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Mining Mineral Revenues

Maniza Naqvi's picture

What do Iran and Alaska have in common? Well for one thing, both have followed a similar path towards equity by sharing mineral revenues with citizens through the Alaska Permanent Fund and the Iran Citizens Income Scheme. Why aren’t other countries, rich in mineral and hydro carbon wealth on their way to doing the same? This journey can be short and sweet: It would entail direct dividend payments from mineral wealth to citizens to become a reality across Africa and other parts of the world. It’s time to put the mine in mineral revenues.

Marcelo Giugale, World Bank’s Director of Economic Policy and Poverty Reduction Programs for Africa, makes the case with enthusiasm for direct cash payments from natural resource revenues to the citizens of a country: a mechanism by which citizens of a nation, share in its wealth earnings while making sure that the earnings keep growing for future generations. Marcelo offers a tantalizing prospect: even a fraction of mineral and hydro carbon revenue as direct dividend payments to citizens would be enough to end poverty! Imagine that.

Africa has mineral revenues and much more that can end poverty. It seems, that whatever the so-called developed world craves, Africa already has: from mineral resources to yet to be discovered deposits of diamonds, oils, rare earth; to agriculture land. Yet, whatever enriches the so-called developed world from Africa seems to not benefit the continent itself. Why is that? And what will need to be done to change it? It is time to transform the discussion on economic growth drivers and development aid by adding into the equation the distribution of mineral revenues urges Shantayanan Devarajan, World Bank’s Chief Economist for the Middle East and North Africa and until recently for the Africa Region.



Yet this is left out of the latest discussions, in the public square of elite policy making. Similarly the current discussions on the growth from the mining sector still revolves on direct and indirect jobs created through mining and government investments in social and economic infrastructure on behalf of citizens. The discourse continues on without focusing on giving agency to individuals and providing them with the cash and the tools for making choices for how they spend or invest their cash for their social and economic wellbeing.

Mineral rich countries may have had the potential for even greater gains in human development outcomes if they had adopted different policies for how they used mineral revenues. Imagine if the mineral and hydro-carbon wealth of countries would be managed so that it would continue to grow, and would be distributed to all their citizens through an established transparent system of identification and targeting. Poverty would end. Families could take care of themselves. Aid would be a thing of the past. So perhaps would war.

Take, for example, the following mineral rich countries with a high poverty head count: Equatorial Guinea (76.8%), Gabon (32.7%) and Angola (40.5%) and very low human development indicators, yet they have equal or higher per capita GDPs than the BRIC countries: Brazil, Russia, India and China. The Human Development Indicators in all four mineral rich countries are very low. Clearly, the mineral revenues haven’t been distributed to all and have not improved life for the poorest.

In 35 mineral resource and revenue rich countries in Africa, per capita GDP ranges from US$500 to US$20,200. Yet the mineral wealth versus the consumption per capita and the poverty head count tell a starkly different story. The poverty head count averages at 48.56% and is as high as 80% in Chad. Yet despite the high poverty head count and large mineral revenues, safety net benefits in terms of cash transfer programs targeted to the poor exist only in ten of these countries. These cash transfers cover less than 10% of the population, if that, and generally fall around US$15 per month equaling about 20% of household consumption. And in each of these cases, it is donor financing, not revenues from the mineral wealth that account for 65% to 100% of the cash benefits! Aid money for the citizens of mineral rich countries?

In low income countries the average donors funding for safety nets is 72.5% of the total and for middle income countries it is over 50%, Victoria Monchuk, Economist, Africa Social Protection, calculates in her report Social Safety Nets Experience in 22 African Countries. On average as percentage of GDP, safety net programs represent only 1.6% of GDPs in Africa (excluding what is spent on general subsidies). The average for middle income countries on safety net spending is not much higher - 2.4% of GDP - including donor financing.

In fact there are no significant cash transfer programs in 23 of these mineral revenue rich countries which have GDPs in the billions of dollars and high GDP per capita but high poverty headcounts. This includes Nigeria ($235.9 billion with GDP per capita of $2700), Angola ($100 billion with GDP per capita of $6200), Benin ($35 billion with GDP per capita of $1700), Cameroon ($25 billion with GDP per capita of $2300), Chad ($9 billion with GDP per capita of $1900), Equatorial Guinea ($19 billion with GDP per capita of $20,200), Gabon ($17 billion with GDP per capita of $17,300), Madagascar ($9 billion with GDP per capita of $1000), and Mauritania ($94 billion with GDP per capita of $1044).

Most of the jobs in the increasingly mechanized mining sector are for a few highly skilled workers and there aren’t that many manual labor jobs in mining which pay well or have a widespread impact on poverty improve human development indicators beyond the households earning wages from these jobs, points out Dena Ringold, World Bank Lead Economist and co author of the World Bank's World Development Report on Jobs. However revenues, even a fraction, from this sector have the potential to eradicate poverty.

The governance measures remain at a very low level in many countries, which begs the question of whether there would have been larger gains in the absence of the resources, or if different strategies for using these resources were implemented. Mineral revenues dwarf aid money. And if a fraction of mining revenue streams earned by private corporations were also factored into the public revenues in these countries that could go as direct dividend payments to citizens then just imagine the implications for eradicating poverty. Consider the magnitude of revenues from mineral wealth generated in poverty high countries compared to the aid inflows usually from the same countries where these corporations are headquartered. Aid originates from citizens tax money in developed countries "donated as charity" and goodwill, masking the billions in outflows from these mineral revenue rich impoverished countries. There is so much data available on wealth and disparity on human development, poverty, consumption, incomes, GDPs, revenue streams with which to make direct dividend transfers from mineral revenues to citizens.

When seen through this prism of mineral wealth in stark comparison to the poverty in the same countries and the examples of Iran and Alaska, a different light is shed on the prescriptions at global forums. If there ever was a sweet spot for perfect nationalization and poverty eradication then it would be through direct dividend payments.

Comments

This is the sad truth. I am surprised you explicitly forgot to indicate Libya in Gadaffi's era who, despite his wolfiness, did actually spread wealth to his citizens. Zambia managed this very well during Kenneth Kaunda's rule by having a 51% controlling stake in the mines and used the wealth to develop infrastruture, free education to University levels, free medicare, subsidised farmer loans and inputs, crop-purchase by government at above market prices, as well as generous pension. Are these not equally impactful alternatives to 'dividend sharing'? Botswana has a 50-50 joint venture with the DeBeers and has equally managed to reduce poverty levels through other alternative means than direct dividend payments, which means have included setting up a citizens empowerment loan fund where enterpreneurial ideas are supported as well as free local enterprise development support. Otherwise, your insights are an eye-opener to most mineral rich countries, especially those that have a <50% controlling stake.

Submitted by Richard Dwumfour on

This is very revealing. We sit on "gold" yet we always beg for money. African leaders have failed the ordinary people. They are concerned with paying themselves fat cheques and abusing the power and authority they have for their economic benefits. I'm not sure they even use the research many people have published concerning how to reduce poverty in Africa. This will be a very interesting area of research. African leaders must rise above "themselves" and start thinking about the poor in the society who even gave them the power they possess.

Submitted by Geshem Mutsatsa on

Indeed, Africa is endowed with natural resources in abundance. It is a travesty that the majority of its citizenry hardly benefit from these. We have seen many attempts 'to make poverty history' . Dependency on aid continues to deepen despite the rhetoric from many politicians. Having people benefiting directly from local natural resources in the ways suggested would contribute immensely to real development and improvement in their lives. However, political will is needed to make this real, something that seems to be still in short supply in Africa. What is needed is a leadership prepared to serve, in other words servant leadership, not one bent on being served.

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