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This book is about the challenges and opportunities that countries face in using their extractive industries to achieve inclusive development. Its focus is on the developing world, both low-income countries (LICs) and middle income countries (MICs), drawing upon the experiences of high-income countries (HICs) when relevant. Extractive industries have shaped the economies, societies, and politics of nations—for good and bad. Today’s richest nations owe at least part of their high living standards to the extractive industries. Yet while a large national income can result from resource wealth, it can also be associated with acute social inequality and deep poverty—the very opposites of inclusive development. Many LICs and MICs struggle to diversify their economies, and create redistributive fiscal systems, in ways that reduce poverty, inequality, and social division. The very worst cases see violent conflict and civil war. The phrase ‘resource curse’ became common coin by the turn of the millennium. Crises and resource-wars were important catalysts in a new determination to improve the sector’s governance. Global civil society, notably Global Witness and Oxfam America, together with the Natural Resources Governance Institute (NRGI) and industry bodies such as the International Council on Mining and Metals (ICMM) have led efforts to achieve improved outcomes for the extractives sector. One of the most notable manifestations of this was the Extractive Industries Transparency Initiative (EITI) launched in 2002. These all recognize, in different ways, that natural resources can provide a means, when properly used, for poorer nations to decisively break with poverty. National ambitions for the extractives sector were given a major boost in the years after the millennium by an upswing in the prices of metals and fuels, following low prices in the 1980s and 1990s. China’s economic boom resulted in a seemingly insatiable demand for commodities of all kinds and this, together with limited supplies after years of low investment, created a ‘commodities super-cycle’. Growth elsewhere in the global economy added to demand. Euphoria returned during the super-cycle years from 2002 with buoyant export earnings and public revenues, as well as higher economic growth (though often of a narrow and undiversified kind). Very large investments were made in mining as well as in oil and gas after many years of moderating capacity; much of this was in the LICs and MICs. Producers rode the super-cycle, including a sharp dip during the 2008–9 financial crisis, for more than a decade until it finally stalled in 2011–12. However, the price slump did remind companies and governments of the commercial and economic risks associated with the extractives sector. Companies cut production and scaled back many of the investment plans made during the super-cycle years. Host countries initiated macroeconomic adjustments in response to lower revenues, their options limited in many cases by a failure to build fiscal buffers and diversify their economies during the good times. Painful adjustments are still ongoing in countries that over accumulated debt. Prices are now (January 2018) above their lowest levels, though for oil and gas, as well as many metals, they are still far from their super-cycle peak. Nevertheless, prices in real terms remain above their long-term trend levels in the case of most metals as well as oil (see Stevens, Chapter 4, this volume). Some metals required in the manufacture of batteries for electric vehicles and in renewable energy technologies, notably cobalt and lithium, experienced spectacular price increases in 2017/18 because of significant supply–demand imbalances. The size and direction of future price changes are inherently uncertain. A myriad of forces will determine the future of each extractives sector, favouring some fuels, minerals, and metals at the expense of others. The forces driving the future include: the pace and pattern of global economic growth (with India perhaps nudging China’s position as the leading driver of Asian commodities demand); the speed of the shift from fossil fuels to renewables in the overall energy mix (in turn a product of technical change as well as national and international climate action); and changes in the industry itself, including the pace of technical change that makes it easier to develop new deposits in more difficult locations, as well as the adoption of ‘green mining’ in order to minimize the sector’s own environmental footprint. Developing countries need a strong understanding of these trends as they play out. LICs and MICs have become significantly more important as producers of extractives in recent years (see Roe and Dodd, and Ericsson and Löf—Chapters 2 and 3, respectively, in this volume). Since this tendency will almost certainly continue, their prospects for growth and poverty reduction significantly depend upon their extractives sectors and how these are managed. Although ‘keep it in the ground’ is a theoretical policy option, it is not an option that is likely to be widely adopted in practice (see Lahn and Stevens, Chapter 5). This book aims to provide a comprehensive contribution to a lively and ongoing debate, in which many stakeholders now participate: governments and their international partners (bilateral and multilateral development agencies); the industry itself (the companies together with industrial associations such as ICMM and IPIECA); community-based organizations (and their NGO and INGO partners); the national and international media; and the research community in universities and think tanks. This debate centres on achieving practical action to deliver inclusive development using resource wealth, protect often fragile environments from damage, enhance the rights of affected communities (and the benefits to them), and support climate change action. Central to these tasks is the creation of a set of effective and accountable institutions to manage the extractives sector and maximize its potential for development impact. In addition to capturing the flavour of current debate on extractives and development, this book offers ideas and some recommendations in most of the main policy areas. Since no single person has expertise on every facet of extractives and development, this book brings together a range of international experts from many disciplines and organizations; it therefore represents a large amount of collective insight and experience. The book is a major output of UNU-WIDER’s latest research project on extractives and development which began in 2015. The book is accompanied by a website which makes available additional materials. The book does not seek to define a single formula for ‘success’. Instead it offers a comprehensive but integrated account of the multiple ingredients that are needed to turn the undoubted potential of extractives wealth into the reality of sustained improvements in living stand ards and social well-being. Section 1.2 presents ten of the most important messages of this book. The chapter concludes with a restatement of what we believe this book offers to ongoing debate and action on this most vital of development issues.

Extractive Industries: The Management of Resources as a Driver of Sustainable Development

Resource Key: TIMF6B2B

Document Type: Book

Creator:

Editor:

  • Tony Addison
  • Alan Roe

Creators Name: {mb_resource_zotero_creatorsname}

Place: Oxford

Institution:

Date: 2018

Language: en

This book is about the challenges and opportunities that countries face in using their extractive industries to achieve inclusive development. Its focus is on the developing world, both low-income countries (LICs) and middle income countries (MICs), drawing upon the experiences of high-income countries (HICs) when relevant. Extractive industries have shaped the economies, societies, and politics of nations—for good and bad. Today’s richest nations owe at least part of their high living standards to the extractive industries. Yet while a large national income can result from resource wealth, it can also be associated with acute social inequality and deep poverty—the very opposites of inclusive development. Many LICs and MICs struggle to diversify their economies, and create redistributive fiscal systems, in ways that reduce poverty, inequality, and social division. The very worst cases see violent conflict and civil war. The phrase ‘resource curse’ became common coin by the turn of the millennium. Crises and resource-wars were important catalysts in a new determination to improve the sector’s governance. Global civil society, notably Global Witness and Oxfam America, together with the Natural Resources Governance Institute (NRGI) and industry bodies such as the International Council on Mining and Metals (ICMM) have led efforts to achieve improved outcomes for the extractives sector. One of the most notable manifestations of this was the Extractive Industries Transparency Initiative (EITI) launched in 2002. These all recognize, in different ways, that natural resources can provide a means, when properly used, for poorer nations to decisively break with poverty. National ambitions for the extractives sector were given a major boost in the years after the millennium by an upswing in the prices of metals and fuels, following low prices in the 1980s and 1990s. China’s economic boom resulted in a seemingly insatiable demand for commodities of all kinds and this, together with limited supplies after years of low investment, created a ‘commodities super-cycle’. Growth elsewhere in the global economy added to demand. Euphoria returned during the super-cycle years from 2002 with buoyant export earnings and public revenues, as well as higher economic growth (though often of a narrow and undiversified kind). Very large investments were made in mining as well as in oil and gas after many years of moderating capacity; much of this was in the LICs and MICs. Producers rode the super-cycle, including a sharp dip during the 2008–9 financial crisis, for more than a decade until it finally stalled in 2011–12. However, the price slump did remind companies and governments of the commercial and economic risks associated with the extractives sector. Companies cut production and scaled back many of the investment plans made during the super-cycle years. Host countries initiated macroeconomic adjustments in response to lower revenues, their options limited in many cases by a failure to build fiscal buffers and diversify their economies during the good times. Painful adjustments are still ongoing in countries that over accumulated debt. Prices are now (January 2018) above their lowest levels, though for oil and gas, as well as many metals, they are still far from their super-cycle peak. Nevertheless, prices in real terms remain above their long-term trend levels in the case of most metals as well as oil (see Stevens, Chapter 4, this volume). Some metals required in the manufacture of batteries for electric vehicles and in renewable energy technologies, notably cobalt and lithium, experienced spectacular price increases in 2017/18 because of significant supply–demand imbalances. The size and direction of future price changes are inherently uncertain. A myriad of forces will determine the future of each extractives sector, favouring some fuels, minerals, and metals at the expense of others. The forces driving the future include: the pace and pattern of global economic growth (with India perhaps nudging China’s position as the leading driver of Asian commodities demand); the speed of the shift from fossil fuels to renewables in the overall energy mix (in turn a product of technical change as well as national and international climate action); and changes in the industry itself, including the pace of technical change that makes it easier to develop new deposits in more difficult locations, as well as the adoption of ‘green mining’ in order to minimize the sector’s own environmental footprint. Developing countries need a strong understanding of these trends as they play out. LICs and MICs have become significantly more important as producers of extractives in recent years (see Roe and Dodd, and Ericsson and Löf—Chapters 2 and 3, respectively, in this volume). Since this tendency will almost certainly continue, their prospects for growth and poverty reduction significantly depend upon their extractives sectors and how these are managed. Although ‘keep it in the ground’ is a theoretical policy option, it is not an option that is likely to be widely adopted in practice (see Lahn and Stevens, Chapter 5). This book aims to provide a comprehensive contribution to a lively and ongoing debate, in which many stakeholders now participate: governments and their international partners (bilateral and multilateral development agencies); the industry itself (the companies together with industrial associations such as ICMM and IPIECA); community-based organizations (and their NGO and INGO partners); the national and international media; and the research community in universities and think tanks. This debate centres on achieving practical action to deliver inclusive development using resource wealth, protect often fragile environments from damage, enhance the rights of affected communities (and the benefits to them), and support climate change action. Central to these tasks is the creation of a set of effective and accountable institutions to manage the extractives sector and maximize its potential for development impact. In addition to capturing the flavour of current debate on extractives and development, this book offers ideas and some recommendations in most of the main policy areas. Since no single person has expertise on every facet of extractives and development, this book brings together a range of international experts from many disciplines and organizations; it therefore represents a large amount of collective insight and experience. The book is a major output of UNU-WIDER’s latest research project on extractives and development which began in 2015. The book is accompanied by a website which makes available additional materials. The book does not seek to define a single formula for ‘success’. Instead it offers a comprehensive but integrated account of the multiple ingredients that are needed to turn the undoubted potential of extractives wealth into the reality of sustained improvements in living stand ards and social well-being. Section 1.2 presents ten of the most important messages of this book. The chapter concludes with a restatement of what we believe this book offers to ongoing debate and action on this most vital of development issues.

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