Mineral Economies Research Articles

Political Settlements and the Governance of Extractive Industry: A Comparative Analysis of the Longue Durre in Africa and Latin America

This paper synthesises findings from research in Bolivia, Ghana, Peru and Zambia to address the following three questions: 1) How does the nature of political settlements affect the governance of the mining and hydrocarbon sectors and the relationships between those sectors and patterns of social inclusion and exclusion? 2) How do the circulation of ideas and the materiality of the resources in question affect this relationship? 3) What is the role of transnational ideational, institutional and political economic factors in these relationships? These questions are approached by considering the relationships between political settlements and extractive industry since the late 19th century, with special emphasis on the last three decades. The paper concludes that the nature of settlements has had important implications for the relationships between resource-dependent economies and the nature and degree of social inclusion, but far less effect on productive structure, with no political settlement having particular success in fostering economic diversification or reducing the weight of resource rents within the national economy. The paper also concludes that the very nature of the extractive economy influences the dynamics of national political settlements for the following reasons. First, the potential rents that resource extraction makes possible, and the high cost of engaging in mining or hydrocarbon industries, create incentives for particular forms of political exclusion. Second, colonial and post-colonial histories of resource extraction give political valence to ideas that have helped mobilise actors in ways that change relations of power and institutional arrangements. Third, the materiality of subsoil resources has direct implications for subnational forms of holding power that can influence resource access and control. Finally, the global nature of mineral and hydrocarbon economies, combined with the materiality of resources, bring both transnational and local political actors into the constitution of national political settlements. This makes for a particularly complex politics of scale surrounding settlements in resource-dependent economies.

Diversifying mineral economies: conceptualizing the debate on building linkages

This article conceptualises the debate on ‘how to build linkages’ between the minerals and other economic sectors. It argues that this is the most recent of three key questions that have guided the policy debate on minerals and development since the 1980s. The two preceding questions were ‘how to attract foreign investment’ and ‘how to avoid ‘resource curse’. The article reviews each of these three questions before it discusses the industry responses that they have prompted. Finally, it draws out lessons for the linkages debate from the experience gained with improving project-level environmental and social performance, in particular for delivering on local content expectations and requirements.

A Policy Framework for New Mineral Economies: Lessons from Botswana

Many developing economies have been receiving increasingly significant amounts of foreign direct investment in mining over the past two decades. As mining expands in these new mineral economies, this sector has become a significant source of social and political conflict. New mineral economies must implement savvy policies that preempt and mitigate the challenges of mineral-led economic development. This essay is divided into three principal sections. The first compiles and reviews the key social scientific literature regarding the economic, political and social problems associated with mineral-led development strategies. The second section draws from the case of Botswana, a mineral dependent country with high growth and high development indices for sub-Saharan Africa. Here, Botswana is compared with Nigeria to illustrate, in greater contrast, Botswana’s policy successes. The final section returns to the economic, political and social challenges of mining and puts forward a general policy framework, drawing from the example of Botswana, for new mineral economies to leverage their mineral endowments for substantive development while limiting the potential for social conflict and negative economic outcomes.

The Resource Drag

Between 1995 and 2001, Jeffrey Sachs and Andrew Warner published a series of influential studies examining mining and energy’s role in economic growth. Their principle finding was that economies heavily dependent on extractive activities in 1971 grew more slowly than non-extractive economies over the next 19 years. Some analysts see these results as meaning that resources are a curse and that countries rich in mineral and energy resources would be better off leaving them in the ground. Others have sought to explain the phenomenon, but without unified success. Crowding out of a sector or activity with production externalities is the most popular explanation for the curse. This paper demonstrates that the negative growth in these mineral economies may simply reflect a resource drag. This result has implications for trade and industrial policies implemented on the presumption that there are growth-reducing market failures associated with mineral and energy production.

The political economy of growth collapses in mineral economies

Rents form a relatively high share of GDP in developing countries (from 15-50%), so that differences in the scale of the rent and in its distribution among economic agents profoundly affect the evolution of the political economy. This paper deploys two rent-driven political economy models to analyse the performance of four oil-exporting countries (Angola, Venezuela, Indonesia and Algeria). The low-rent model provides a counter-factual for the high-rent model, which typifies most oil-exporters. The low-rent model sustains rapid per capita GDP (PCGDP) growth that brings endogenous democratisation, which is incremental. In contrast, high-rent countries tend to deploy the rent in ways that lock the economy into a staple trap, which aborts competitive economic diversification and represses sanctions against anti-social governance. These adverse staple trap features are heightened in oil-exporting countries because they tend to have very high natural resource rent, which is easily extracted by governments. However, a growth collapse may abruptly trigger political and economic reform if exogenous factors are favourable. This paper applies the models to explain the disappointing oil-driven development in Angola and Venezuela, and also the apparent anomaly of Indonesian development during 1966-96. It concludes by outlining with reference to Algeria a dual track strategy to circumvent the political obstacles that prevent reform in a rent-distorted political economy.

Sustainable development in mineral economies: the example of Botswana

The Hartwick–Solow rule for sustainability requires that depletion of natural capital be offset by a compensating increase in other forms of capital capable of generating as much income as the natural capital they replace. Many countries have not been successful in transforming natural capital into other forms of wealth. This paper investigates the process of wealth transformation for Botswana, one of the most successful resource-rich countries. Using an expanded measure of wealth that includes manufactured capital, natural capital and net foreign financial assets, Botswana's per capita wealth has increased over the past 20 years. Government has recovered and reinvested rent. However, examination of the public sector capital budget reveals considerable unproductive investment. While correction for unproductive investments still indicates sustainable development, results suggest that aggregate indicators such as national wealth or genuine savings may be misleading without further attention to the process by which natural capital is transformed into other forms of wealth.

Book Review: Sustainable development in mineral economies

Book Review: Sustainable development in mineral economies

The Dictator and the Parties: A Study on Policy Co-operation in Mineral Economies

This paper develops a game to study the possibility of co-operative behaviour in a situation where the political system is dominated by two strong, opportunistic parties competing in an economy highly dependent on the export of a commodity. Since a binding agreement as an external solution is unlikely to succeed due to the close association between the incumbent party and the government (the guardian), the paper explores the extent to which co-operation between political parties that alternate in office can rely on self-enforcing strategies to provide an internal solution. For appropriate values of the probability of re-election and the discount factor, it is possible to rely on reciprocity to sustain an early-stopping equilibrium. However, co-operation is undermined by low values of re-election probability out of current revenues and party myopia. In those circumstances, the self-policing solution might not be viable and an institutional response would be necessary. The game also sheds some light on the apparent paradox of situations in some mineral-rich democracies (such as the recent Venezuelan experience) where the enjoyment of considerable external revenues is followed by a period of economic stagnation, a deterioration of political stability, and the surge of a dictatorship threat.

The political state and the management of mineral rents in capital-surplus economies: Botswana and Saudi Arabia

In recent decades, the rate of economic growth in the developing countries has been inversely related to the share of rents in GDP. The resource-poor countries out-performed the resource-abundant ones and among the latter the small mineral economies performed least well and the oil-exporters worst of all. This outcome is counter-intuitive because mineral rents can boost investment while mineral exports can expand import capacity. One explanation is that Dutch Disease effects from mineral booms trigger trade policy closure that distorts the economy. But most high-rent capital-surplus oil economies like Saudi Arabia eschewed trade policy closure and still experienced a growth collapse. A second explanation lies in the political economy: resource-rich countries have been less likely than resource-poor countries to spawn developmental political states. The latter have two key features: first, sufficient autonomy to pursue a coherent economic policy; and second, the aim of raising social welfare. This paper compares Botswana, a rare case of a resource-rich country with a developmental political state, with Saudi Arabia, which had less autonomy in policy formulation due to its role as swing producer in OPEC and cultural pressures for a paternalistic deployment of the oil rents. It argues that although Botswana experienced more success than Saudi Arabia in deploying its mineral rents, this may owe much to its more stable rent stream rather than to its political state alone. Moreover, it is still premature to judge Botswana wholly successful.

Sustainable development in mineral economies

The mineral economies comprise approximately one-fifth of developing countries. They face special problems in achieving sustainable development, and have as a group been less successful than resource-deficient neighbours. This book examines the apparent paradox, detailing the current problems facing the mineral economies and the future policies necessary to overcome these problems. Nine countries are studied: Botswana, Chile, Colombia, Indonesia, Jamaica, Namibia, Papua New Guinea, Peru, and Trinidad and Tobago. The authors argue that the key factor is not the sustainability of the mineral production that initially generates growth, but the maintenance of the economic and social conditions for sustaining that growth. They draw upon recent progress in environmental and natural resource accounting to show how this can be achieved, and also assess the socio-political factors that often constrain sustainable development.

The minerals sector, sectoral analysis, and economic development

Sectoral analysis, a new branch of political science, alleges that mineral extraction creates a socio-political climate that promotes inflexible statism, which in turn leads to substandard development performance. The theory, that mineral economies underperform bureaucratically and economically, is said not only to hold in a post-dictive sense for the mature mineral economies, such as Zambia, but also in a predictive sense for the newer mineral economies, such as Ecuador. This essay reviews and assesses this hypothesis in the light of the empirical evidence comparing mineral production, state capacity, and economic performance. It finds that the sectoralist view is supportable only in selected cases, and is not a general result.

Social sustainability in mineral‐driven development

Social capital as well as natural capital must be incorporated into sustainable development. This is especially vital in mineral-driven economies because the government has a key role in substituting produced and social capital for the depleting natural capital (the ore). A typology of political states captures key facets of social capital at the national level: it shows that mineral economies, like most resource-rich countries, tend to engender political states that are prone to government failure. One consequence is that local communities (which often lack social capital) must bargain directly with multinational mining firms which, for their part, must internalize many welfare functions. Although local groups can use environmental issues to extract higher rents, this has heightened dependence on the depleting mineral asset and is not sustainable. A social audit can help promote sustainable development by creating a consensus-building transparency for deploying the mineral rents. © 1998 John Wiley & Sons, Ltd.

Social sustainability in mineral-driven development

Social capital as well as natural capital must be incorporated into sustainable development. This is especially vital in mineral-driven economies because the government has a key role in substituting produced and social capital for the depleting natural capital (the ore). A typology of political states captures key facets of social capital at the national level: it shows that mineral economies, like most resource-rich countries, tend to engender political states that are prone to government failure. One consequence is that local communities (which often lack social capital) must bargain directly with multinational mining firms which, for their part, must internalize many welfare functions. Although local groups can use environmental issues to extract higher rents, this has heightened dependence on the depleting mineral asset and is not sustainable. A social audit can help promote sustainable development by creating a consensus-building transparency for deploying the mineral rents. © 1998 John Wiley & Sons, Ltd.

Mining as a generator of wealth: Potential conflicts and solutions

Abstract The economic under-performance of many mineral economies compared with some other developing countries poses problems for multinational mining companies (MNCs). MNCs will be attacked by “green ayatollahs”, who will use natural capital and environmental damage to press for “social sustainability”. But economic under-performance is not inevitable: mismanaged mineral economies are associated with specific types of political economy. Mining MNCs can mitigate the potential problems by encouraging institutions which enhance the quality of government, by improving the transparency of mineral rent flows and by accommodating reasonable requests from host communities.

Patterns of development: resources, policy and economic growth

Part 1 Overview - world within the Third World: diverging development - types of developing country. Part 2 Urban bias and environmental deterioration - low-income Africa: rural neglect and environmental degradation in Africa population, technology and land - a soft-tech greening of Africa. Part 3 Income inequality - low-income Asia: income inequality - distance and development in low-income Asia the costs of Autakic industrialization in China and India. Part 4 Primacy and hyperurbanization - mid-income Latin America: the city size controversy - Latin American experience restructuring the city and settlement hierarchy. Part 5 Hard lessons from the new international economic order - mineral economies: critiques of international trade the mineral eceonomies - from trade confrontation to sustainable development. Part 6 The role of the state - mid-income East Asia: East Asia's developmental escalator - Malaysia and Indonesia a prudent role for the state - the industrial policy controversy in resource-poor Korea and Taiwan. Part 7 Prospects: incorporating environment sustainability, income redistribution and democratization into economic development.

Learning to love the Dutch disease: Evidence from the mineral economies

Recent literature proposes that a booming minerals sector may not only lead to Dutch disease effects, it may also be a development curse. Mineral economy case studies have tentatively confirmed this “recourse curse thesis”. This paper examines the long-run economic and development performance of a more general grouping of mineral-based economies, and finds little corroborating evidence.

Mineral resources and growth: Toward a long-term convergence?

Endogenous growth theories have paid insufficient attention to patterns of growth within subgroups of developing countries. Partly drawing on these theories, a mixed endogenous growth-technology diffusion model is formulated with regard to developing mineral economies. The model envisages an S-shaped double convergence long-term equilibrium, with the flex point possibly lying above the corresponding point for non-mineral economies. The performance of a mineral economy is assumed to depend, among other factors, on the growth and instability of its main mineral commodity export price. The model is tested on cross-country data.

Book Review: Sustaining Development in Mineral Economies: The Resource Curse Thesis, by Richard M. Auty. London and New York: Routledge, 1993

Book Review: Sustaining Development in Mineral Economies: The Resource Curse Thesis, by Richard M. Auty. London and New York: Routledge, 1993

BOOK REVIEWS

Book reviewed in this article: Urban Land and Property. HARTMUT DIETERICH, EBGERT DRANSFIELD & WINRICH VOSS Initiation a la Géographie Régionale. PAUL CLAVAL Sustaining Development in Mineral Economies. The Resource Curse Theory. RICHARD M. AUTY The Changing Social Geography of Canadian Cities. LARRY S. BOURNE & DAVID F. LEY Entitled to Land. The Incorporation of the Paraguayan and Argentinian Gran Chaco and the Spatial Marginalization of the Indian People. PETER W. STUNNENBERG, Nijmegen Studies in Development and Cultural Change no. 15. Innovation and Urban Population Dynamics. A Multi‐Level Process. K.P. STROHMEIER & C.H.W. MATTHIESEN

The mineral economies of SADCC-Tanzania

Abstract In our series on the mineral economies of Southern Africa Paul Jourdan looks at the potential of the mineral industry in Tanzania, one of the largest states both in terms of size and population, but one of the least developed economically.