Syndicate content

extractive industries

EITI agenda advances despite divergent views

Charles Feinstein's picture
Photo by EITI

Tensions were high at the international Board meeting of Extractive Industries Transparency Initiative (EITI) in Berne, Switzerland.  EITI Board members, 20 in all, including civil society representatives, investors, managers of multinational corporations, and implementing and supporting country officials, debated stridently for two days on issues like how EITI implementing countries are judged on whether they have met the requirements of the “Standard” set by the EITI. As my first EITI Board meeting, I was surprised to find such divergent views on operational issues when we clearly all agree on the end goal: increasing transparency in the extractive industries to decrease the space for corruption and enhance the development impact of revenues from the sector. 

In 2013, EITI raised the bar of transparency with the introduction of a new Standard that requires more detailed reporting on extractive company and state owned enterprise payments, government receipts and a broader range of contextual information on the sector in EITI implementing countries. The first batch of reports produced under the Standard arrived between late 2014 and early 2015. Many EITI countries have so far struggled to meet the enhanced requirements of the Standard and concerns have been raised about how they will be assessed when they undergo the validation process (the quality assurance process that leads to the judgement of compliance with the EITI Standard). 

How to manage the extractives sector? There’s a book for that!

Håvard Halland's picture
Photo Credit: Cor Laffra

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, how can you strengthen the public management of the extractive sector, 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?

Governance and sovereign risk in resource rich emerging markets

Michael Jarvis's picture
Brazil: Resource Rich Emerging Market - World Bank photo collection

Does governance matter?

Yes. Intuitively to many development practitioners, the link between governance and growth is established in the literature. But, what about hard-nosed financial investors? Is there a link between governance and financial returns? Initial cutting-edge research suggests that there is a link. And investors are increasingly paying attention to governance. 

According to a study conducted by Global Evolution, an asset manager that specializes in emerging and frontier market sovereign investments, shows that governance may be a significant driver of sovereign bond returns. According to Ole Hagen Jørgensen, Research Director of Global Evolution, “improvements in a country’s Environmental, Social, and Governance (ESG) scores – and particularly the “G” of governance – significantly correlate to pricing of risk, credit ratings and return generation of sovereign bond funds in emerging and frontier markets.”

​For governments, this can mean cheaper to access to credit, helping create fiscal space.

Large scale mining in Africa is a mixed blessing for women

Anja Tolonen's picture

The African continent is rich in natural resources, like oil, gas and minerals that contribute to a large share of exports, and are now a major source of foreign direct investment. In our paper African Mining, Gender and Local Employment, we investigate how this recent, rapid expansion in large-scale mining affects women’s job prospects.

According to previous research and policy documents, it is ambiguous whether industrial mining increases or decreases female employment. The “African Mining Vision” spells out the risk that extractive industries might make gender disparities in economic opportunities larger. The sector is generally known for weak local multipliers, i.e., for each job created in the sector, too few jobs are created in auxiliary sectors, such as services, manufacturing or construction. This is known as the ‘enclave’ hypothesis: that a large-scale mine generates few economic opportunities for local community members. On the other hand, mining activities may generate jobs in services and sales, which are relatively female dominated in the region and which are locally traded.

How parliaments could better contribute to the governance of revenues from extractive industries

Hassane Cisse's picture

Oil Pumps in Russia photo Kolodkin

Resource rich developing countries face challenges in ensuring that revenues from Extractive Industries (EI) are used to foster economic development, reduce poverty and promote shared prosperity.
Effective governance of extractive revenue is a precondition for ensuring that the ‘development dividend’ that is meant to flow from the decision to extract becomes a reality. Good governance of the sector requires sufficient participation, transparency, and accountability across the entire EI value chain.
A wide range of stakeholders can contribute to these governance objectives, whether they be government agencies, private sector, civil society, and formal accountability institutions, such as parliaments. 
Parliaments are coming to the fore as key stakeholders in ensuring that extractive revenues are equitably shared. That means making sure that extractive revenues are accurately captured in budget forecasts and estimates, appropriations are focused on delivering services to affected communities, and effective oversight of governments’ management of the sector is provided.
I participated in the recent 2015 Helsinki Parliamentary Seminar, hosted by the Parliament of Finland as part of the World Bank-Finnish Parliamentary Partnership, which brought together parliamentary delegations from Ghana, Iraq, Kenya, Mongolia, Somalia, South Sudan, Tanzania, Timor Leste, and Zambia to explore how parliaments could better contribute to the governance of revenues from extractive industries.

Partnering with the mining industry in good times and bad

Anita Marangoly George's picture
Heading to my first African Mining Indaba in Cape Town, South Africa recently, I was wondering how receptive mining companies would be to the idea of greater partnership given that commodity prices were at historic lows. While there was some hesitation from isolated voices, the overwhelming consensus was, YES, partnerships that promote shared benefits are critical to the sector in both the good times and the bad.
The key in this commodities downturn is to develop win-win partnerships. A central theme at Indaba was the importance of hiring and training local people, and increasing the focus on local procurement which, in turn, helps diversify local economies through linkages to mines’ supply chains. Best practices in training for small and medium-sized enterprises in health, safety, environmental and quality standards were highlighted as well as initiatives to ensure women share in the benefits flowing from mining evenly.

Collaboration is also key to ensuring that the power generated for mining in Africa benefits communities. Power-mining integration is essential when you consider that Sub-Saharan Africa today only generates 80 gigawatts of power each year for 48 countries and a population of 1.1 billion people. Two-thirds of people in the region live entirely without electricity and those with a power connection suffer constant disruptions in supply. Without new investment and with current rates of population growth, there will be more Africans without power by 2030 than there are now.

Oil exporters must shift capital stock to renewables

Håvard Halland's picture
Oil pumps, in southern Russia. Photo: Gennadiy Kolodkin / World Bank

As the Financial Times pointed out recently, oil companies such as Exxon Mobil and Shell would, under measures considered for the global climate pact to be sealed in Paris next year, cease to exist in their current forms in 35 years. The proposal of phasing out global carbon dioxide emissions as early as 2050 was not resolved in the UN climate talks in Lima last December.

However, the adoption of even a watered-down version in Paris or in later rounds of climate negotiations would mean that the amount of oil and gas produced by these companies, and the quantity of coal mined by enterprises such as Rio Tinto, would need to be greatly reduced by mid-century. Such long-term concerns might over the next years trump current worries about an oil price slump that could be on the wane as soon as marginal projects and producers are shaken out from the bottom of the market.

New Senior Director of Energy and Extractives on Challenges and Opportunities

Anita Marangoly George's picture

Q: As the new Director for the Energy and Extractives Global Practice at the World Bank, can you tell us about the greatest challenges you face in Extractives?

A: Extractive industries are complex and often risky, but when managed well they can foster transformative development in those countries that most need it.  Extractives play a dominant role in 81 countries whose economies together account for a quarter of world GDP. These 81 countries also represent half of the world’s population and nearly 70 percent of those in extreme poverty.  Given the need of these countries, a focus on natural resource management is important, but we must work diligently to mitigate the risks and improve governance structures so that the wealth generated from these activities benefits the poor.  Similarly, a cornerstone of all the work we do is to mitigate the social and environmental impacts of extractives projects so that they benefit neighboring communities as well as broader economic growth.  We also look forward to strengthening our work to improve governance of the extractive industries through efforts like the Extractive Industries Transparency Initiative (EITI) and minimizing the environmental footprint of projects by reducing routine gas flaring (Global Gas Flaring Reduction, GGFR).

Governance of Extractive Industries: Old Metal, New Polish

Michael Jarvis's picture
Making Extractive Industries’ Wealth Work for the Poor

​Back in 2004, Extractive Industries Review noted that “the overall framework of governance within which Extractives Industries (EI) development takes place will be a major determinant of its contribution to sustainable poverty reduction.” The expert panel called for World Bank Group to do more on governance and transparency of the sector.

Can “Resource Financed Infrastructure” Fix the Natural Resource Curse?

Håvard Halland's picture
Resource Financed Infrastructure
Source: Getty Images/Sam Edwards.

In Africa, estimates indicate that an annual investment of $93 billion is required to address the continent’s basic infrastructure needs – more than double the current level of investment.

The lack of productive investment of resource revenues, with spending of these revenues often heavily tilted towards consumption, is a critical component of the so-called resource curse, the observation that countries rich in natural resources frequently have slow long-term growth. Following oil or mineral discoveries, as the expectation of increased wealth spreads, pressures to spend typically become hard for politicians to resist, public sector salaries go through the roof, wasteful spending increases, corruption may flourish, hidden foreign bank accounts may be established, and the number of unproductive “white elephant” projects grows.

How can resource-rich countries ensure that a large share of oil, gas, and mining revenues are used for productive investment rather than excessive or wasteful consumption?