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This paper explores the importance of mining sector reforms in achieving sustainable growth and community development, focusing on the role of the World Bank in supporting such initiatives. It discusses the evolution of mining sector reform priorities, including increasing private investment, environmental considerations, and social impacts. Key drivers of Bank support in the mining sector, such as institutional capacity development and fiscal regimes, are highlighted. Case studies from countries like Argentina showcase the impact of mining reform on economic growth and environmental concerns. The paper emphasizes the need for effective mining policies and laws to attract private investment and ensure sustainable development.
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WORLD LEGISLATION REFORMS IN SUBSOIL USE AND ANALYSIS OF THE RESULTS Gary McMahon Senior Mining Specialist gmcmahon@worldbank.org Prepared for MINEX CENTRAL ASIA-2014Astana, Kazakhstan, April 1-2, 2014
Introduction • Since 2000 importance of mining increasing rapidly for many countries • Rise in mineral prices since early 2000s • Success of many mining sector reforms in late 80s and 90s • Reversal of mine nationalizations began at end of 1980s • Part of move to market, structural adjustment • Poor performance of the soes • World Bank supported design of mining policies & laws to make countries attractive to private investment • Bank has supported 35 such projects of $1m+ in 24 countries since initial ones, Ghana (1988) & Bolivia (1989) • Priorities have changed & so has Bank’s approach to mining sector reform
The World Bank & Mining Sector TA • Began in late 80s with emphasis on increasing private investment, export earnings, tax revenues • By mid-90s environmental issues became essential part of reform efforts • Since 2000 community & regional development issues, impacts on women and other disadvantaged groups all entered discussion • Since mid-2000s the role of the mining sector as engine of sustainable growth • Direct participation in the economy • Large fiscal revenues it generates • Since 2010 domestic procurement has moved to or near the top of the agenda • Reducing conflict • Shared infrastructure
Drivers of Bank TA in Mining Sector I • When mineral laws reformed, soon apparent that most client countries lacked institutional capacity for M&E • Many Bank supported reforms included hands-on institutional capacity development • licensing regime, cadastre, geological survey • engineering design, health and safety, environmental performance • mainstreamed by 1995 • Global trends and changing public opinion drove social and cultural issues • new sensibilities attached to indigenous peoples’ rights • since 1970s technological change had reduced benefits to communities (employment) • for ‘social license’ to operate, companies had to provide other benefits to communities • mainstreamed in early 2000s
Drivers of Bank TA in Mining Sector II • Fiscal regimes for mining sector moved to center stage in 2003 for two reasons • First, large, sustained increase in mineral prices (which continues) • existing mining fiscal regimes (often developed under Bank guidance) didn’t capture much of large increase in rents • most adequate fiscal system still under debate • Second, corruption as inhibitor of long-term development under greater scrutiny • natural resource curse & EITI • More emphasis on revenue management and allocation, 4th link of value chain • host communities and regions demanding greater share of mining sector revenues • decentralization & targeting of mining sector fiscal revenues is emerging issue • Social license evolved in mid-2000s from ‘fair compensation’ to sustainable long-term development of affected communities, including after closure • Can mining sector be engine of growth, linkages and infrastructure • Using mining fiscal revenues to develop rest of economy
Mining Reform and Institutional Capacity • Licensing, cadastre, geological survey, environment, social • TA emphasizes hands-on assistance • External experts, training • Develop educational programs • Mostly strong success in licensing, cadastral, and geological survey • Slower progress on M&E capacities • ‘Catch 22’ of mining sector reform’ • Mali & PNG earmark some mining revenues to sector institutions • Created independent legal entities to overcome civil service restrictions
Mining and Economic Growth in Argentina • In 1995 reform began; mining investment $56m, exports 1% • Investment was $2.4b in 2008 • From 2003-2008, cumulative increases of mining: investment, 1014%; exports, 275%; production, 292%; employment, 259%—256,000 jobs in 2008 excluding multiplier impacts; and exploration, 907%. • Mineral rights provincially held in Argentina • Objectives of reform program: (i) revise and modernize the mining legal and regulatory frameworks at the federal and provincial levels, including environmental aspects; (ii) institutional capacity development and training; (iii) development of modern cadastresystem with harmonization across provinces; (iv) set up environmental protection system for mining activities including training; (v) training and institution strengthening in assessment of socio-economic impacts • 2013 Fraser Institute Rankings on exploration (out of 112) • Salta-41; San Juan-54; Jujuy-61 • Neuquen-102; Mendoza-107; La Rioja-109 • Environmental concerns are biggest reason for low rankings
Mining and Sustainable Development in Mongolia • Reform began in mid-1990s • Annual GDP growth of 7.8% from 2000-08 • Mining sector accounted for 60% of private investment (2003-9) & 30-40% of fiscal revenues (2005-9) • In 2009 mining directly accounted for 22% of GDP, 70% of exports, and 31% of fiscal revenues • Exploration very successful with OyuTolgoi being ‘crown jewel’ • Investment of $4 billion over 3½ years, GoM owns 34% • In 2019 (peak) OT will provide 55% of fiscal revenues & 20% of GDP • Headcount poverty fell from 61% in 2003 to 35% in 2008 • From 2000-08 under 5 infant mortality fell from 6.3% to 3.4% & life expectancy rose from 64 to 67 • Currently, TA project supports institution building in Mongolia’s mining sector • Other sector work focuses on education, financial markets, environmental protection, and stabilization fund
Summary & Conclusions I • Mining sector reforms in 1990s & 2000s often led to large increases in investment • When mineral prices rose in the early 2000s, the return on these reforms rose substantially • Over time complexity of reform efforts increased rapidly
Summary and Conclusions II • Objectives of most mining reforms now include: • increase investment and exports • increase the capacity to M&E sector regulations • increase share and transparency of rents returning to host countries as fiscal revenues • increase capacity of national & sub-national governments to manage and use rents • ensure that host communities benefit from mining operations; local procurement; reduced conflict • maximize employment and income generated by mining operations both directly and indirectly through linkages • use mining sector and its rents & infrastructure to foster industrialization through the development of clusters and resource corridors
Next Steps • Much progress has been and is being made through efforts of governments, mining companies, civil society organizations, donor countries, and international institutions • Objective of these efforts is to strengthen each link in the value chain but more so to strengthen the ‘links across the links’ • Outstanding challenge is to leverage the various benefits brought by the mining sector to achieve a sustainable development path on a much higher secular trend and broadly shared by the population