Countries with large nonrenewable resources can benefit significantly from them, but reliance on revenues from these sources poses major challenges for policy makers. If you are a senior ministry of finance official in a resource-rich country, what are the challenges that you would face and Consider some of the issues that you would likely encounter:
For many resource abundant countries, large and unpredictable fluctuations in fiscal revenues are a fact of life. Resource revenues are highly volatile and subject to uncertainty. Fiscal policies will need to be framed to support macroeconomic stability and sustainable growth, while sensibly managing fiscal risks. Also, there is a question of how to decouple public spending (which should be relatively stable) from the short-run volatility of resource prices.
These are some of the views and reports relevant to our readers that caught our attention this week.
World Humanitarian Summit: three tests for success
Thomson Reuters Foundation
After months of feverish consultation, preparation and speculation, the first-ever World Humanitarian Summit (WHS) will finally kick off in Istanbul on May 23. The two-day Summit will convene 6,000 aid leaders to decide on how better to respond to today’s defining crises. So, what will mark the difference between an anti-climactic letdown and a rallying achievement? Here are my three measures of success.
World Employment and Social Outlook
Over the past two decades, significant progress has been made in reducing poverty in the majority of countries. In emerging and developing countries, taken as a whole, it is estimated that nearly 2 billion people live on less than $3.10 per day (adjusted for cost-of-living differences across countries). This represents around 36 per cent of the emerging and developing world’s population, which is nearly half the rate that was observed in 1990, when the initial international commitments to reduce poverty were undertaken. During the same period, extreme poverty – defined as people living on less than $1.90 per day – declined at an even faster rate to reach 15 per cent of the total population of emerging and developing countries in 2012, the latest available year
Continuing with our series looking at the 25 year partnership between Mongolia and the World Bank, today we look at 2008, a year that will be remembered by many Mongolians for events both high and low. The low point was the riot that followed parliamentary elections on 1st July, 2008. Five innocent lives were lost and Ulaanbaatar city was under a state emergency for two days and three nights. While Mongolia is rightfully praised for its peaceful transition from one regime to another in 1990, this incident of 2008 will be remembered as the darkest time in the 25 years of democracy.
The high of 2008 occurred after this riot when Mr. Tuvshinbayr Naidan brought home Mongolia’s 1st ever gold medal from the Beijing summer Olympics. I will never forget the sight of people waving our national flag, gathering in the Central Square and cheering with exhilaration. The World Bank’s Country Director, David Dollar, also celebrated this historic occasion, noting that “The event was important enough to get rival political parties to shake hands and share the pride.”
Continuing our series of blogs looking at the 25 year partnership between Mongolia and the World Bank, today we examine 2004, the year Mongolia’s growth rate accelerated to 10.4%. After 15 years, real GDP per capita had finally passed the level of 1989. The country was in the midst of a mining boom, and that sector took center stage in 2004.
Mongolia Mining Sector: Managing the Future assessed the “medium-term growth potential of Mongolia's non-fuel minerals industry, and its potential contribution to economic growth, poverty reduction, and regional development.” The study, based on field work undertaken in 2003, took a broad approach, examining potential constraints and investor perceptions, and then recommended options to improve industry management and the investment climate. Recommendations urged mining companies to support social programs that benefit the surrounding communities, and the government to establish and maintain adequate infrastructure to meet the mining sector’s growth. “The government should address the challenges associated with mining for growth, namely, preventing the development of unsustainable fiscal policy and mounting debt; avoiding rent-seeking behavior, and, overcoming absorptive capacity constraints and adverse impacts on non-mineral exports.”
At this year’s Investing in African Mining Indaba in Cape Town, South Africa, leaders are not hiding their concerns about the commodities downturn.
Government representatives express their frustration for not having benefited enough during the boom. Policymakers lament the lack of planning that has left their countries with no cushion in their budgets, and companies are looking to cut costs so they can weather the storm. And most importantly, communities are feeling the economic impact as mines purchase less local supplies, generate fewer jobs and halt some operations.
Not only are things slowing down, but it seems a golden opportunity has passed us by. Fatima Denton, Director of the United Nations Economic Commission for Africa, highlighted that Africa is less industrialized today than it was in 1990. After the minerals super cycle of 2000-2013, the percentage of manufacturing of African economies actually declined from 12% to 11%.
When you ask young people from developing countries what they want for their country, they often say opportunity. The next generation wants jobs and knowledge; they want to be connected to the global economy.
Extractive industries can foster these types of opportunities through investment in skills training and transfer of technology to local workers and companies. These technical skills are demanded in the global marketplace today and empower workers to expand their horizons and lower their risk of unemployment.
We are discussing these issues today at a “Reconciling Trade and Local Content Development” conference we are co-hosting with the Mexican Ministry of Economy. This event aims to share knowledge on how investment in extractive industries can be leveraged to generate opportunities for economic diversification and employment.
The most valuable contribution to long term sustainability comes from the ability of extractive industries to generate benefits through productive linkages with other sectors. The International Finance Corporation (IFC) helped make this happen in Barmer, India, where we supported a Skill Development Center that trained 7,000 people to work in the operations of Cairn Energy. Not only did this training create direct job opportunities for the local population, but the acquired skills fostered the creation of an entire eco-system of small and medium-size enterprises that provided products and services to the oil company and related sectors.
For many, the connection seems strange at first. What do gas and mining have to do with women’s economic and social empowerment, let alone gender-based violence? The reality is that in many extractive industries areas money from extractives flow predominantly to men. This can lead to adverse results: men have more say over how benefits are used; men have more access to related jobs, and the associated increase in available cash allows them to take second wives (which can in many cases cause violence in the home between wives); some men leave their families for jobs in the industry, while some use cash for alcohol or prostitution.
These changes and stresses – also present when the benefits from mining don’t materialize as expected - can increase the risk of family and sexual violence, especially in fragile countries like Papua New Guinea (PNG).
Let’s assume you are a Finance Minister or ministry official of a country that has newly discovered oil or minerals.
What actions lay ahead? Or, if oil and mineral production is ongoing, , which is a mainstay for national economies around the world?
Planning for the development of an unfamiliar and complex sector can be daunting. How should sector policy objectives be determined?
Which economic, accounting and taxation principles should be considered? What kinds of laws and regulations would a government need to adopt? What roles do various ministries and government agencies play in administering these laws? How do technical, environmental and social considerations fit into the scheme of things? What about the investment of resource revenues, or the potential for new industry linkages?
I recently joined over 150 women who work in the mining sector of the Democratic Republic of Congo (DRC) at a conference sponsored by the World Bank. This was the first national conference ever held in the DRC to discuss women-specific issues in the sector and what can be done to improve their well-being.
Many topics were discussed over the course of the three days. Some of the most compelling came from the personal testimonies shared by the women themselves. For instance, to generate understanding of the challenges these women face, a video showed girls as young as 12 years of age pounding quartz to extract gold. A woman may gain up to 2,000 Congolese Francs per day for this work, which is about US $2. Many women at the conference showed callouses on their hands from continuous years of arduous labor. This is but one example of the impacts suffered from the most physically taxing jobs occupied by women in the artisanal and small-scale mining sub-sector.