MAC: Mines and Communities

Comment and replies on the Extractive Industries Review in the Financial Times

Published by MAC on 2004-05-04

COMMENT: A warning for the World Bank

By Mark Moody-Stuart, Financial Times

May 04, 2004

How do you translate a country's mineral and oil wealth into economic wealth, in a way that reduces poverty, protects the environment and upholds social stability?

This is a critical, complex question faced by resource-rich countries across the developing world.

Currently before the World Bank Group are the conclusions of a review of its involvement in the extractive sector conducted by Emil Salim, a former Indonesian environment minister. I was on an advisory panel to Dr Salim while he was preparing his report. However, his final recommendations - which the bank is considering - concern me deeply. Though laudable in their aims, and praised by activist groups, some of them could harm the very countries they seek to help.

Resource wealth can be a blessing or curse, depending on how it is used. Some nations have seen revenues from oil and mining projects squandered through corruption or used to fund conflict. Other problems have also been evident: for example, communities have sometimes received too small a share of the economic benefits from projects, thus exacerbating social tensions.

On the other hand, some countries have clearly succeeded in using their mineral wealth to help drive economic and social development - among them Chile, Botswana, South Africa and Malaysia (as once did America and Britain). For countries that are still mired in poverty and have few other economic opportunities, developing their natural resources may present their only realistic hope for participation in the global economy.

Dr Salim's report contains much to applaud. It rightly focuses attention, for example, on upholding human rights, and on the need for transparency. Nor is this a call on my part for less pressure on companies to behave responsibly. My concern is that Dr Salim's recommendations would limit the World Bank's ability to leverage higher standards and thereby help countries translate their resources into a blessing.

While in principle supporting the bank's continued participation in the sector, the report proposes various restrictions that together would limit its involvement in mining and oil projects, whatever their characteristics. For example, it recommends supporting projects in a country only after comprehensive governance criteria are met. Encouraging better governance is clearly important. But constraining the bank's involvementbefore standards are met could mean that the poorest countries find it more difficult to take the first steps towards exploiting their natural resources effectively and thereby starting on a path towards poverty reduction and better standards of governance.

Meanwhile, those countries that can attract sufficient private investment to exploit their minerals and oil without the bank's assistance will do so - and the bank will be less able to influence governments and companiesto develop these resources in the right way. Importantly, the bank has its own social and environmental "safeguard" policies applied to projects. In certain cases these policies may need strengthening.

Nonetheless - as noted by the International Council on Mining and Metals, an industry association established to promote good practice in the mining sector - the current policies already help set standards for private investors. The bank's continued involvement in projects is thus important for improving performance across the board.

The report's proposals that the bank phase out investments in oil by 2008 and immediately avoid new coal developments are flawed for similar reasons. Those least developed countries that depend on the bank's assistance to develop their coal or oil as well as shape their overall energy policies may have to forgo important economic opportunities. Meanwhile, other countries will continue to exploit their coal and oil through private investment - but with the bank exerting less influence on standards. In this and other areas, the consultation process underlying the report I believe paid insufficient attention to the views of governments, particularly of developing countries.

Another potentially counter-productive proposal is that extractive projects should require the "free prior and informed consent" of local communities. Without doubt, the rights of local and indigenous peoples need to be carefully protected. But requiring that all elements of a community are able to show benefit raises the bar to a level that, if observed in developed countries, would mean no road or major development would ever happen. Wholly accountable governments may thereby be prevented from undertaking projects key to their national development.

In short, driven by the laudable desire to ensure that the bank supports only projects guaranteed to have positive impact, the report's recommendations could actually limit its ability to help countries exploit their natural resources successfully and responsibly. As the bank mulls its final response to the report, it should keep in mind: this is too important an issue for an unthinking response.

Sir Mark Moody-Stuart is chairman of Anglo American

LETTERS TO THE EDITOR: World Bank falling short in its mining sector role

By Robert Napier

Financial Times; May 07, 2004

Sir, Sir Mark Moody-Stuart of Anglo American (May 4) seems to have both missed the raison d'être of the World Bank and misinterpreted the recommendations of the extractive industries review (EIR).

The problems associated with this sector are well recognised, but the industry has failed to address them for too long. Sir Mark must have a very selective memory to focus on the four so-called success stories out of the many resource-rich nations. Perhaps this is an acceptable success rate for the World Bank. The UK government, as shareholder, needs to raise the bar significantly by supporting the EIR.

The World Bank has failed to demonstrate that it understands or monitors how its investments in extractives achieve its mandate of alleviating poverty. I would like to confirm that this is the mandate of the bank, despite common misconceptions that it exists to support multinationals in exploiting the natural resources of developing countries.

Indeed, it is surprising that Sir Mark can forget the problems Shell faced during his time at the company and continues to face in Nigeria. Following his article I remain unclear as to whether society is supposed to trust Anglo American to operate responsibly or whether the company's new chairman feels he needs the World Bank's help to keep it in line.

Our experience of the World Bank's involvement in project finance does not match the additionality claims made by industry. By the time the bank gets involved, contracts are signed and construction is under way, and its input is mostly window-dressing and damage limitation.

The World Bank has failed to provide evidence of the improvements resulting from its involvement in the finance of extractives projects. As the EIR correctly states, the focus should be on governance of projects. Investment in the South will not be limited, as the private sector will continue to conduct these projects. The World Bank has an opportunity to augment and diversify investment by increasing its investment in renewables.

Governments, industry and non-governmental organisations around the world have spoken through the EIR; if Anglo American is allowed to veto this proposal, no sustainable development will occur at the World Bank.

Robert Napier, Chief Executive, WWF-UK, Godalming, Surrey GU7 1XR, UK

LETTERS TO THE EDITOR: Prior consent of indigenous communities vital if developing nation projects are to succeed

By Sakiko Fukuda-Parr

Financial Times; May 07, 2004

Sir, Sir Mark Moody-Stuart ("A warning for the World Bank", May 4) raises concern that the World Bank's extractive industries review would be counter-productive to the goals of reducing poverty, stimulating growth and improving environmental standards. He argues that requiring "prior and informed consent" of local communities along with other institutional conditions that ensure environmental and financial sustainability of investments would be just utopian, unrealistic goals. Actually, these approaches are both practical and necessary.

Success stories exist in Alaska, Australia and Canada, where local communities were brought into decision-making processes - they were able to preserve their way of life even while sharing the profits from mining projects. Why should similar initiatives not be adopted for developing countries?

As the Human Development Report 2004 (which is due in July 2004) will demonstrate, ignoring demands of indigenous people may have worked in earlier decades but cannot in today's political realities. There would be a high cost if local communities were left out. Much of future investments in extractive industries are expected to be in indigenous people's territories. Investments that take away the economic basis of their livelihoods threaten their very existence. The Lihir gold mine's operations in Papua New Guinea destroyed sacred sites and led to environmental degradation. Not surprisingly, many communities increasingly oppose any further activity in their territories because of their past experience of misinformation and inadequate compensation.

The spread of democracy and growth of global networks have strengthened the political power of these protests and so can no longer be ignored. Some companies that have turned to working with communities did so after learning the hard lessons from ignoring them and facing protests. Local communities opposed the Yanacocha gold mine in Peru after some of the promised tax revenues from the government were not received and a mercury spill in 2000. Since then, the company owning the mine has engaged in consultations, formalised complaint systems and sought to invest in local and urban development.

In the interest of long-term sustainability and profitability of investments, empowering communities requires explicitly recognising their rights, consulting them on project design and creating incentives for increasing mutual benefits. This is a matter of respecting human rights as well as a practical necessity.

Sakiko Fukuda-Parr, Director and Lead Author, Human Development Report 2004: Cultural Freedom in Today's Diverse World, United Nations Development Programme, New York, NY 10017, US

LETTERS TO THE EDITOR: Climate change is already exacting a daunting toll

By Paul Dickinson

Financial Times; May 07, 2004

Sir, It is hard for me to understand what environmental "safeguards" Sir Mark Moody-Stuart proposes to reduce the impact of climate change caused by burning oil and particularly coal ("A warning for the World Bank", May 4). Emil Salim is to be congratulated if he persuades the World Bank to stop subsidising activities that accelerate climate change.

The Intergovernmental Panel on Climate Change has persistently warned that countries "mired in poverty" will be hardest hit by global warming. The World Health Organisation estimates 150,000 deaths and 5.5m disability-adjusted life years were caused in 2000 because of climate change.

This terrifying and intractable problem is still in its infancy.

Paul Dickinson, Brighton, UK

(Following was written in response to Mark Moody-Stuart's comment, but not published by FT)

LETTERS TO THE EDITOR: Correcting some misconceptions

By Andy Whitmore, Indigenous Peoples Links

Sir, Your comment "A warning for the World Bank" (May 4, by Sir Mark Moody-Stuart of Anglo American) correctly emphasises the importance of the World Bank's recent independent review of investments in the extractive industries sectors (EIR), yet presents some misguided concerns.

An express purpose of the EIR was to review how the World Bank's investment in extractive industries complemented its mission to alleviate poverty. For the last 60 years the World Bank has been unable to provide any evidence that indicates its investments in extractive industries projects have contributed to poverty alleviation. The recommendations of the EIR do not conclude World Bank investments in the global South should be in any way reduced, and it is wrong to stipulate that implementation of the review would result in less World Bank investment for the world's poor.

An example of one of many of Mr Moody-Stuart misrepresentations is when he stated that should the recommendation for free prior and informed consent (FPIC) of affected communities be obtained, 'no road or major development would ever happen'. FPIC does not give any affected person veto power over a proposed project, but proposes that when the World Bank finance a project aimed at alleviating poverty; affected community representatives have the right to make an informed choice of their development pathway. Extractive industry companies frequently talk of the benefits their projects will bring to local communities, and so FPIC will act as a test of this, and in doing so should relieve the "social tensions" Mr. Moody-Stuart notes are often associated with such projects.

The EIR concludes that the World Bank group must invest less blindly in multinational corporations, such as Anglo American, and more within a proactive poverty alleviation strategy through sustainable development. The EIR is not about forgoing economic opportunities; it is about the World Bank taking a stance in achieving its mission, poverty alleviation. The question is not, what will World Bank money do for a project, but what will a project do to alleviate poverty?

Andy Whitmore, Indigenous Peoples Links, London, UK


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