Governments of mineral-producing countries use various legal and administrative instruments to attract investment to the mining sector and to ensure it contributes to economic development. In this endeavor, policy-makers are usually confronted with at least four key questions, as follows:
These questions touch on three main aspects of mineral resources and extractive industries more broadly: investment environment, governance and development impact. If not guided by effective policy and implementation, mining is weakly integrated with the rest of the economy. In some places, its benefits accrue to a small subset of the population. Government revenues are relatively modest, and the environmental and social impacts are largely negative.
Given the complexity of inter-related issues, it is often difficult to identify what reforms to prioritize and how to sequence. Governments that try to better harness the potentially large benefits of mining for sustainable development are often unsure of the main issues to address. Even if a problem is identified, they are unsure about where to start solving it. The roles and responsibilities of important agencies and stakeholders are not often clear and they may work at cross-purposes. There may not be consistent dialogue between government, its investors and civil society in the sector. The Mining Sector Diagnostic (MSD) is a tool that the World Bank has developed to facilitate this process.
MSD is a diagnostic tool which comprehensively assesses the laws, policies and regulations in a country’s mining sector. It identifies strengths and weaknesses of these institutions in three ways: the nature of rules in place, the extent to which these rules are implemented in practice, and the roles and influence of key stakeholders in their functioning. As a systematic and practical diagnostic tool, it informs objectively. The results of an MSD can form the basis for sector reforms that bring about a more vibrant mining sector; one that contributes to growth and prosperity for the entire population.
The MSD review is comprised of four components.
I. Mining Sector Importance analyzes the importance of the mining sector to the country’s growth and economic development. This aspect is measured in terms of geological potential, the level of foreign direct investment and contribution to exports, national revenue, employment and industry.
II. Mining Sector Management examines the structural organization of the sector and the key governmental actors involved. This aspect is analyzed in terms of sector policy, sector dialogue, roles and responsibilities of various agencies, and intergovernmental coordination.
III. Mining Sector Value Chain measures the mining sector rules and their implementation along the five Extractive Industries (EI) Value Chain stages – Contracts, Licenses and Exploration; Operations; Taxation and State Participation; Revenue Distribution and Management; and Local Impact. An assessment is made of how good the Legislation, Policy and Regulation are dejure, and how well these rules are implemented in practice, de facto, in terms of Institutional Capacity and Effectiveness—yielding a total of 10 topics.
IV. Stakeholder Priorities identify the importance in terms of improving sector performance that different stakeholders attach to the topics examined in the diagnostic. The three stakeholder groups are Government, Industry, and Civil Society.
MSD combines information mainly from two data sources—primary data (the country’s documented laws, rules and regulations), and, data gathered through in-country interviews. In a typical MSD diagnostic a team will visit a country for about 10 days and interview stakeholders from government, industry, and civil society. Information provided in interviews is not taken at face value. It needs to be substantiated and backed up by verifiable evidence. To that effect, the MSD team works closely with local in-country experts, such as lawyers, academics and others, either as part of the team or to verify information obtained. All stakeholders are also asked to identify those areas that they consider most important for a well-functioning mining sector—the ‘stakeholder priorities’.
An MSD report provides a comprehensive overview of the rules and their implementation in a country’s mining sector. It highlights areas of relative strengths and weaknesses across the sector’s management structure and value chain and the roles and responsibilities of important stakeholders. This report and underlying data provide a basis for a more informed dialogue between a broad stakeholder group for prioritizing and sequencing reforms to strengthen sector performance. The MSD report provides: (1) a summary of a set of broad stakeholder priorities and areas of common interests, (2) topical areas where there is a gap between the mining sector rules and their implementation, (3) country-specific sector topics meriting further considerations for reform and, (4) a comprehensive set of source data from desktop review and in-country interviews.
MSD was developed by the World Bank Group to facilitate sector dialogue within a broad community of practitioners. An application of the tool provides information that would feed into broader systematic country diagnostic studies. An initial funding for MSD came from the German Development Cooperation (BGR), the Extractives Industries Technical Assistance Facility (EI-TAF) and the Extractives Global Programmatic Support (EGPS) Trust Fund. Following a comprehensive review of pilot applications in eight countries, MSD is now being rolled-out globally.
The methodology is being updated and a revised methodology note will be made available shortly.
The FAQs are currently being updated.
Information on good policy practices in natural resource management can be found in a variety of sources:
Frameworks of mining governance
Natural Resource Charter (NRC), 2nd edition
Methodologies of evaluating mining governance
Voluntary and mandatory principles