after systematiceconomic reform programs, there is no evidencethat the resurgence of mining undermined thegeneral economic recoveries that all four countriesachieved. On the contrary, mining investments inall cases were amongst the early new productiveinvestments that triggered growth.

Why would some of the ‘resource curse’ literatureshow different results? The obvious answer is thatthe present study merely examines four ’success’cases and there are certainly mining countries thathave failed to achieve similar successes: thedividing line between success and failure forerstwhile failing economies is clearly a very narrowone. But another very important point is that theresurgence of mining and the associatedimprovements in growth came at different dates inthe four countries: from 1986 in Ghana to the late1990s in the case of Tanzania. Most of theeconometric studies of the ‘resource curse’problem enforce a common time period on all thecountries studied – typically around 20 years. Such an approach will almost inevitably miss someof the differentiation in the timing of policy changesand outcomes in different country cases.

Poverty and Social Welfare: Benefits from mining,but with some ambiguitiesThe four case studies also provide evidence thatthe income gains (partly associated with aresurgence of mining activity) can certainlycontribute to improvements in poverty levels and tosocial welfare more generally. This effect comesfrom both the direct local spend of the companies

7.1 Introduction This report has synthesized the results of fourcountry case studies designed to thrown light onthe nature of the economic and social impacts ofmining in developing countries. The four countrieswere explicitly chosen (in Phase 1 of the initiative)as being amongst the more successful of the 33 identified mining-dependent economies in theperiod from 1980-2002. The assessment that led to the choice of these countries was based on a mix of growth indicators (GDP and non-mineralGDP) as well as social and poverty indicators. The October workshop recognized the need to re-inforce the results achieved to date byundertaking a small number of further strategicallychosen cases.

All four countries had earlier – pre-1980 – historiesof serious macroeconomic mismanagementcombined with obvious deficiencies of governance.The co-existence in the case study countries ofimproving macroeconomic and structural policieswith still weak governance is an important part ofthe story of this report. Indeed it is the sort ofcombination with which mining companiesconsidering new overseas investments frequentlyneed to contend. The four case studies provideample evidence of the difficulties to which this cangive rise.

Since all four case study countries were relativelysuccessful when compared with fellow miningcountries in that same period, the purpose of thestudies was not to prove that mining can make asuccessful contribution to economic and socialdevelopment. Rather the purpose was to try tounderstand better the nature and components of‘success’, the key elements in helping to bring itabout, and the steps needed to enhance successfurther. This understanding in turn was expected to throw light on the appropriate policies forgovernments, companies and donors to adopt in other countries in order to enhance theprospects of successful socio-economic outcomes.By contrast with many studies of the ‘resourcecurse’, the aim was also to take a broad social and economic view of ’success’ and not assess thisnarrowly against the objective of GDP growth.


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7. Main Conclusions

strong direct income generating benefits for somelocal people. However, the indirect effects thatcould extend the benefits to the communitiesgenerally are not guaranteed. The mechanisms oftrickle-down that can enable mining activities tocontribute to general poverty reduction and helpredress income inequalities do not ariseautomatically and inevitably – they need help fromthe polices of both the companies and thegovernments.

7.3 Issues and Main ConclusionsThe Drivers of Success: A three part packageIn three of the four cases – Ghana, Tanzania andPeru – a fundamental reform of mineral legislationhas been the first key ingredient of the successfulresurgence of mining and has also been a close (intime) sequel to the launch of systematic policies ofmacroeconomic stabilization and structuraladjustment. The more investor-friendly minerallegislation represents the first part of the successpackage and the macroeconomic stabilizingreforms represent the second. In the case of Chilethe gap in time between these two componentswas considerable – from around 1975 until afterthe 1982 macroeconomic crisis. The major newinvestments in mining were also delayed until themid- or late-1980s – Escondida being a majorexample – suggesting that favourable legislationalone is not sufficient if the macroeconomic as wellas the political situation remains seriouslyunstable.

How strong do the improvements in these twoareas need to be? Critics of mining argue that themining legislation has increasingly been slanted in favour of international mining companies and against the interests of the countries. The impression is sometimes given that the fiscalbenefits of mining in particular are far too small.This proposition may have some substance in thecase of the arguably very favourable tax regime inChile where tax revenues so far have been low butwill increase substantially in the future ascompanies recover their investment and exhaustdepreciation possibilities. However all fourcountries need to be aware of the competitivedifficulties of attracting FDI into difficult operatingenvironments and of the part that is played in thisby a ’competitive’ tax regime. In this context it isparticularly significant that in the two poorestcountries in this study – Tanzania and Ghana – theobjective assessment from investors is that thesecountries’ tax regimes represent a significant

‘deep improvements ingovernance are achievedin an evolutionarymanner over longerperiods of time with new gains oftenemerging in response to certain things initially going wrong.’


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and also the indirect effects of that spend bothlocally and nationally. This conclusion emergedclearly from both the Ghana and the Chile cases,where the improved growth record has been oflonger duration than in the other two cases andwhere the poverty improvements have beenstatistically more substantial. In the Chile case theemployment generation that complemented thatfrom mining played a key role in this impressiveimprovement: redistributive policies were lesscrucial. The time periods since the resurgence ofmining are too short to reach similarly strongconclusions for Tanzania and Peru. In both thesecases there are genuine doubts about the povertyand social gains that may eventually be realized. In these and also in the Ghana case there is also amajor counter-factual question. Specifically, howmuch better could the social outcomes have beengiven somewhat different policies, practices andinstitutions? In all cases the growth gains narrowlyassociated with mining are assessed in the rangeof 0.3 to 0.5% extra per annum: good, but couldthey have been better?

In the Ghana and the Chile cases, the poverty andrelated social indicators have become significantlystronger on average in mining-dependent parts ofthe country than in most of the rest of thoseeconomies. But this does not preclude the fact thatsome segments of society in mining regions aregaining relatively little, or maybe even losing,because of the presence of the mining activity –some agriculturalists in Ghana for example. The four studies all show that there are some

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an initial decline in voice and the accountability ofthe authorities in some cases.

Another important conclusion is that deepimprovements in governance are achieved in anevolutionary manner over longer periods of timewith new gains often emerging in response tocertain things initially going wrong. The dynamic isprobably one in which economic success based onmodest initial improvements can help to foster theconstituencies for deeper gains as time goes by.But the transition is not guaranteed to be free ofdissent and dispute.

Company Policies: A key role but with greatvariabilityThe four studies looked in depth at the manner inwhich the international mining companies playtheir part in the local economies. This revealedboth the substantial contribution of the companiesto the overall successes of their host countries, but also the wide variability of approaches andoutcomes across the four cases.

Differences in direct employment are largely afunction of different types of mining activity andalso the vintages of equipment currently in use.Although mining in all cases is highly capitalintensive, the contribution of all four mines to localemployment in absolute terms is significant andeconomically important. Variations in indirect levelsof employment are of greater significance andreflect mainly the different local procurementarrangements of the different mines. In Ghana therelatively limited local procurement is notable,despite a long history of mining. In Chile, thehigher level of domestic procurement is indicativeof a more highly developed mining supply sector,which is consistent with the central – and long-established – role of mining in the Chileaneconomy. The similarly high levels of domesticprocurement in Peru evidence the same and alsoconfirm – as in the case of Chile – that pro-activecompany procurement policies can have animportant impact.

In addition to their direct contributions to outputand employment (as well as government revenuesand exports), all four target mines have alsoadopted a range of corporate policies relating tosocial investment and have supported a diverserange of related investments in social andeconomic infrastructure. Significantly, thesepolicies and practices involve varying degrees of

deterrent to investment relative to the similarregimes of countries that compete for the sameinvestments (see Figure 4). It would seem that thesetting of the right legislative framework –including the tax regime – is a matter of balancewith these two poorer countries achieving their’success’ with arrangements that are not perceivedto be as attractive as they might be!

A similar proposition emerges about the qualityand completeness of the macroeconomic reformsthat have helped achieve the economic turnaroundin all four economies. There is great variabilityacross the four in terms of the inflation stabilityachieved, the size and stability of fiscal deficits, andthe quality of monetary policy management overtime. But all four countries have done enough topersuade external monitors – such as the IMF –and investors that they are genuinely committed toa reasonable standard of economic stability andwill work hard to avoid regression into the chronicinstabilities of earlier years. This commitment hasbeen evidenced most obviously by the avoidance ofthe seriously over-valued exchange rates of thepast. Major swings in prices since reforms beganhave been matched in most cases by appropriatenominal devaluations. The four countries have alsosustained reasonably reliable commercial regimesthat give investors confidence that payments andreceipts in foreign currency – a key factor incommercial mining – will not be associated withunreasonably high risks.

The third element in the success package isgovernance. Significantly, and relative to theinternational benchmarks of ’good governance’, thefour countries seem to have needed only quitemodest gains relative to their previous situations inorder to trigger their mining recoveries. Only in thecase of Chile can one say that there is aconsistently good score across all six (World Bank)indicators of governance (as of 2004) and such ascore was not present in the 1980s when themining revival in Chile began. More generally ’goodgovernance’ in all of its dimensions has not been anecessary precondition for such revivals. However,some components of improved governance such asthe establishment of stronger and more effectiveexecutive power have been present in all cases –and also necessary in order to achieve the gains inpolicy performance referred to above. Beyond thatthere appear to be significant trade-offs betweenthe different dimensions of governance: forexample, more executive power possibly meaning


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When reform begins in such countries, there arefew available choices about the types of investmentthat can be attracted to support the early-stagerecovery of living standards. Most new privateinvestments – and certainly those from abroad –will call for a depth in the policy and institutionalreforms that are likely to exceed the capacities ofthe reform teams. If valuable mineral resourcesare available, new mining investments can and doprovide a potential early-stage means to enhanceproductive activity and produce higher incomes.The minimum package of reforms – of legislation,economic policy and governance – and the newinfrastructure necessary to attract mininginvestments are important but are not prohibitivelydifficult for thin administrations to achieve.Together with policies that offer improvedprofitability to established activities (e.g. cocoa inGhana) such investments can provide quickeconomic and welfare gains upon which areforming government can build.

The problem is that at the initial recovery stage, the economy of such countries still remains weakboth institutionally and in terms of its supporting

‘The particular andunusual slant that thecase studies have takenon the question ofmineral resources andsocio-economicdevelopment help tosuggest a number ofchanges of policy and approach for all major categories of stakeholder –companies, governmentsand donors.’


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’structure’ and partnering arrangements with localcommunities. As well as having different strengths,these varying approaches also involve differentchallenges in different contexts. For example, thelong-established AngloGold Ashanti mine in Ghanafaces a major challenge in making the transitionfrom being an expected major provider of localsocial infrastructure and services to more modernapproaches involving significant partnering withgovernment and other organizations on a moresustainable basis. In Peru, the much newerAntamina mine faces the different challenge offinding effective development partners – faced withlocal government arrangements that make it hardto fix agreed corporate-community commitments.The general message is that companies need ahigh degree of flexibility to accommodate todifferent structures and institutional arrangementsin different places.

The record on support to local economic develop-ment and economic diversification – including thelong-term sustainability of mining communitieswhen mines close – is somewhat disappointing.Both the mining companies and the authorities inhost countries still have some way to go indeveloping effective ways to address this. The casestudies reveal much investment in interestingindividual projects but little evidence of consistentplanning by mining firms and other stakeholders(including local and national governments) toconsider a future for local economies after mining.This is an area above all where improvementscould be made and corporate involvements couldbe more strategic: a point that was broadlyendorsed by the London workshop in October 2005.

The contentious issues and unresolved weaknessesof governanceThe closer examination of the key components ofgovernance (Chapter 5) provides a number ofinsights about how mining generates its benefitsfor host economies. But it also shows how thesebenefits can be improved and how the morecontentious issues relating to large-scale miningcan prospectively be understood and addressedbetter.

The central point is that many of the institutionsand structures of developing economies are weakor incomplete. In two of the four cases – Ghana inthe 1970s and Peru the 1980s – those weaknesseswere initially extreme. The countries were close tobeing ’failed states’ before their reforms began.

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conflicting interests that impact most of thecontentious issues. However, in most cases thebroad direction, if not the detail, of further reformis reasonably clear.

By their very nature, mining investments areextremely local in nature. But the minimalgovernance improvements needed to justify theseinvestments commercially are likely to beimplemented at the national level. This wascertainly the case in all four case study countries.So countries such as Peru and Ghana withreasonable economic policies may be able tooperate for extended periods with major gaps intheir governance capabilities that may compromisethe local if not the national benefits of suchinvestments. It would seem to follow that thenecessary deepening of governance reforms mustinvolve the strengthening of technical capacity,including the human capital that is part of this, andthe greater empowerment of local governments in general, but particularly in geographical areaswhen major new investments such as mining arelikely to occur. However, decentralization in thecontext of already weak government authority maymake things even more complicated, and so itwould be wrong to advocate a standard solution forall country cases. After all, Chile seems to haveemerged as the most successful of the four caseswithout any very explicit redistributive procedurefavouring particular local areas.

It can be noted that similar problems would need tobe faced if low-income countries were attractingmajor car assembly or chemical plants as theirinitial, post-reform, investments. But of course thisdoes not happen – mining has special features, asmentioned above, and it is this that puts it in thespotlight of attention in such countries!

The policy agenda for companies, governments anddonorsThe particular and unusual slant that the casestudies have taken on the question of mineralresources and socio-economic development help tosuggest a number of changes of policy andapproach for all major categories of stakeholder –companies, governments and donors. These arespelled out in detail in the matrix of Table 9. They also formed the main focus of the stakeholderdiscussions that were held in London in October2005. A separate Summary Note of Proceedingscaptures the main points that were made duringthat event.

systems of governance and infrastructure (Ghanain the late 1980s and Peru and Tanzania in the mid-1990s). Longer-term economic success willdepend on the initial gains in income, stability etcbeing used to help catalyze broader-baseddevelopments including some that will call formuch deeper improvements in governance and theinstitutions that underpin successful economicperformance. If and when these are achieved, many of the mainstream criticisms of mining’s role in low-income countries can be addressedbetter: e.g. by stronger, more democratically-responsive local authorities in the affected areasand also by more diversity in investment and thecreation of wider economic opportunities. But if the situation becomes frozen in the early stages of recovery then either the whole recovery itselfwill be reversed, or the criticisms of mining’s role will continue.

The four ’success’ cases demonstrate a widespectrum of experience in this regard. All fourcountries have achieved the initial gains in incomesto which significant new mining investments havemade an important contribution (typically around0.3-0.5% of extra growth each year). However, Chile is the only one of the four that seems to have moved on from the initial economic recoveryto largely complete the governance andinstitutional reforms started in the 1970s. Ghana has also moved on from that stage. But although it has not experienced serious Dutch disease problems, it has not had anythinglike the same success as Chile in diversifying itseconomy and deepening the early-stage reforms of governance. Peru has encountered greatdifficulties in deepening its governance reforms. In Tanzania, with a stronger starting point ofgovernance in some respects, there has beeninsufficient time since reform began to assesswhether this deepening process can and will beachieved.

The analysis in the separate case studies providesinsights into the weaknesses that still persist ineach case and how these weaknesses relate to thehighly-publicized criticisms of mining in eachcountry. There is no single ’governance’ solutionthat can put all this right (and responsiblecorporate behaviour is also obviously important inthis respect). Externally imposed conditionalitywould be almost impossible to define given thecomplexity of most of the situations and, in anycase would be unlikely to work given the variety of


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Acknowledgements

ICMM teamKathryn McPhail led the initiative under thedirection of John Groom and Paul Mitchell, withvaluable support from Ben Hedley. Guidance wasprovided by Wayne Murdy, (Chair, ICMM andChairman and Chief Executive Officer, NewmontMining Corporation), Sir Mark Moody-Stuart,(Chairman, Anglo American plc), and Paul Skinner,(Chairman, Rio Tinto plc). The entire ICMM teamthanks all the individuals, governments andorganizations that contributed to the study as listed below.

Consulting team The consulting team for this project was led byOxford Policy Management (OPM) andEnvironmental Resources Management (ERM). The OPM team was led by Alan Roe and includedEvelyn Dietsche (OPM), James Warton (OPM),Roger Hay (Oxford Policy Institute), Paul Stevens(Professor of Petroleum Policy and Economics,University of Dundee), Beatriz Boza (Ciudadanos-al-Dia; Peru study), Catherine Macdonald (SocialSustainability Services, Australia; Tanzania study)Ron Quist (independent consultant; Ghana andTanzania studies), Robert Osei (independentconsultant; Ghana study). The ERM team was ledby Jonathan Samuel and comprised David Elliott(Maxwell Stamp), Moortaza Jiwanji (ERM). Glen Armstrong (Sustainable Finance), Aidan Davy(independent consultant), Ian Emsley (AngloAmerican) and Daniel Litvin (independentconsultant) also contributed to case studies and the synthesis report.

Country Case StudiesChile: Government of Chile, Mauro Valdes(Escondida), Jorge Zeballos (Escondida), Holly Lindsay (BHP Billiton)Ghana: Government of Ghana, Joyce Aryee(Chamber of Mines, Ghana), Alan Fine (AngloGoldAshanti), Paul Hollesen (AngloGold Ashanti),Gertrude Makhaya (AngloGold Ashanti), John Owusu (AngloGold Ashanti) Peru: Government of Peru, Steven Botts (CompañiaMinera Antamina S.A), National Society of Mineraland Energy Resources (SNMPE), Gerald Wolfe(Compañia Minera Antamina S.A), Eduardo Rubio(Minera Quellaveco S.A.)Tanzania: Government of Tanzania, Jim Cooney(Placer Dome), Emmanuel Jengo (Chamber ofMines and Energy, Tanzania), Jonas Kipokola(Placer Dome), Greg McNee (North Mara), Ila Temu (Placer Dome).

Country Case Studies Peer Review Team Glen Armstrong (Sustainable Finance), Aidan Davy(independent consultant), Kathryn McPhail (ICMM),Andrew Stoeckel (Centre for InternationalEconomics, Adelaide), Warwick McKibbin (ICMMInternational Advisory Group).

ICMM Working GroupJohn Groom (Chair) (Anglo American), Carlos Aranda (Southern Peru CopperCorporation), Joyce Aryee (Chamber of Mines ofGhana), Dave Baker (Newmont), Tim Baker (PlacerDome), Britt Banks (Newmont), Fred Bantubonse(Chamber of Mines Zambia), Stan Batey (FreeportMcMoRan), Roger Baxter (Chamber of Mines ofSouth Africa), Edward Bickham (Anglo American),Steven Botts (Compañia Minera Antamina S.A.),Reinoud Boers (Mining Industry Associations ofSouthern Africa), Jim Cooney (Placer Dome),Nicolas di Boscio (Rio Tinto), Ian Emsley (AngloAmerican), Dorothy Gyamfi (Newmont), Paul Hollesen (AngloGold Ashanti), EmmanuelJengo (Chamber of Mines of Tanzania), Niks Lesufi(Chamber of Mines of South Africa), Holly Lindsay(BHP Billiton), Helen Macdonald (Newmont), Greg McNee (Placer Dome), Jim Miller (FreeportMcMoRan), Sixtus Mulenga (Konkola Copper Minesplc), Richard Ness (Newmont), Gordon Peeling(Mining Association of Canada), Dave Rodier(Noranda), Eduardo Rubio (Minera Quellaveco S.A.).


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75International Advisory Group Georg Kell (Executive Head, United Nations GlobalCompact Office), Pedro Pablo Kuczynski (Ministerof Economy and Finance, Peru) (until 2005), Hon. Mamadou Lamine Loum (Independentconsultant and former Prime Minister of Senegal),Warwick McKibbin (Executive Director Centre forApplied Macroeconomic Analysis and Professor ofInternational Economics, Research School ofPacific & Asian Studies, Australian NationalUniversity; Member, Board of the Reserve Bank ofAustralia), Hon. Felix Mutati (Deputy Minister ofFinance and National Planning, Republic ofZambia), Jane Nelson (Director, Corporate SocialResponsibility Initiative, Kennedy School ofGovernment, Harvard University and Director,Business Strategy, International Business LeadersForum).

Multi-stakeholder WorkshopsICMM thanks the more than 50 participants drawnfrom governments, NGOs, companies, investors,donor agencies, equator banks, labor organizationsand academic institutions who attended the twoworkshops held in London. The first workshop inNovember 2004 was chaired by Halina Ward(International Institute for Environment andDevelopment). The second workshop wasfacilitated by Solitaire Townsend (Futerra). The agenda benefited from a co-creation processcomprizing Carlos Aranda (Southern Peru CopperCorporation), Leah Hibbin (CARE International),Paul Hollesen (AngloGold Ashanti), Rashad Kaldany(World Bank Group), Rob Lake (Hendersons GlobalInvestors UK), Julie McCarthy (Open SocietyInstitute), Marta Miranda (World Wildlife Fund, US),Theodore Moran (Georgetown University), David Murray (Transparency International UK),Gordon Peeling (Mining Association of Canada),Alan Roe (OPM), Jonathan Samuel (ERM), Hugo Sintes (CARE International).

PartnersUnited Nations Conference on Trade andDevelopment: Olle ÖstenssonWorld Bank Group: Craig Andrews, Clive Armstrong, Kent Lupberger, Rashad Kaldany,Leo Maraboli, Meg Taylor, Peter Van der Veen.


76 The designation of geographical entities in thisdocument, and the presentation of the material, donot imply the expression of any opinion whatsoeveron the part of ICMM, UNCTAD or the World BankGroup concerning the legal status of any country,territory, or area, or of its authorities, orconcerning the delimitation of its frontiers orboundaries.

The views expressed in this publication do notnecessarily reflect those of ICMM, UNCTAD or theWorld Bank Group.

Published by ICMM, London, UK.

©2006, the International Council on Mining andMetals

Reproduction of this publication for educational orother non-commercial purposes is authorizedwithout prior written permission from the copyrightholders provided the source is fully acknowledged.Reproduction of this publication for resale or othercommercial purposes is prohibited without priorwritten permission of the copyright holders.

ICMM (2006). The Challenge of Mineral Wealth:using resource endowments to foster sustainabledevelopment. Synthesis of four Country CaseStudies: Findings and recommendations

ISBN: 0-9549954-6-5

Design: DuoEdited by: David DaltonPrint: Quadracolor Limited

Available online and in hard copy from ICMM,www.icmm.com, [email protected]

This book is printed on Challenger Offset 250gsmand 120gsm. A great proportion of the raw materialused is the by-product from other processes i.e.saw mill waste and waste which results from forestthinning. The mill holds not only ISO 2002 but alsothe ISO 14001 accreditation for their environmentalmanagement systems, which include an activepolicy on sustainable forestry management.

ICMMThe International Council on Mining and Metals (ICMM) is aCEO-led organization comprising many of the world’s leadingmining and metals companies, as well as regional, national and commodity associations, all of which are committed toimproving their sustainable development performance and tothe responsible production of the mineral and metal resourcessociety needs.

ICMM’s vision is a viable mining, minerals and metals industrythat is widely recognised as essential for modern living and akey contributor to sustainable development.

www.icmm.com

UNCTADEstablished in 1964, UNCTAD promotes the development-friendly integration of developing countries into the worldeconomy. UNCTAD has progressively evolved into anauthoritative knowledge-based institution whose work aims to help shape current policy debates and thinking ondevelopment, with a particular focus on ensuring that domestic policies and international action are mutuallysupportive in bringing about sustainable development.

www.unctad.org

The World Bank GroupThe World Bank Group is an international organization of more than 180 member countries comprised of five institutions:the International Bank for Reconstruction and Development(IBRD) and the International Development Association (IDA),together known as the World Bank; the International FinanceCorporation (IFC); the Multilateral Investment GuaranteeAgency (MIGA); and the International Center for the Settlementof Investment Disputes (ICSID).

The World Bank is a vital source of financial and technicalassistance to developing member countries. IBRD provides low-interest loans to middle-income countries and IDA providesinterest-free credits and grants to low-income countries foreducation, health, infrastructure, and other purposes topromote poverty reduction and sustainable development. IFC promotes sustainable private sector investment indeveloping countries as a way to reduce poverty and improvepeople’s lives.

www.worldbank.org

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