Ask the Experts
How can government best ensure mining produces broad-based economic development?
To secure a positive development outcome from mining, governments first need to create the conditions that will attract investment in new mines. This starts with open and honest means of allocating mineral exploration and development rights, the rule of law, a stable regulatory and fiscal regime, and openness to foreign investment.
Once governments have secured investment, what opportunities should they focus on? Governments need only look at the annual reports of mining companies to see the huge potential of building commercial sectors to generate inputs for the mining industry. At Anglo American plc., for example, procurement and wages together accounted for over $18 billion of our $31 billion of expenses in 2011. The vast majority of that was spent in our host countries. In contrast, taxes paid were $3.6 billion and dividends to our shareholders $2.2 billion. When viewed this way, even substantial increases in tax rates are overshadowed by the potential benefits for increasing local inputs.
Setting consensus targets for local procurement can be a helpful kick-start to local economic activity, but governments can and should do more than that. Creating a good environment for small businesses is critical, and providing supporting infrastructure such as supplier parks can help attract vendors into mining communities. Governments can also partner with companies to develop small-business development initiatives; in this area Anglo American has supported 47,000 small-business jobs in 2011, and social investment will remain important. For this, governments have a role to play in ensuring that companies adopt integrated development programs, rather than just sponsoring isolated projects.
Governments also need to ensure that the taxes generated by mining are put to good use, by preventing corruption and training local public officials. Governments deliver most of the basic services, such as education, that will unlock the development potential of communities.
JON SAMUEL is head of social performance at Anglo American plc.
FRANCISCO PANIZZA ANSWERS:
It has become almost a default assumption that mineral rents are bad for economic development. The theory of the rentier state argues that states funded by royalties from minerals-particularly oil and gas-are wasteful and corrupt and that the foreign currency income from mineral rents crowds out other productive investment.
And yet there is nothing wrong with deriving income from mineral extraction. Actually, a lot of good can come out of it. Australia is one of the fastest growing developed economies in the world thanks to mineral exports to China. Norway, a major oil producer, is on top or near the top of all indicators for human development and good governance. In South America, Chile's development success has been significantly boosted by high copper prices.
The problem with rentier states is not that they are good states gone bad because they found mineral wealth, but that they were never any good. So, whether mineral wealth is a curse or a blessing depends on politics rather than on economics. A good mineral-rich state will look surprisingly similar to any other good development state. It will be democratic and accountable, with checks and balances and rule of law.
Mineral wealth is a windfall income that can provide resources for sustainable development that should benefit the whole country, especially the poor. How governments use this income is what determines the relation between mineral wealth, development and social justice.
This is not a dilemma exclusive to mineralrich states but for all developmental states. …