Extractive industries have developed initiatives that can defeat the ‘resource curse’

 

Extractive industries have developed initiatives that can defeat the ‘resource curse’

Turning natural resource exploitation into sustainable development has never been simple or easy. Models of how to make it work exist – as do countless examples of what has gone wrong in the past.

Over the past 10 years voluntary initiatives have flourished in the extractives sector. Leading international companies are sharing innovative strategies on everything from revenue management and local community job training to best practice environmental assessment and dispute resolution.

At the same time, extractive industries are as controversial as ever. Huge sums of money paid by companies to often corrupt host countries are just one of the issues accounting for the industry’s troubled image.

Most companies are not reporting what they pay these governments, according to a 2008 report issued by Transparency International. Yet a select number of companies that have signed up to the Extractive Industries Transparency Initiative (EITI) have demonstrated that revenue transparency is possible.

Monitoring mechanisms

Currently, companies in 32 countries are either subject to EITI requirements – where it is part of the domestic law, as in Norway, Liberia and Nigeria – or voluntarily participate, in countries such as Mongolia and Kazakhstan, owing to tax incentives passed by the respective legislatures. Notably, the EITI includes mechanisms for independent monitoring, reporting and verification.

Some EITI companies have found a very strong business case for pushing disclosure all the way down to the local community level, says Luc Zandvliet, director of non-profit group CDA Collaborative Learning Projects, which works with oil and mining companies studying local stakeholder impact.

“Why is that important?” Zandvliet asks. “The communities trace the money flow back, so they see it is a positive good to have the company in their back yard.”

If the monies don’t find their way to the community, companies can also protect themselves against charges of bribery.

Recently, Newmont Ghana used EITI to fight charges that it paid bribes to elder chiefs at its Akyem mining facility. By referring critics to the company’s previous disclosure of money paid to tribal leaders, Newmont made the case that the money constituted a legitimate payment for leading community-wide consultation sessions.

But to Oxford University professor Paul Collier, a noted academic on the so-called “resource curse”, companies embracing transparency initiatives including EITI need to broaden the focus to the fundamental economic decision-making processes. That should start at the national level, he says, and include management of the discovery process and taxation of extraction companies.

It’s a prescription for proper revenue management that has not gone unheeded. One notable example is BP’s pioneering work in Azerbaijan, begun in 2003, to ensure delivery of oil and gas revenue benefits. Its model of hosting visits to government planning departments by independent experts is a useful first step to more substantive collaboration, according to a recent report commissioned by the International Council on Mining and Metals (ICMM).

Collaboration tackles challenges

Antamina accomplished a more direct transfer of skills and knowledge with its open-pit copper and zinc mine in Peru. The company established regional and local management offices, providing hands-on technical help with distributing funds for improved health, education and economic development.

Collaboration between companies and stakeholders is a powerful way to tackle the full range of development challenges, says Aidan Davy, a senior programme director at ICMM.

Working together translates resource revenue into development, and it cuts across all areas of corporate responsibility. For Anglo American this includes improved safety standards. The mining giant recently attributed an industry-leading two-year drop in fatalities in its South African mines to collaborative initiatives carried out in conjunction with government and the unions.

“Understand the nature of the impact of your operations on stakeholders,” advises Davy. “Go in early and develop even more ambitious partnerships.”



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