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Over the last two and a half decades, extractive resources — oil, gas, and mining– have played an important role in more than a dozen intra-state violent conflicts. Conflicts linked to the extractive industries (EI) are both economic and political in nature. These EI conflicts may centre around control over a specific natural resource and the revenues it generates; or various social groups may use resource revenues as a source of funding for generating or promoting other types of conflicts (i.e. inter-state, intra-state, political, ethnic, religious, etc.). These conflicts may be a manifestation of a larger political struggle between various factions, including provincial and central government authorities. Such conflicts may also include issues or grievances around identity, religion, control of territory, economic asymmetries, and even a separatist agenda. Considering the transformational potential of extractive industries projects, it is to be expected that almost any extractive project will generate some level of conflict. Conflict per se is not necessarily negative. Conflict, when managed properly, can incentivize a country’s government (central or local), and companies and communities, to be more open and responsive to citizens’needs; demands for improved wealth sharing and social services; and better environmental safeguards. The concern for this paper is when those conflicts escalate in a destructive and violent manner, with resulting loss in lives, potential economic growth, investments, and valuable infrastructure and services, jeopardizing poverty reduction and prosperity for all. One way to gain greater understanding regarding these conflicts’underlying issues and dynamics, and to take practical preventive actions, is to“conflict-sensitize”the World Bank’s Extractive Industries Value Chain adopted in 2009 (see Figure 1). This paper therefore examines the chain’s potential usefulness as a framework for conflict prevention with a view towards developing a corresponding tool to help identify, preempt, and, if necessary, re-direct policy choices that tend to cause or exacerbate EI-related conflicts. Through literature review, interviews and preliminary observations and analysis from four countries (Chile, Peru, Zambia and the Democratic Republic of Congo), the paper aims to illustrate the benefits and challenges of working along a conflict-sensitive value chain, examining whether this framework can help policy-makers and other stakehold ers to identify potential conflict risks and mitigation activities along the five links of the World Bank’s EI Value Chain. This paper also sheds light on the challenges and opportunities faced by various countries in implementing effectively a conflict-sensitive EI Value Chain, and how the policy choices made along the links of the chain might affect their capacity to prevent or mitigate violent conflict. The results from these four countries, however, are preliminary and illustrative only of how a conflict-sensitive framework could work in various extractive industries contexts and countries with diverse state capacity and legitimacy (i.e. Chile and DRC). Deeper analysis and more evidence from each country are needed so as to draw more definitive results and to make more cogent recommendations. A discussion PAPer Preventing conflict in resources-rich countries | 5 executive summary Award of Contracts and Licenses Regulation and Monitoring of Operations Collection of Taxes and Royalties Revenue Management and Allocation Implementation of Sustainable Development Policies and Projects 1 2345 figure 1. extractive industries value chain Source: Alba, Mayorga Eleodoro, 2009 Although some links of the World Bank’s value chain appear to be more relevant than others when addressing the issue of conflict prevention, every link of the value chain plays an important role, and presents both potential conflict risks and opportunities for mitigating these risks. Furthermore, another interesting finding is that the World Bank’s value chain adopted for the study has some limitations. It falls short, for instance, in capturing what happens in a country before contracts are awarded, and what happens after EI projects stop generating revenue. Such findings signal that, in order to fully conflict sensitize the EI Value Chain, a comprehensive design of the value chain itself is critically important. In general, however, any version of the EI Value Chain may actually exacerbate conflict if its implementation is not conflict-sensitive, or does not take into account the potential conflict risks and mitigation actions, along its continuum, or indeed if the value chain itself does not capture all the steps and links where conflict may arise. That is why it is of the essence to understand that a range of political choices, and not just those that are economic , weigh heavily on how extractive resources are managed and are perhaps the single most decisive factor in whether or not there will be extractive-related violent conflict. In situations where the government (and companies) are committed to avoiding EI conflict, a framework with a conflict-sensitized value chain may offer a clear road map for achieving such a goal. Therefore, this study also shows that it is important to further develop a conflict sensitization approach for an expanded extractive industry value chain and to use this to establish frameworks for assessing conflict risks and mitigation strategies with regard to resource extraction. While there are no universal solutions or silver bullets that can be applied in every country or specific situation, this report has identified a few emerging lessons from the four countries reviewed. four emerging lessons Based on the four countries studied, there are four emerging lessons that deserve particular attention. The first general lesson that can be drawn from the analysis is that of the links of the World Bank Value Chain, Link 1 (award of contracts and licenses) seems to be the one that most often determines the risk of conflict throughout the whole EI project. Much gets determined during a contract negotiation: revenue generation, project location and scale, site-specific environmental regulations, potential benefits for communities such as development agreements, local content policies, etc. A second important lesson to be drawn from the country reviews is that effective revenue management and allocation (Link 4) and the implementation of sustainable development policies and projects (Link 5) seem to be most instrumental in keeping and/or securing the peace dividend in the long term. Successful, visible and responsive benefit-sharing, as well as economic diversification policies, seem to help countries to create new employment opportunities and safety nets that help them weather volatile changes in the commodities market. The third general lesson to be drawn isthat the safeguardsto prevent and mitigate conflict are often specific to the country (as well asto the projectsite) and reflect the political, cultural, and socio-economic history and reality of those particular environments and circumstances. Measures to prevent conflict in each link of the value chain must therefore be adapted to the country in question and project site context and prevailing political economy. And the fourth general lesson for consideration is that, as a framework for assessing potential conflict risks and mitigation strategies with regard to resource extraction, the value chain of the extractive sector should consider important steps before the actual awards of contracts, such as the national strategic framework; the extractive sector policy, legislation and regulations; and how the sector is organized and institutionalized. The value chain also needs to be in a position to capture potential conflict risks concerning the process of regulating and executing exploration and discovery, the approval process for construction, the construction phase itself, and site closure. Increasingly, new extractive resources are being discovered in countries with fragile systems of government and fractured social relationships. As governments seek to develop such resources, they need to be mindful of the heightened risk of violent conflict that these resources may generate, and of the opportunities to mitigate these risks. It is to be hoped that this analysis will shed light on the benefits of using a “conflict-sensitive” EI Value Chain to offset, and proactively respond to those risks that can be foreseen and prevented. Only by effectively preventing violent conflict will resource-rich countries be able to truly harness the transformational potential of their natural resources for the benefit of all.

Preventing Conflict in Resource-Rich Countries: The extractive industries value chain as a framework for conflict prevention

Resource Key: 82P3H6S4

Document Type: Report

Creator:

Author:

  • Mauricio O. Ríos
  • Florian Bruyas
  • Jodi Liss

Creators Name: {mb_resource_zotero_creatorsname}

Place: Washington D.C.

Institution: World Bank

Date: June 2015

Language: en

Over the last two and a half decades, extractive resources — oil, gas, and mining– have played an important role in more than a dozen intra-state violent conflicts. Conflicts linked to the extractive industries (EI) are both economic and political in nature. These EI conflicts may centre around control over a specific natural resource and the revenues it generates; or various social groups may use resource revenues as a source of funding for generating or promoting other types of conflicts (i.e. inter-state, intra-state, political, ethnic, religious, etc.). These conflicts may be a manifestation of a larger political struggle between various factions, including provincial and central government authorities. Such conflicts may also include issues or grievances around identity, religion, control of territory, economic asymmetries, and even a separatist agenda. Considering the transformational potential of extractive industries projects, it is to be expected that almost any extractive project will generate some level of conflict. Conflict per se is not necessarily negative. Conflict, when managed properly, can incentivize a country’s government (central or local), and companies and communities, to be more open and responsive to citizens’needs; demands for improved wealth sharing and social services; and better environmental safeguards. The concern for this paper is when those conflicts escalate in a destructive and violent manner, with resulting loss in lives, potential economic growth, investments, and valuable infrastructure and services, jeopardizing poverty reduction and prosperity for all. One way to gain greater understanding regarding these conflicts’underlying issues and dynamics, and to take practical preventive actions, is to“conflict-sensitize”the World Bank’s Extractive Industries Value Chain adopted in 2009 (see Figure 1). This paper therefore examines the chain’s potential usefulness as a framework for conflict prevention with a view towards developing a corresponding tool to help identify, preempt, and, if necessary, re-direct policy choices that tend to cause or exacerbate EI-related conflicts. Through literature review, interviews and preliminary observations and analysis from four countries (Chile, Peru, Zambia and the Democratic Republic of Congo), the paper aims to illustrate the benefits and challenges of working along a conflict-sensitive value chain, examining whether this framework can help policy-makers and other stakehold ers to identify potential conflict risks and mitigation activities along the five links of the World Bank’s EI Value Chain. This paper also sheds light on the challenges and opportunities faced by various countries in implementing effectively a conflict-sensitive EI Value Chain, and how the policy choices made along the links of the chain might affect their capacity to prevent or mitigate violent conflict. The results from these four countries, however, are preliminary and illustrative only of how a conflict-sensitive framework could work in various extractive industries contexts and countries with diverse state capacity and legitimacy (i.e. Chile and DRC). Deeper analysis and more evidence from each country are needed so as to draw more definitive results and to make more cogent recommendations. A discussion PAPer Preventing conflict in resources-rich countries | 5 executive summary Award of Contracts and Licenses Regulation and Monitoring of Operations Collection of Taxes and Royalties Revenue Management and Allocation Implementation of Sustainable Development Policies and Projects 1 2345 figure 1. extractive industries value chain Source: Alba, Mayorga Eleodoro, 2009 Although some links of the World Bank’s value chain appear to be more relevant than others when addressing the issue of conflict prevention, every link of the value chain plays an important role, and presents both potential conflict risks and opportunities for mitigating these risks. Furthermore, another interesting finding is that the World Bank’s value chain adopted for the study has some limitations. It falls short, for instance, in capturing what happens in a country before contracts are awarded, and what happens after EI projects stop generating revenue. Such findings signal that, in order to fully conflict sensitize the EI Value Chain, a comprehensive design of the value chain itself is critically important. In general, however, any version of the EI Value Chain may actually exacerbate conflict if its implementation is not conflict-sensitive, or does not take into account the potential conflict risks and mitigation actions, along its continuum, or indeed if the value chain itself does not capture all the steps and links where conflict may arise. That is why it is of the essence to understand that a range of political choices, and not just those that are economic , weigh heavily on how extractive resources are managed and are perhaps the single most decisive factor in whether or not there will be extractive-related violent conflict. In situations where the government (and companies) are committed to avoiding EI conflict, a framework with a conflict-sensitized value chain may offer a clear road map for achieving such a goal. Therefore, this study also shows that it is important to further develop a conflict sensitization approach for an expanded extractive industry value chain and to use this to establish frameworks for assessing conflict risks and mitigation strategies with regard to resource extraction. While there are no universal solutions or silver bullets that can be applied in every country or specific situation, this report has identified a few emerging lessons from the four countries reviewed. four emerging lessons Based on the four countries studied, there are four emerging lessons that deserve particular attention. The first general lesson that can be drawn from the analysis is that of the links of the World Bank Value Chain, Link 1 (award of contracts and licenses) seems to be the one that most often determines the risk of conflict throughout the whole EI project. Much gets determined during a contract negotiation: revenue generation, project location and scale, site-specific environmental regulations, potential benefits for communities such as development agreements, local content policies, etc. A second important lesson to be drawn from the country reviews is that effective revenue management and allocation (Link 4) and the implementation of sustainable development policies and projects (Link 5) seem to be most instrumental in keeping and/or securing the peace dividend in the long term. Successful, visible and responsive benefit-sharing, as well as economic diversification policies, seem to help countries to create new employment opportunities and safety nets that help them weather volatile changes in the commodities market. The third general lesson to be drawn isthat the safeguardsto prevent and mitigate conflict are often specific to the country (as well asto the projectsite) and reflect the political, cultural, and socio-economic history and reality of those particular environments and circumstances. Measures to prevent conflict in each link of the value chain must therefore be adapted to the country in question and project site context and prevailing political economy. And the fourth general lesson for consideration is that, as a framework for assessing potential conflict risks and mitigation strategies with regard to resource extraction, the value chain of the extractive sector should consider important steps before the actual awards of contracts, such as the national strategic framework; the extractive sector policy, legislation and regulations; and how the sector is organized and institutionalized. The value chain also needs to be in a position to capture potential conflict risks concerning the process of regulating and executing exploration and discovery, the approval process for construction, the construction phase itself, and site closure. Increasingly, new extractive resources are being discovered in countries with fragile systems of government and fractured social relationships. As governments seek to develop such resources, they need to be mindful of the heightened risk of violent conflict that these resources may generate, and of the opportunities to mitigate these risks. It is to be hoped that this analysis will shed light on the benefits of using a “conflict-sensitive” EI Value Chain to offset, and proactively respond to those risks that can be foreseen and prevented. Only by effectively preventing violent conflict will resource-rich countries be able to truly harness the transformational potential of their natural resources for the benefit of all.

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