Luck has struck the region of East Africa: for a couple of years now, new announcements of natural resource discoveries are being made every few months. Mozambique has found some of the largest natural gas deposits in the world, while Tanzania, Uganda, and Kenya have also discovered gas and oil. Exploration is still ongoing, so even more discoveries could be forthcoming. Luck has definitely struck the region, but the main question is: how will the people in these countries benefit from this?
The last few years have brought an uptick in the number of mining investments that have been the subject of disputes between investors and governments. This trend is of considerable concern to the players in the sector across the globe.
Yet, there is a wealth of wisdom to be—pardon the pun—mined from the literature over the past few decades in an attempt to distill what the main risk factors are in agreements that govern investments in the sector, with specific focus on taxation regimes.
Number of Expropriatory Acts by Sector – three-year rolling averages
Source: Chris Hajzler (2010), “Expropriation of Foreign Direct Investments: Sectoral Patterns from 1993 to 2006,” University of Otago in MIGA,World Investment and Political Risk 2011
If I had to pick one critical source of exports and a key driver of economic growth for Armenia, I would pick mining.
But mining is a risky business and is fraught with hurdles. Exploration often comes up empty. Investments are very large, in excess of hundreds of millions dollars. Commodity prices can change dramatically and governments can change policies and taxes. Moreover, there can be large environmental and social risks associated with things like tailings, dams, and resettlement policies.
A risky business does not, however, mean that mining is or should be an irresponsible business. Many of these risks can be mitigated or eliminated. This requires proper policies, laws, regulations, careful implementation, and planning for life when the mine closes – all of this even before the mine opens. Supporting policies, such as easy access to updated geological information and predictability in transferring licenses, reduce the risk in exploration.
Mining is a high stakes industry. For the growing list of countries looking to translate underground assets into tangible benefits above the ground, the ability to negotiate and implement a good deal is critical. However, capacities to do so are often weak. A handy resource is now available to help countries. And it’s free!
I am a mining specialist, not a conflict specialist. But on my recent trip to Sierra Leone, I was struck by the ever-present need to look at extractive industries through the lens of conflict prevention. The devastating 11-year civil war in Sierra Leone, in large part fueled by local alluvial diamond mining, is impossible to separate from future mining development. With over 50,000 deaths due to the civil war, we cannot ignore the link between conflict and mining.
Film is a powerful tool for explaining environmental issues. I first learnt this lesson while trying to enlist local communities in northern Vietnam to help protect a strange blue faced and critically endangered primate called the Tonkin Snub Nosed Monkey. After a morning spent bombarding local leaders with facts and figures, they were polite but unmoved.
- “Artisanal miners are poor exploited human beings who are forced to dig for minerals under unbearable circumstances. They should be liberated.”
- “Artisanal miners are elephant poachers who destroy the environment. They should be evicted.”
- “Artisanal miners are successful small entrepreneurs. They should be supported and stimulated.”
- “Artisanal miners are economically inefficient. They should be replaced by large scale industrial operators.”
- “Artisanal miners are illegal and do not contribute any revenue to the state. They need to be registered and controlled.”
Mongolia’s mining revenues are set to soar in the coming years, but here people talk about the need to save for the future.
Surely building infrastructure, educating young Mongolians, improving healthcare and creating jobs is important? Surely by achieving these development goals Mongolia is providing for the next generation? These are great questions. Mongolia must do these things. But they in turn depend on efforts to prevent boom and bust and provide financial assets for future generations. Saving some of the revenues in good times is part of effective natural resource management.
Ibrahim Fanday, Chairman of Kono Youth Commission smiled proudly as he says ‘Kono is known as a trouble hot-spot – but at the end of the day, the elections were peaceful.’ Martha Lewis, a member of the local women’s network, agreed, saying ‘Hot spot? Cold spot!’
When Sierra Leone went to the polls in November last year, it followed months of speculation and fears that the hotly contested elections would be a flash-point for violence. And Kono, the state which saw the worst of the ten year civil war, and remains notorious chiefly for its diamond miles and its instability, was predicted to be at the centre of any trouble.
The elections passed without major disturbances and were pronounced free and fair by the EU observers following them. Ibrahim believes that the youth of Kono played a role in keeping the polling peaceful, by acting as ‘peace ambassadors’ in their communities. His pride is echoed by everyone I speak to - Sierra Leone seems to have passed some kind of test, in both national and international eyes, by holding an election where 87.3% of the population turned out to vote, and the peace held.