Rewards and risks ahead in managing country’s abundant natural resources, says new World Bank report
VIENTIANE, Lao PDR, March 28, 2011 – Lao PDR can make great strides in further boosting economic growth and reducing poverty, with the appropriate macroeconomic and governance priorities, says a new World Bank Report, the Lao PDR Development Report 2010, released today.
With forests, agricultural land, water, hydropower potential and minerals comprising more than half of the total wealth of Lao PDR, the new report lays out a comprehensive framework to help devise strategies to develop natural resources and deal with the economic flows from those resources.
“Lao LPR is rich in natural capital and, if managed well, this wealth can be turned into genuine development assets for the benefit of the country and its people,” said Mahmoud Mohieldin, World Bank Managing Director, at the launch of the report in Vientiane, Lao PDR.
“Globally about one-third of the wealth of developing countries comes from their natural capital which includes forests, waters, protected areas and minerals. Countries that can manage these natural assets cautiously are able to move up the development ladder - investing more in human capital, infrastructure, new technologies and innovation,” he said.
Mr. Cheuang Sombounkhanh, Minister to the prime Minister’s Office and head of the Government Secretariat in Lao PDR, said, “Being blessed with relatively large amounts of natural wealth is also a huge responsibility for us the policy makers. Introducing policies that take into account the presence of this wealth and thinking about how to develop it sustainably will be crucial for maintaining high levels of economic growth in Lao PDR."
The Lao PDR Development Report 2010 focuses on natural resource management for sustainable development with specific emphasis on hydropower and mining. “The hydropower and mining sectors combined have significantly contributed to Lao PDR’s rapid economic growth, accounting for, on average, about one third of the country’s 7.5 percent economic growth a year between 2005 and 2010.” said Keiko Miwa, the World Bank Country Manager in Lao PDR. “This has translated into significant increases in revenue, some infrastructure improvement, and poverty reduction benefits and has also spurred some progressive changes in environmental legislation.”
However, the report noted, along with some obvious benefits, there are also significant risks associated with the country’s natural wealth which may soon become obvious, unless action is taken. “If revenues from natural resources are not well managed, macroeconomic risks include a possible slowdown in industrialization,“ said Ekaterina Vostroknutova, the World Bank’s Senior Economist for East Asia Pacific region.” There are also significant environmental and social risks and the danger that some investments might not represent the best possible use of the natural resources given the socioeconomic goals of the country,” she said. “Finally, there is a risk that the gap between demand for national resources and the capacity of the government to manage their sustainable use will only widen as more projects come on stream.”
According to the report, as the number of proposed projects increases, one of the government’s key priorities should be to strengthen institutions in the relevant sectors and the public financial systems —at both national and local levels—to improve capacity to manage revenues and allocated them in ways to reduce poverty and promote growth. The report includes frank assessments from a range of experts on what is currently known about the downside effects of social and economic development gains in the development of natural resource wealth.
In laying out a framework for devising strategies to deal with the country’s abundant natural resources, the report highlights that special attention should be given to mitigating any negative social effects of large scale natural resource development. It also says there should be sufficient prioritization by the Government of the most valuable projects in order to maximize overall benefits from natural resources.
The report also emphasizes that, in order to translate its natural resource riches into social and economic gains—in line with the Lao National Socio-Economic Development Plan—and to achieve growth targets—including the 2020 goal of becoming a middle-income country, the government should consider some main guiding principles, including:
- Ensure the speed of the natural resource development is in line with capacity and quality control of the projects;
- Choose the right projects and implement them well by strengthening environmental and social safeguards, project-level governance, agency coordination and the government’s capacity to monitor and enforce regulations;
- Identify risks and deal with them effectively at any level from local communities to international;
- Be strategic by using resources to reduce poverty, support growth and ensure social and environmental sustainability by balancing national and local environmental and social priorities.
The Lao Development Report 2010 went through an extensive in-country consultation process with governmental counterparts and international development partners. It is expected that a number of general and specific policy recommendations, as well as areas that are flagged for further research, will enable policymakers to make more informed choices. The ongoing analytical work in this area will also contribute to the policy dialogue.