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The Contribution of the Mining Sectorto Socioeconomic and Human

Development

Paulo de SaPractice Manager

Energy & Extractives Global PracticeThe World Bank Group

January 13, 2015



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Agenda

Mining Contribution to Socioeconomicand Human Development

The World Bank Group: Who we are and What do we do?

Global Mining Industry … Issues and Challenges

How can Mining Contribute to Socioeconomic and HumanDevelopment? Three Channels for Action:

Revenue Mobilization Sound Macroeconomic Management Inclusive Growth

Evaluating Mining’s Contribution: The case of Sub -Saharan Africa



Mining Contribution to Socioeconomicand Human Development 4

WBG Extractive Industries Financing Trends: FY2005 - FY2014

US$ 9 billion of cumulative investment over the past decade

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

IBRD/IDA IFC MIGA

WBG EI Financing Volume: FY2005 -FY2014

(US$ Millio ns )




World Bank Group Extractives Current Portfolio

IDA: US$437 million. 14 Dedicated EI TA Projects , of which 85% in

Africa (Burkina Faso, Cameroon, DRC, Ghana, Guinea, Kenya, Malawi,Mozambique, Sierra Leone, Tanzania), plus Afghanistan, Mongolia, PNG.

• IFC: $401 Million: 32 Projects in 21 Countries.

Iron, 43%

Diamonds, 18%

Gold, 17%

Industrial Ores,12%

Other Metals, 8%Copper, 2%

Sub-SaharanAfrica, 78%

LAC, 16%

Europe andCentral Asia, 4%

Middle East &North Africa, 1%

World, 1%




Robust E&SMitigation

Adequate GovernanceCapacity & Institutions

Transparency

Tax revenues for public investmentsand safety net programs for the

poor and vulnerable

Job creation and skills development

Developing local supply chains

Sharing extractives-relatedinfrastructure

Fostering trade and foreigndirect investment

EndingExtremePoverty

BoostingShared

Prosperity

Tax Revenues For PublicInvestments & Safety Net Programs

For The Poor & Vulnerable

Job Creation & Skills Development

Developing Local Supply ChainsSharing Extractives-related

Infrastructure

Fostering Trade & ForeignDirect Investment

EndingExtremePoverty

BoostingShared

Prosperity

CommunityEngagement

Extractive Industries Support The WBG’s Twin Goals




Potential Outcomes of the Current Price Declines:

Concentration of supply, with return to safe havens andless focus on emerging markets.

Possible Macroeconomic Windfall with greater gains formineral consuming countries.

Fiscal Adjustments for Mineral Exporters.

Less Dependency and More Economic diversification forResource Rich Countries?

Global Mining Industry … Issues and Challenges




Strategic Setting: Global Issues in Mining

Commodity prices declining after sustained high levels overthe last 10 years bringing a lot of instability into the sector.

On the Demand Side: Global economic risks continue to hinder growth prospects . Theglobal economy remains fragile and prone to policy uncertainty. Slower growth in China is pulling down demand for and prices ofexports of metals and minerals.

On the Supply Side: Record levels of investment in exploration and development ended. Need to reduce excess supply : Marginal producers are closing, hugeinvestment write-offs . Risk of supply concentration (iron ore, copper) threatens futureprice increases.




High expectations from shareholders of mining companiesrequesting adequate returns from past investments.

Increased expectations by governments and communitiesfor a bigger share of benefits , leading to trend in revising fiscalregimes, renegotiation of contracts, and local conflicts.

Resource Rich Countries seeking higher contribution fromthe sector aiming at inclusive growth, bigger share in themarkets.

Environmental and Social “ licenses to operate ” becomingindispensable for any mining project.

Adjustment Taking Place on Background of Conflicting Expectat ions




Possible Outcomes: A Macroeconomic Windfall?

World Bank Global Economic Prospects: Lower Commodity prices will boost world output by 0.5%. Global Inflation will fall by 0.4-0.9% over the medium term. Resource Risk Countries are going through Fiscal

Adjustments because of reduced revenue mobilization . Fewer countries are falling on the “ Debt Trap ” created by

excessive consumption and increases in public sector wages.Price volatility will affect Subnational Governments and

Local Communities benefiting from Revenue Sharing

mechanisms or Earmarked Revenues




Location Of Mining Activity HasShifted Towards Emerging Markets

Resource Exports(Average, 2005 - 2010)

Possible Outcomes: Less Dependency?




How can Mining Contribute to Socioeconomic and HumanDevelopment? Three Channels for Action:

Revenue Mobilization

Sound Macroeconomic Management

Inclusive Growth

Contribution to Socioeconomic and Human Development




1/ Fiscal:Optimizing revenue mobilization

2/ Macroeconomic:Avoiding the “resource curse”

3/ Contribution to Social and Human

Development through Inclusive Growth

Three Channels for Action

Mining

Contribution toSocioeconomicand Human

Development




1/ Fiscal - Optimizing revenue mobilization:

Build stable and transparent Legal andRegulatory Frameworks.

Invest in improving technical capacities andskills for the negotiation of equitable and flexible

fiscal regimes. Improve tax administration capacities to tackle

tax avoidance schemes such as transfer pricing. Build strong institutions which promote

transparency and good governance, ensure

property rights, and support political stability. Promote Transparency and Accountability , toavoid elite capture, and support participation ofthe majority of citizens in economic activity.

Mining


Development

Fiscal Route Channel




2/ Macroeconomic - Avoiding the “resource curse”:

Minimize pro-cyclical government expenditure byimplementing fiscal rules which insulate the national budgetfrom fluctuations in commodity prices. Revenues accruing abovea benchmark commodity price are saved in a separate fund.

Develop a rules-based stabilization fund

, creatingnational public savings. The stabilization fund provides savings tofinance public expenditure programs if commodity pricesdecline.

Aim at ensuring long-term income (once resourcesare depleted), by converting the natural resource into financial,human and physical assets. Resource windfalls may be partlysaved for future generations (Sovereign Wealth Funds).

Focus on investments in productive physicalassets like public infrastructure (such as power plants,transport infrastructure, etc.), which reduce the costs of doingbusiness for the private sector (avoid ‘ white elephant ’ projects).

Mining


Development

Macroeconomic Route




MiningContribution toSocioeconomic

and HumanDevelopment

3/ Inclusive Growth - Contribution to Social andHuman Development:

Human Development:Jobs

Skills and EducationHealthGenderR&D and innovation

Economic Diversification (including local content)Shared infrastructure and Local EconomicDevelopmentValue addition and downstream integration

Inclusive Growth Route




Sound Investment Climate and Competitiveness of othersectors of the economyIdentification of National Priorities and preparation ofintegrated Development Plans at the Central and SubnationalLevelsInter Ministerial CoordinationIntegration of Mining Companies infrastructure and socialspending into Government Plans, namely through Public-Private Partnerships

Regional (Multi-Country) ApproachClose involvement of Civil Society OrganizationsContinuous Support from Donor Agencies

Inclusive Growth Route: Key Challenges




Inclusive Growth: Potential Partnerships With the EUC

Four Potential Partnerships With the EUC:

Support to Contract Negotiation

EILCD: Extractive Industries for Local Content Development

AMGI: African Minerals Geoscience Initiative

Mining Associated Infrastructure




Support to Contract Negotiation

Extractive Industries Technical Advisory Facility (EI-TAF) assists developingresource-rich countries to structure extractive industry transactions and relatedsector policies. EI-TAF facilitates rapid-response, third-party advisory servicesand capacity building for resource policy frameworks and transactions. On-goingprojects in 20 countries.

Through its Knowledge Management window EI-TAF supports the production

and dissemination of global knowledge products. The flagship products:EI Source Book : Developed in collaboration with Un. Of Dundee.

Mining Government Assessment: Developed in collaboration with Govt. ofGermany, the Adam Smith Inst. and Natural Resources Governance Institute

ASEI- African Sustainable Extractive Industries : New Trust Fund funded by the

French Government.

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Global activities : Global community of practice forsustained professional learningDevelopment of guidance notes and tool-kits for design and implementation ofLCPs

Knowledge exchange, Advocacy andPromotion Country-level and Regional-levelactivities :

TA and capacity building for design/reformof local content policies and strategies.

Demand for Skills in the extractivesindustry and potential for local contentSupply assessment

Employment and local supplies: 66% of the value created

EILCD: Extractive Industries for Local Content Development




AMGI: African Minerals Geoscience Initiative

Geological Data(geo-database)

KEY DELIVERABLE from AMGI(at 1:50k to 1:100k scale density )

Cadaster Linked togeological mapping(rural land titling) withmineral inventory and

concession DB/cadaster

Remote sensingSatellite dataGeophysical

(geo-database)

A new initiativechaired by theAfrican UnionCommissionaiming at

making geo-data accessibleto a globalaudience inAfrica.




Copper (DR Congo, Zambia)

Coal (Mozambique, Zimbabwe, SouthAfrica, Botswana, Namibia)

Iron Ore (Mauritania, Guinea, Liberia ,Sierra Leone, Senegal, Cote d’Ivoire,Rep. of Congo, Gabon, Cameroon)

Bauxite (Guinea, Ghana, Nigeria,Cameroon, Sierra Leone)

New mineral and oil/gas

discoveries are opening upcountries and sub-regions in SSA,

Vast untapped resources willrequire infrastructure for

development, but funding needsvastly exceed national budgets ofhost governments.

By partnering upstream withanchor investors, countries canleverage their natural resourcesfor the development of mega-scale, shared-use transport andpower assets.

Uganda

US$8-10 bn in oilinvestmentsUS$50 bn in oilexport revenue

TanzaniaUS$20 bn investmentin LNGPossible US$2bn ingov’t revenue p.a.

Mozambique

US$10 bn investment in mining

& infrastructureUS$70 bn investment in gas

Cameroon

US$7 bn in iron ore andaluminum investments

Ghana

US$8-10 bn in oilinvestmentsUS$40 bn in exportrevenue

Guinea

US$20 bn ininvestments inextractives & relatedinfrastructure

Mining Associated Infrastructure




Evaluating Mining’s Contribution to Socioeconomic and

Human Development:

The case of Sub-Saharan Africa



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The Case of SSA: Strong Economic Performance

Source: World Bank (2012)

Mining dependent low & lower-middle income SSA countries* posted the

lowest GDP growth rates in the region in 1991-2000 .

But they outperformed their non-mining and non-mining/oil peers in2001-2010 and 2007-2011 .


SSA Low- and Lower-middle-income Countries – GDP Annual Growth Rate (%)



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Improving Human Development Indicators

Source: UNDP, 2012

Mining dependent low- and lower-middle income SSA countries* are bridging

the disparity gap and increasing access to quality health and education services.


SSA Low- and Lower-Middle Income Countries – Change in Health and Education Indices (%)

Education Health

0

5

10

15

20

25

30

35

1990-2000 2000-2010 2007-20110

5

10

15

20

25

1990-2000 2000-2010 2007-2011

Mining

Non-Mining

Non-Mining/Oil

World



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Progress in Governance

Source: World Bank, 2012

Mining dependent low- and lower-middle income SSA countries are closing thegovernance gap at a higher rate than their regional cohorts, except for governmenteffectiveness.

Moreover, contrary to resource curse theory, higher increased dependence onmining did not result in deteriorating governance .

Voice Accountability (V), Political Stability (S) andGovernment Effectiveness (E) (% Change)


SSA Low- and Lower-Middle Income Countries

1996-2003 2003-2010

V S E V S E

Mining 9.9 8.6 7.9 7.1 3.1 -3

Non-Mining

9.5 3.7 -5.9 -4.5 -0.4 -2.4

Non-Mining/Oil

5.4 0 -5.9 -3.7 -3.5 0.5

World -0.4 2.5 -1 1.2 1.2 1.2

1996-2003 2003-2010

R L C R L C

Mining 3.5 8.7 -0.4 6.1 4.6 6.8

Non-Mining

1.2 -0.6 -3.5 -2.3 -2.9 -3.5

Non-Mining/Oil

-0.9 -0.6 -4 -4.4 -6.5 -4

World 0 0 0 0 0 0

Regulatory Quality (R), Rule of Law (L) and Controlof Corruption (C) (% Change)




Early Indications of Impacts at the Community Level

Using a large sample of women and children living within 100km of a mine, the

establishment of a new mine increases income earning opportunities within theservice sector by 41%.

Other determinants of welfare are also affected:women are 23% less likely to state a barrier to healthcare access for herself.women’s acceptance of domestic violence decreases by 24%.

Despite risks of environmental pollution from gold mining, infant mortality morethan halves with the mine opening:Mine opening is associated with 6.5% decrease in the likelihood that a child diedwithin the first 12 months (which is equivalent to a two-thirds decrease).For boys, the change is 4.8%, equivalent to a 47% decrease in the incidence.The largest drop is among girls; an 8 % decrease in the mortality rate, equivalentto 85% decrease.

ANJA TOLONEN: Local Industrial Shocks, Female Empowerment and Infant Health: Evidence from Africa’s Gold Mining Industry, Nov ember 2014



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Thank you!

Mining Contribution to Socioeconomicd H D l

Paulo de Sa, WB

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