Revenue management

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Revenues generated from the extraction of minerals need to be managed with great care for the full social and economic benefits of mining to be realised, and the so-called ‘resource curse’ avoided.

Revenue management is one of the main areas covered by ICMM’s Mining partnerships for development: toolkit, which highlights the importance of partnerships to enhance the positive contribution of mining.

Government revenues from mineral resources are unlike those from other industries. Minerals are a finite resource; and almost all governments claim ownership of sub-surface resources for the benefit of their citizens. Once they have been fully exploited the economic benefits also end, unless revenues havebeen appropriately transformed through investments in human resources, infrastructure and diversified forms of productive economic activities. Commodity prices can also fluctuate dramatically, so if a state relies too heavily on its mineral revenues, a short-term drop in mineral prices can result in a highly damaging budget shortfall.

Resource curse
The idea of the resource curse can be traced back to the 1970s. In the decades that have followed a significant body of work has shown how resource endowments can present a barrier to growth, feed corruption and fuel conflict. Mineral-rich countries attract billions of US dollars’ worth of investment for projects that provide revenues. Without good governance, this may enrich an elite minority without offering broader economic and social development. While this risk is concerning it is not inevitable, as transparency and good governance can prevent it from happening. The potential for countries to avoid the resource curse has been illustrated through ICMM’s work on Mining partnerships for development.

Currency appreciation

Another concern for mineral-rich countries is the phenomenon whereby large inflows of foreign currency from the export of minerals, without careful management, causes an appreciation of the local currency. This weakens other domestic industries by making them less competitively priced. This is known as ‘Dutch Disease’.

Regional distortions

Mines are often located in remote areas of a country where they can represent by far the biggest investment in the region. Where a portion of the revenues are allocated to producing regions or municipalities, the sudden increase in revenues at the local level can be harmful if local administrators don't have the capacity to manage this increase effectively for broader social and economic benefit. A combination of such factors can lead to disillusionment, community mistrust and even provoke conflict. 

Managing risk

While the risks associated with mineral revenues are very real, they can be managed if a comprehensive plan is in place. Some of the important decisions that governments need to make when mineral revenues start to flow into the treasury include:

Management of risk is also dependent on the quality of collaboration between government, companies, development partners and civil society organisations. At the sub-national level, for example, the promise of greater economic opportunity and equitable social development depends on whether local institutions have the capacity to drive change. If not, they will not be able to plan and implement large-scale investment programmes and projects.

What is ICMM doing?

ICMM member’s commitment to enhanced revenue management is evidenced by their long-standing commitment to mineral revenue transparency, through support for the Extractive Industries Transparency Initiative (EITI). While ICMM has supported revenue management through our sustained work on Mining partnerships for development, and more recently our work to help realise more inclusive economic opportunities.