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Gary McMahon Senior Mining Specialist Prepared for MINEX CENTRAL ASIA Astana, Kazakhstan, April 1-2, 2014

2 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

3 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

4 The Extractive Industries Value Chain

5 Value Chain & Bank Support to Mining Sector Reform
Link #1 Award of Contracts & Licenses (Legal frameworks) #2 Regulation and Monitoring of Operations #3 Collection of Taxes and Royalties #4 Revenue Distribution & Management #5 Implementation of Sustainable Development Policies & Projects Emerging Issue 1985-7 : Institutional capacity : Environment : Social & cultural : Mining sector fiscal regimes 2005-6: , transparency : Political economy : More focus from sector perspective : Decentralization of revenues, earmarking : Community development : Engine of growth / integrated development : Local/regional governance Year when became mainstreamed in Bank mining sector work 1988 1995: Institutional capacity 1995: Environment 2002: Social & cultural 1995: Fiscal regimes 2007: transparency (EITI) From a macro perspective has always been essential part of work done by parts of Bank & IMF 2006: Local community development 2008: Engine of growth / integrated development 2012: Domestic procurement, conflict reduction

6 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

7 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

8 Mining Sector Reform and Investment
Country Year Reform Completed Amount of Mining Investment Comments Argentina 1995 2008: $2.4 billion; cumulative increase from was 1014% Based on ongoing developments, investment expected to double again by 2015 Liberia Still ongoing; began in 2006 Approximately $7 billion of investment agreements has been signed Potential to reach $10 billion of total investment by 2015 Mongolia 1997 : $335 million per year on average Oyu Tolgoi mine just approved, entails $4 billion of investment by itself from Mozambique 2006 2008: $804 million Only $24 million in 2002; $2-$3 billion investment in coal expected in next 3-4 years Papua New Guinea 2003 (approx) : approx $1 billion in total; exploration investment rose from $10 million in 1999 to $84m in 2009 Expect 3 new large scale and 2 new medium scale mines by 2015 Tanzania 2000 : Averaged over $250 million per year From , investment less than $10 million per year

9 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

10 Mining and Economic Growth in Argentina
In 1995 reform began; mining investment $56m, exports 1% Investment was $2.4b in 2008 From , 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 cadastre system 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

11 Mining and Sustainable Development in Mongolia
Reform began in mid-1990s Annual GDP growth of 7.8% from 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 Oyu Tolgoi 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 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

12 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

13 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

14 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



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