Mining: Sector Results Profile
April 14, 2013
Many countries view the mining sector as a key engine of economic development. Ample evidence exists that countries that adopt modern mining legislation and offer an enabling environment can attract private sector investment in mining exploration and production. This, in turn, contributes to increased tax revenues, export earnings, employment opportunities, infrastructure development especially in rural areas, and transfer of technology to the host countries. However, while the extraction of mineral resources provides developing countries with considerable opportunities for economic development, there is the risk that mining operations can turn into socio-economic enclaves or cause environmental damage. Attention to social and environmental considerations and government commitment to good governance and transparency is important. Countries, communities, and companies face tough questions about opportunities and risks as they develop steps to ensure responsible approaches toward mineral resource development.
In response to this challenge, the World Bank’s approach to mining sector reform has evolved substantially over the last 20 years. In the early years, the emphasis was on reforming policies, legislation, and mining sector institutions to increase private investment and related economic performance. By the mid-1990s, the need to improve environmental performance of the sector became an essential part of the reform effort. Since then, where necessary, any technical assistance to the mining sector has included revisions to laws and regulations to ensure that environmental provisions are adequately covered.
Over the past decade, community and regional development issues have entered into the dialogue and assistance, including the impacts on women and other frequently disadvantaged groups. In some countries, the proper collection, management and deployment of the sector’s fiscal revenues are the main factors driving development, while in others, the development strategy may put more focus on mining sector itself as the catalyst for industrialization. The World Bank’s support to the mining sector has moved along these stages over time, and provides a more comprehensive approach by addressing all these steps of mining sector development.
The World Bank’s mining sector reforms emphasize policies and programs that increase the value added by the mining sector, both at the community level for individual mines and at the regional or national level for the sector as a whole. The former focuses on the development of human and institutional capacities in host communities to take advantage of the new business opportunities afforded by a mine. The latter sees the mining industry as the first part of an integrated development platform with shared infrastructure, a mining industrial cluster, and subsequently the development of other industrial activities or clusters.
While the bulk of the World Bank-supported work on mining sector reform has concerned medium- and large-scale investments, efforts have also been made with respect to artisanal and small-scale mining. The focus of World Bank support for artisanal mining has been to formalize the sector and in particular to improve livelihoods and enhance its productivity and environmental performance. Key to supporting these goals is the need to eliminate the trade of conflict minerals. In this respect, the World Bank is working with governments, industry, communities and civil society to support certification schemes and ensure that these take into consideration the possible implications on artisanal miners.
Examples of results achieved with International Development Association (IDA) and International Bank for Reconstruction and Development (IBRD) support include:
Tanzania: From 1994-2000, IDA supported mining sector technical assistance in Tanzania in the areas of mining legislation and regulations, mining fiscal regime, environmental policies and enforcement, divestiture of state-owned enterprises, and strengthening institutional capacity. The foreign direct investment in the mining sector increased to an average of US$250 million per year in 2001-08 from less than US$10 million per year in 1990-99. However, as the fiscal regime was designed to attract investment into a declining, high-risk sector, mining tax revenues were only 4 percent of total fiscal revenues in 2007, and several mining communities were not satisfied with their benefits from the mining operations. Since 2009, IDA has been supporting the government to strengthen its capacity to manage the mineral sector to improve the socioeconomic impacts of mining. In 2010, the government passed a new mining law that increases the rate of royalty paid on minerals from 3 to 4 percent and allows for participation by the government in all future mining projects.
Argentina: Mining investment in Argentina was US$56 million in 1995. By 2008, 13 years after an IBRD-supported reform of the mining sector began, it reached US$2.4 billion. Exports had grown by 275 percent to US$4.1 billion. The Bank also worked with sub-national governments because mineral rights are held provincially in Argentina. The programs in each province and the federal government were similar and focused on: (i) revision and modernization of the mining legal and regulatory frameworks; (ii) institutional capacity development; (iii) development and harmonization of modern cadastre and registry systems; (iv) establishment of effective environmental, legal, and regulatory frameworks; and (v) training and institutional strengthening regarding the assessment of socio-economic impacts of mining investments.
Madagascar: IDA has supported mining sector reform in Madagascar through a series of technical assistance projects since 1998, with emphasis on attracting investment, improving the sector’s environmental performance, and ensuring that the sector’s benefits are widespread. The reforms fostered a large increase in activity, including the development of large mining operations in ilmenite and nickel/cobalt. Given the country’s widespread poverty, the government undertook a strategy centered on strengthening local governance, decentralizing fiscal revenues, and providing technical assistance to community associations and municipal governments for the integration of mineral resources management in their development plans.
Two investment agreements totaling US$5.5 billion were signed in the mining sector in 2005-06. Approximately 12,000 domestic jobs were created during construction of the two mines.The ilmenite mine opened in 2009 and the nickel/cobalt mine opened in 2012 and, according to company reports, is positioned to become the world’s biggest lateritic nickel mine by 2014. Mine forestry committees have been established to assist with biodiversity and land use planning. Both mining companies have provided extensive short-term training and some long-term training for workers that will help provide local communities with a source of income beyond mine closure. Both companies have taken proactive stances in enabling local small and medium enterprises to take advantage of business opportunities arising during construction and exploitation. A multi-use port partially funded by the World Bank (US$32 million, 2006) was built near the ilmenite operation, while the nickel/cobalt operation did a major port upgrade. Both operations provide power to their local areas. An additional objective was to establish a foundation in connection with the ilmenite mine that would provide local communities with a source of income far beyond mine closure.
Mongolia: Mongolia is rich in natural resources, principally gold, copper, coal, uranium, and oil. IDA supported sector reform, which began in 1997, resulted in the adoption of a modern mining law that encouraged increased mineral exploration and exploitation. Over the last several years, the mining sector has been a key driver of the country’s GDP growth of 7.8 percent per year from 2000-08. In 2010, Mongolia’s total mineral exports increased to US$2.3 billion, from US$267 million in 2000. While the mining sector accounted for 8.5 percent of GDP in 2000, it increased to 25 percent of GDP in 2010. However, while this was happening, transparency and openness in the sector did become a major concern for policy makers as well as the general public. In order to address these concerns, the mining law of 2006 obliged companies engaged in extractive industries to report their payments to the government. The government launched its Extractive Industries Transparency Initiative (EITI) process in 2007 with IDA support and has become a fully compliant country. IDA support to Mongolia in the mining sector is now focused on using mining-generated fiscal resources for fostering sustainable development in the regions affected by extractive industry activities. IDA is supporting institution strengthening in Mongolia’s mining sector, particularly regulatory capacity with respect to mining cadastre operations, and the effective management of environmental and social issues. Support is also being provided to create the infrastructure necessary for the development of natural resources.
Uganda: Over the period of 2004 to 2011, the World Bank, together with the African Development Bank and the Nordic Development Fund invested approximately US$32 million to strengthen the government's capacity to develop a sound minerals sector based on private investments and improvements in selected artisanal and small-scale mining areas. Over the period of 2004 to 2011, annual investment in mining exploration increased significantly from US$5 million in 2004 to US$47 million, with a total cumulative investment over the period of US$329 million. Exports of cement, gold and cobalt (representing about 95 percent of total exports) also increased during the same period, from US$22 million per year in 2004, peaking to between US$250-350 million in 2008 and then reducing to US$120 million at the end of 2010 as commodity prices relaxed. In part because of increased volume and prices of mineral production, but also due to increased government capacity, total fiscal revenues more than doubled over the life of the project. This increase in revenue was achieved at the same time as the increase in the transparency of mining sector revenues as evidenced by regular publication of such mineral revenues. The project also had a significant impact on the incomes and operating performance of artisanal miners. Incomes of artisanal miners increased 60 percent from US$4.81 per day to US$5.00 – US$7.50 per day for precious metal and industrial mineral miners respectively. Furthermore, by the end of the project the Government of Uganda had received and approved, 590 health and safety plans from artisanal miners, up from zero in 2003.
Bank Group Contribution
From 1988 to 2012, the World Bank contributed approximately $1.4 billion to support mining sector reform. As of December 2012, the Bank was directly providing lending support through 12 projects with a financial commitment of $364 million. Due in part to its tremendous mineral potential and high levels of poverty, Africa receives approximately 70 percent of funds totaling $246 million through eight projects. The remaining funds are allocated through two projects in East Asia with a commitment of $26.3 million and two projects in South Asia with a commitment of $92 million. The projects vary in size (from $9.3 million – Mongolia, 2008, to $200 million – Mexico, 1991) and complexity and take 5-7 years to complete. In 2012, two new projects were approved: Guinea ($20 million) and Cameroon ($30 million).
The World Bank works closely with other donors and multilateral agencies in this sector. It often channels funds from various sources into trust funds to support non-lending project work such as technical and advisory assistance programs. As of December 2012, the mining sector had 107 active grants with a total financial capacity of approximately $121 million. A significant portion of the funding had been allocated to projects in the Democratic Republic of Congo (3 grants, $47 million) and the Extractive Industries Transparency Initiative (EITI, 47 grants, $25 million).
The World Bank works closely with various stakeholders in implementing mining sector reform. Sub-national governments, the private sector, nongovernmental organizations (NGOs), local communities and civil society organizations (CSOs) more generally are all consulted on various aspects of the Bank’s assistance. Particularly in the case of the EITI, there has been a strong emphasis on bringing together all the important stakeholders in the mining sector to work together for greater transparency. The Bank-administered Multi-Donor Trust Fund, EITI, launched in 2003, promotes and supports improved governance and transparency in resource-rich developing countries through the full publication and verification of company payments and government revenues from oil, gas, and mining. The trust fund is presently supporting 37 client countries that are in various stages of implementation of the EITI process.
While there are still many countries that are looking for assistance in the first stages of mining sector reform, (that is policies and legislation to increase investment), most new World Bank technical assistance in the mining sector includes a strong focus on specific areas of work that will increase local community benefits and improve governance at national and sub-national levels. In order to leverage the opportunities afforded by a growing mining sector and ensure that its development contributes to poverty reduction and inclusive green growth, work is ongoing in a number of areas:
- enhancing the roles of foundations and community development agreements in furthering sustainable development around mining communities and increasing domestic procurement by the industry;
- building the capacity of local governments and civil society to manage and monitor increased revenues from mining as well as the environmental and social dimensions of mineral development;
- improving the design and efficiency of mining fiscal regimes;
- managing fiscal revenues from the mining sector to enhance their contribution to sustainable development in regions affected by mining activities;
- working with the private sector, communities and civil society organizations to improve the livelihoods of artisanal and small scale miners, and eliminate the trade in conflict minerals; and
- leveraging private sector investment in infrastructure associated with the development of natural resources for the public good and diversification of the economy.