The myth of mining's resource curse

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This blog first appeared on World Economic Forum's: 'Agenda' on 25 July 2018

Aidan Davy
Chief Operating Officer

The question of whether an abundance of mineral resources hinders countries’ economic progress is complex and has been the subject of extensive study and debate. While the “resource curse“ primarily affects economic and governance factors – such as poor economic growth, inequality, autocratic regimes and conflict – it is often suggested that social progress, in terms of poverty, education and other social metrics, also suffers. Bluntly, from a social standpoint, that countries are better off not having mineral resources than having them.

Does this proposition stand up to scrutiny? ICMM’s Social Progress in Mining-Dependent Countries is an attempt to find out. The report set out to answer one simple question: to what extent has social development progressed in countries that are rich in mineral resources over the two decades that led up to the launch of the UN’s Sustainable Development Goals in 2015?

Why does this matter? Well, first and perhaps most importantly, because resource-dependent countries (including minerals and hydrocarbons) are home to almost 30% of the world’s population. Second, because we believe mineral resources, used well, can be a driver of economic and social progress.

Mining for developmental gold

For a start, it’s important to be clear about what we are calling “resource-dependent countries”. We use two criteria:

1. Do mineral resources account for more than 20% of total export earnings?

2. Do resource rents – the difference between mineral-related revenues and the costs of extraction – exceed 10% of GDP?

The two decades from 1995 to 2015 saw a marked increase in the number of such countries – up from 53 to 81. For the purposes of our research, we looked only at countries that had been resource-dependent throughout that 20-year time frame.

Using robust, outcome-oriented metrics produced by respected international organisations, we measured progress against 30 metrics that align to 11 of the 17 UN Social Development Goals (SDGs).

In short, over the 20 years leading up to the launch of the SDGs in 2015, the evidence shows considerable social progress in mining-dependent countries.

Across the board, we saw a 78% improvement over those two decades. But there were significant variations. The strongest progress was in SDG9: innovation & infrastructure, particularly in access to finance and ICT infrastructure. There was also very good progress around SDG7 – access to clean & affordable energy, and SDG3 – good health & well-being.

Progress was less impressive around SDG16 in particular – governance aspects such as corruption, political stability and civic freedoms; around SDG5 on gender equality; and SDG8 on decent work. Income comparisons revealed some interesting differences, with low- and lower-middle income countries seeming to fare rather better over that 20-year time frame. So, Peru saw improvement across 97% of social metrics, while Botswana and Ghana achieved 93%.

One important caveat: correlation does not equal causality. So, while we believe mining activity and mining companies’ social policies and practices may well contribute to social progress, we would not presume to suggest any proof of a direct link.

Closing the gap with the best

As well as wanting to see how mining-dependent countries performed, we also wanted to compare them to other countries. So, we looked at their progress both against hydrocarbon-dependent countries and non-resource dependent countries. Overall, we found clear evidence that of those three, progress overall is strongest in mining-dependent countries.

Mining-dependent countries have improved across a larger number of social metrics than for the other two categories. Even in areas where progress was weakest, such as governance, gender equality and decent work, progress was somewhat better than for either of the others. Outperformance was most notable for SDG 1, SDG 6 & SDG7 – so, around poverty, water & sanitation, and clean & affordable energy. But we also need to recognise that progress was lower for SDG3, good health & well-being. It was still good – 90% overall across all health metrics – but not quite as high as either hydrocarbon-dependent countries or non-resource-dependent countries.

It’s also fair to acknowledge that mining-dependent countries underperformed the best countries globally – though they are closing the gap. In 1995, 56% of mining-dependent countries underperformed the global average; by 2015, 84% of these countries were catching up to the global best performers; by comparison, just under 70% of non-resource-dependent countries had closed that gap.

Governance matters

I mentioned earlier that performance was weakest for SDG 16 – governance, encompassing corruption, political stability and civic freedoms. So, given the widespread – and healthy – progress against other metrics, is it reasonable to conclude that governance doesn’t matter that much when it comes to social progress?

To consider this more deeply, we looked at the latest Resource Governance Index from the Natural Resource Governance Institute, produced in 2017, which measures the quality of resource governance in 81 countries globally. And what we found is that mining-dependent countries are over-represented in the good/satisfactory or weak categories; and under-represented in the poor or failing categories.

We also found that mining-dependent countries that were lagging the leaders in 1995 and were rated as having stronger governance of their natural resources made better progress over the next 20 years than less well-governed counterparts. On this basis, our conclusion is that governance really does seem to matter in terms of social progress.

To conclude, a dependency on mining appears to correlate with positive and above average social progress among citizens across a broad range of metrics. The evidence seems irrefutable: mineral resources and mining can be a vehicle to promote a country’s social development.

There is clearly room for improvement. And although further research is needed to fully understand the differences between some of the countries we looked at, I don’t think governments need wait on the outcomes of such research to act. While every country has its own development priorities, a good starting point would seem to be to prioritise areas where performance against the SDGs was weakest. Overall, this is governance, gender equality and decent work.

While governments must play the leading role in promoting and fostering social progress, resource companies have an important role to play as partners in the development of mining-dependent countries.