Natural Riches? Perspectives on Responsible Natural Resource Management in Conflict-affected Countries WORLD ECONOMIC FORUM Geneva, Switzerland 2013
Introduction and Context
For a developing country facing high poverty levels, low revenue base levels, a sluggish economy with weak institutions, and a growing population with high expectations, and at the same time possessing abundant natural resources, the exploitation of these resources will present a relatively quicker and simpler source of additional revenues than the accumulation of domestic tax revenues or the negotiation of loans that in turn can be used to mitigate poverty, build and modernize infrastructure, access finance, promote competitiveness, and generally transform the economy. However, at the same time, these goals could all be compromised by the inappropriate management of those natural resources. While there are many successful resource rich countries, several examples exist of others that have suffered from what is referred to as the “natural resource curse” and even descended in to conflict.
The key question facing the policy-maker in such situations is how to find the right balance between attracting investments through the immediate provision of concessions demanded to launch natural resource-based enterprises, and ensuring that long-term development goals are not compromised. To find this balance, the linkages between the overall development policy objectives and the direct and indirect consequences of the exploitation of natural resources must be defined and managed. Once the definitions are in place, the next step is to formulate a clear policy though an inclusive process that sets priorities for the development of extractive resources and ensures coherence with broader national objectives.
Admittedly, establishing the legal and institutional framework to effectively manage the investments and revenues from extraction all take time and political will. The pressure for quick results and the high expectations of the population once normal economic activities resume in a country such as Myanmar can present a high political cost if not taken into account. Knowing what these trade-offs are and making the right choices are among the first steps to avoid the “curse”.
Box 1: Balancing Extraction with Development: The Case of Land and Environmental Impact
Land set aside for mineral extraction is not available for other uses, and this can have major impacts on other sectors, regions and peace processes. What is an appropriate policy mix to satisfy both the demands for natural resources and the need for available land?
Policy-makers must also consider the environmental impact of leasing land for productive activities. For example, wetlands represent a key component of the ecosystem, yet may also be one of the most productive areas for large-scale rice farming. What is the appropriate choice to make? In both cases, it is essential that the population be involved in discussions on the issue.
Natural resource development embraces the concept of the use of natural resources for overall development and the idea that natural resources should be developed rather than exploited. Exploitation creates images of wasting an asset, while development suggests more care for longer term opportunities. This chapter describes the links between natural resources and other sectors of the economy and examines the relationships among the different types of natural resources, acknowledging that the quest to improve livelihoods through natural resource extraction generates tensions and opportunities in the economic, social and political domains. The chapter concludes with a series of recommendations aimed at managing these tensions while optimizing the use of natural resources for sustainable development and peace in the country.
Box 2: Key Issues to Consider
— What should the level of public expenditure that relies on natural resource revenues be, bearing in mind the volatility, unpredictability and exhaustibility of this source of revenue?
— Large revenue flows from the extractive sector encourage capital-intensive essential infrastructure projects, as well as spending on pure consumption. The former could give the illusion of rapid growth but can quickly become burdensome when sources of revenue to pay running costs dry up. The second alleviates poverty, but only temporarily. The choice of how to channel revenue flows made must be based on clearly thought-out criteria.
— The depletion of non-renewable resources could be equivalent to the depletion of the country’s wealth; how much of the revenues should be saved or invested, rather than used to meet immediate consumption needs?
— Minimizing the potential effects of Dutch disease is important because changes in production patterns may result from changes in land allocation due to natural resource extraction demands, leaving a country even less food secure than before.
— Developing human resources to accompany resource exploitation is an essential part of the transformation process and must be incorporated in the policies adopted. The question is whether to assign priority to short-term demands over longer term requirements – such as human resources – for a sustainable and vibrant economy.
Countries about to emerge from low-income status have found a number of measures useful in setting the foundation for efficient and effective management of their natural resources. These take into account the economy’s sectoral interlinkages, including:
— Developing an overall strategy for the natural resources sector that incorporates the major goals for transformation and development. Such a strategy would outline optimal levels of extraction consistent with the economy’s trajectory, specifically engender all natural resource management policies, determine levels and types of incentives to encourage investments, prescribe transparency and accountability mechanisms to be set up, stipulate the need for protection of the environment and biodiversity, and put in place a system for the effective use of revenues derived from natural resource development.
— Performing a comprehensive survey or inventory of the various forms of natural resources. Such information is essential for short- and long-term planning and efficient allocation decisions.
— Adopting a policy on the terms and conditions for granting concessions.
Many forms of natural resource exploitation have potential repercussions on peace-building and sustaining peace after a conflict. The greater the size and value of the natural resources in a country, the more difficult it is for all stakeholders to find common ground and accept that the gains are being shared equitably, especially with the intervention of external forces competing for control.
Guiding Principles and Recommendations
As a resource, land is, or forms part of, the basis for the development of each of the other resources. In addition, land is instrumental in the promotion of almost all other sectors. The competition for land by sectors such as agriculture, industry and transport, as well as the protection of water catchment areas, environmental management, etc., make it essential to seek a national consensus for a comprehensive land-use and planning policy as soon as possible.
In Africa, the existence of several, often conflicting, policies for land allocation and use has constrained agricultural development, rendered the erection of factories uneconomical, and threatened wildlife reserves. A classic example is the protection of a nature reserve, which is often the prerogative of the unit responsible for parks and wildlife, while the allocation of a mining license is with the ministry of mining. The institutions may find themselves at loggerheads over how to best use the land. However, the unplanned use of land in rural areas by mining or by land grabbing can result in pollution and the destruction of ecosystems. A politically challenging question is how to modernize agriculture while retaining the cultural and traditional ties of communal land ownership? Similarly, unplanned settlements for mining or due to rapid urbanization can create other tensions that clash with overall national economic development goals.
Measures that can mitigate these risks include:
— Formulating a comprehensive land-use and land-tenure policy after extensive consultations;
— Establishing effective coordination mechanisms for the management of competing demands, such as for building permits, mining rights or property rights;
— Setting up a land registry or cadastre office;
— Building land administration capacity;
— Establishing an integrated Web-based Geographic Information System (GIS) for land management.
Water as a resource for industrialization, rather than for human consumption, is a distinction that is useful both for planning purposes and in relating it to other development goals. Until recently, water pricing for industrial use was not appropriately priced as long as domestic consumption was not affected. Yet energy, agriculture, inland fisheries and mining all compete for ground and surface water resources. In addition, ecosystem preservation depends on the maintenance of the delicate balance between water availability and quality. Measures to address water include:
— Setting up the appropriate institutional and legal framework for comprehensive water management;
— Building capacity and raising awareness for water resource management at all levels;
— Creating effective monitoring systems for ground and surface water resource assessment.
The minerals subsector has extensive interrelationships with other development goals, such as employment, infrastructure, education, diversification and revenue management, as well as linkages with land, environment, water and agriculture, among others. The interlinkages and their implications must be analysed at an early stage to ensure coherence among policy goals at the national level, and also to create synergies among them.
At the early stages of economic growth, this sector could be the principal driver of economic activities because of the heavy investments required for mine development, the potentially large revenues from mineral taxes, demand for pre-production employment, and, when properly managed, backward linkages to the rest of the economy. However, at the same time, tensions will have to be managed to deal with pressures for exemptions from the prevailing law governing almost all mining operations, including: from rules and regulations governing all forms of taxation on enterprises, maintaining respect for human rights by both artisanal and industrial mines, enforcing transparency in contracts and agreements, and penetration of conservation areas for mining. Tensions could also emerge between mining operations and environmental protection or pollution, agriculture and other land-use opportunities. Measures that have mitigated these tensions and managed the pressures include:
— The formulation of a clear mining policy to ensure transparent and public knowledge of the rules of the game and the country’s aspirations for the sector;
— A standard and publicized fiscal regime to reduce the provisions for negotiations;
— A modern legal framework that is comprehensive and contains provisions for community issues as well as national concerns, reconciles environmental and conservation demands and development goals, standardizes fiscal provisions for all, and singles out artisanal mining issues;
— A separate revenue regime for the management of highly unpredictable revenue flows.
The two key areas of direct linkages for hydrocarbons are their effects on the finances of the country and potential tensions with the environment. The highly capital-intensive nature of the industry does not lead to many linkages at the early stages in its development. Nevertheless, the long site development stage provides time for the preparation of other sectors, such as human resources, and support to the industry by local suppliers in readiness for the commercial stage.
The promise of large revenues can lead to distortions in expenditure management, non-transparent agreements and macroeconomic instability. Likewise, the linkage between carbon mining and oilfield operations with the environment is problematic, mainly from the perspective of local capacity to effectively monitor the operations of a large, complex site. In both cases, some measures to mitigate risks that have been applied successfully include:
— The creation of a natural resource fund management facility. Many examples of these funds exist, ranging from sovereign wealth funds to heritage funds and others. The issue is determining how much to save and how much to consume immediately, given the pressures to meet development goals set at the political level. Lessons can be learned from failed efforts and successful programmes. After designing the facility, the greatest challenge is to avoid a complete bypassing of the rules governing its operations. It is important to obtain a broad-based consensus and provide widespread information on its use, even before resources are tapped.
— For environmental and conservation matters, the chief concern is local capacity to monitor and pre-empt damage. Local capacity building and linkages with countries in similar situations have been found to be very useful in managing environmental concerns derived from hydrocarbon projects. In the short-term, access to external specialist support may be inevitable.
This renewable resource requires special rules of engagement to address risks which may compromise objectives relating to sustainability and environmental conservation. In addition, the trade-offs between industrialization and sustaining the livelihoods of artisanal fish operators who traditionally depend on the sector must be carefully considered. Marine resources probably have the fewest direct links with other sectors outside conservation and environmental protection. Its impact on the livelihoods of the poor – artisanal fishermen and women – however, are very direct. An example is the encouragement of industrial fishing as a policy goal. In Senegal and other countries in the West African coast, the traditional fishermen and the women who depend on them for marketing their catch complain that large industrial operators are crowding them out and even reducing stocks.
The impact on the environment of irresponsible fishing can result, for example, in the destruction of the mangrove swamps in Myanmar, which is blamed for having left the habitat exposed to the devastating Tsunami of 2004.8 Hence, measures to mitigate risks call for direct intervention through policies and programmes that would impose fishing methods with less negative effects. Other measures include the pro-active recovery of lost habitat, the establishment and management of marine protected areas, surveillance systems that are undertaken collaboratively with neighbouring countries, and the encouragement of alternative and modern livelihoods for local and artisanal operators.
Forestry is a renewable resource that demands close monitoring systems because of its potential impact on the livelihoods of local communities, on domestic energy use and, most crucially, its links with the protection of biodiversity, especially of the flora and fauna of the country.
Myanmar’s northern forest complex is home to a wide variety of unique species of flora and fauna, many of which are endangered; at the same time it is also the source of much sought after tropical hardwood and other rare forest yields. However, the development of transportation corridors will open the entire area to exploitation that could come at the expense of much needed conservation initiatives. Elsewhere in the world, delays in setting up comprehensive forest management and planning systems have had disastrous effects.
Measures to sustain forest exploitation include:
— A comprehensive evaluation and forestry survey.
— Capacity building for forest conservation and management.
— Joining the UN REDD initiative.10
Although the environment cuts across all other forms of natural resources, it merits being a sub-category to treat specific issues peculiar to it. In this context, the environment is perhaps the most challenging sub-sector as trade-offs have to be made and conflicting goals reconciled. The general problem of balancing the costs of conservation against the benefits of exploitation will sometimes require national debates combined with strong political leadership. In addition to the internal challenge of conserving the environment, there is also the challenge of climate change, a subject that is usually beyond the control of local authorities, which requires mainly corrective action or adaptation measures. Both areas must draw on long-term mitigation measures. Important among these are:
— The development of policies that will balance out private and public incentives on the one hand with conservation and environmental concerns on the other;
— Embarking on massive environmental education for policymakers and community leaders;
— Promoting trans-boundary initiatives for environmental protection.
The biggest challenge in managing natural resources efficiently and effectively lies in its indirect effect on undermining democratic structures and principles. The large amount of investments involved in natural resource exploitation encourages rent seeking and corrupt practices, either to compensate for weak institutions and service delivery or to pay for evading the law. Until the institutions and governance structures of a nation are robust enough to ensure that the rule of law prevails, there will be a strong drive towards these resources being a curse rather than a blessing.
Successful measures to mitigate risks must include strong participation and monitoring by local civil society groups, political will to enforce rules and regulations, and capacity building of personnel in charge of mitigating risks.
Even when the right measures are in place, managing natural resources requires great sensitivity. In conflict-affected states, policy-makers must be aware of how natural resources can juxtapose community-level needs and national interests, raise tensions between competing stakeholders, and exacerbate grievances between ethnic groups. These flares are potential sources of conflict and must be addressed through a responsible approach.
An examination of the links between natural resources and the rest of the economy reveals the extent to which natural resource management influences key areas of economic activity and development in a country.