Can raw materials contribute to sustainable development and peace?
Because of the worldwide economic growth, the demand for raw materials keeps increasing.
Besides, the almost exponential economic growth in new industrialised countries like China, India and Brazil is considered the most important explanation for the spectacular increase of the prices of raw materials since the beginning of this century. The world is characterized more and more by multipolar power relations and economic production processes which causes an ever bigger group of countries needs raw materials which need to be – completely or partially – imported. Between 2000 and 2012 the average price of metals tripled, the cupper price quadrupled and the gold price rose with a factor 7. The companies of the extractive industry saw their benefits grow enormously. However, the additional demand for raw material is not the only explanation for the strong rise of prices. The strongly augmented speculation on raw materials markets by banks, investor and hedge funds is also a major factor of explanation for the strong price rises. But at the same time also for the spectacular price decreases and/or price fluctuations that are taking place since 2012 for some metals, in especially for precious metals.
The largest part of the natural resources – oil, gas, metals, wood, etc. – can be found in developing countries and more than half of the developing countries can be catalogued as resource-rich countries. In spite of these natural resources, these countries do not succeed to develop in a sustainable way and to fight back poverty. On the contrary, the population bears the negative effects of these exploitation activities. This ‘resource curse’ or the ‘paradox of plenty’ is one of the biggest dilemmas of the development questions. Because of the growing competition amongst countries and companies to gain access to raw materials in Africa, where the biggest non explored stocks of ores are located, some talk about a new ‘scramble for Africa’.
Numerous studies have shown that in general resource-rich countries have a worse economic performance than countries that have little natural resources. The bad socioeconomic performance of resource-rich countries is caused by failing governance of the mineral resources and of the development potential they represent.
In addition, the growing liberalization of trade and investments are causing a loss of country’s sovereignty at the cost of the multinationals. Worldwide there are more than 4,000 mining companies of which 150 are characterized as ‘majors’. These majors control about 80% of the total production in the sector. These companies follow a flagrant concentration dynamics.
For several base metal ores and precious metals, the production is owned by oligopolies. In general, the distribution of state revenues from extraction of raw materials is very unequal. In many resource-rich countries this has contributed to a major increase in country’s inequality.
Moreover, profits are very often smuggled out of the country to thicken bank accounts in fiscal paradises and added value is usually created through processing and industrialisation of the ores in the industrialized countries. Multinationals also take advantage of the weaknesses of states (lack of knowledge, weak negotiation and control capacity) to
1) have mayor parts of company’s profits generated in fiscal paradises through the mechanism of ‘transfer pricing’,
2) avoid taxes in the production country and
3) to have contracts signed which are unbeneficial for the producing country.
The estimated lost incomes by the governments of African countries through these mechanisms are higher than the sum of foreign investments and the support they receive through development cooperation.
In addition, fiscal revenues are too often used by the producing countries for political nepotism, prestige projects and corruption. On the other hand, there is the problem with conflicts through the exploitation of the natural resources. Without peace there’s no development. Since the 90’s, numerous studies have shown that there is a direct link between the exploitation of natural resources and world’s conflicts.
These can be divided in 2 categories of violent conflicts:
on the one hand armed conflicts (war between countries, civil war, guerrillas, etc.) and on the other hand
the social conflicts (social protest through the mobilization of trade unions, farmers’ associations, human right organisations, etc.).
The exploitation of raw materials can have impact on the three different levels of conflict dynamics:
(1) with regard to the risk of an outbreak of conflict due to the appropriation of resources by a particular group (armed conflicts) or due to the protests against the negative social and ecological impact of the exploitation (social conflicts) but also due to the fact that the revenues can be used as a funding source or personal enrichment of the conflict parties;
(2) with regard to the intensity of the conflict (number of victims) and
(3) with regard to the duration of the conflict (conflict that keeps on-going because it enables some groups to maintain the control over the natural resources.
The potential of mining for development is important, but how can this potential be mobilized? Clearly, there is a need to look further than just obtaining higher financial revenues for the government from the exploitation of these resources.
Resource-rich countries need to be able to decide themselves about the use of their natural resources, the role these resources can play for the industrialization of the economy and the creation of employment. What are the most important challenges so that the extractive industries would contribute to sustainable development? Hereafter we will present more in detail the most important aspects for a better governance of natural resources and the optimal use of these resources for sustainable development.
Redistribution of the wealth Investments for the exploitation of minerals and oil are often very high
Developing countries don’t’ have capital nor technology to realize this kind of investments and appeal on multinational companies through several kinds of contracts like exploration permits, production sharing agreements and joint-ventures with governmental companies. Contracts are usually made up for long periods, up to 30 – 40 years, because of the high level of investments and the rather long period of return on the investments. The basic assumption is that principally contracts won’t be changed during their term, and this can cause very disadvantageous effects for the governments of resource-rich countries. Due to the low prices for raw materials before 2002, the tax rates on company’s profits and royalties were also low. Despite the fact the production costs have been increasing, the profit margins for the companies have increased in a spectacular way because of the enormous price rises for mineral ores and oil. But this is not the case for governmental revenues from contracts that are 10 or more years old. Some governments did find the courage to renegotiate these contracts or to introduce an additional tax but this is only the case for a minority of countries.
Democratic control on the use of natural resources: transparency !
To fight against unfair contracts and tax avoidance, it is of crucial importance that members of parliament and civil organisations exercise control upon the government with regard to the contracts and the use of fiscal revenues. Therefore, transparency is necessary so that all important documents and information are publicly available. After several big campaigns of NGOs and social organisations on corruption and the secrecy of crucial information (like the Publish What You Pay campaign) there have been official launched initiatives for more transparency with regard to the payments of companies from the extractive sector to the government. Meanwhile, already 37 resource-rich countries take part in the Extractive Industries Transparency Initiative (EITI). These countries publish annual reports about the tax revenues from the natural resources’ sector.
In the US, from this year on, a new bill will be implemented that compels all listed companies of the extractive industry to provide detailed information about their payments to governments of all countries where they operate. Also the European Union approved in 2013 a similar directive, involving also big not-listed European companies. Protection of the environment: limits and a strong framework for the exploitation Due to the increasing demand of natural resources, there is an important expansion of new exploration concessions, often in regions where there hasn’t been until now exploitation of these natural resources. Frequently new concessions are granted in marginal, isolated or unstable regions and can give rise to serious social conflicts. Among these territories, there are quite a lot of environmentally protected areas.
Besides, the use of chemical products during exploitation may cause the salinization of the soil and the pollution of the fresh water sources. This is not only very harmful for the local fauna and flora, but also for agriculture and the health of local population. The main problem here is that the process of regional planning or the setting up ff soil use maps still is very elementary in countries of the South.
Moreover, the final decision about exploitation licenses hardly is based on a and thorough impact study of the project and the permission rarely is given by an independent environmental agency. These are the 2 major weaknesses at the moment with the approval of exploration permits: the impact studies are incomplete, or the agencies that approve them, are not independent.
Consultation of the local population: more democracy and participation!
In some countries, we observe a strong increase of social conflicts in those regions where natural resources are extracted on a big scale. In many resource-rich countries, conflicts directly linked to the extraction of natural resources are the most important cause of social conflict. Due to the expropriation of land and the damage to the environment, local population – of which most are small farmers – are directly affected by the exploitation of natural resources. Their health may be at risk and the exploitation may infer a threat to their safety and food security.
This situation becomes even more problematic in the majority of Southern countries where the income of a majority of the population depends on agriculture (between 60 and 80% in Africa, between 30 – 50% in Southern Asia and up to 50% in Latin America). To enable participation of the indigenous populations on the decision-making regarding the economic activities in their territories, the ILO drafted a convention for about 20 years ago about the protection of the rights of indigenous peoples.
The ILO convention 169 – which has been ratified by the majority of nations – obliges the government to prior consultation of the indigenous population on all important projects which may impact their way of living. The concerned population has to be well informed about the possible impact of the project, with an enumeration of all advantages and disadvantages. Besides, the government needs to strive to a formal agreement of the project by the indigenous population before the project can be started. This is also known as the principle of the Free and Prior Informed Consent’ (FPIC).
Some countries have also put this convention into national legislation and procedures for the implementation of the consultation. Yet in practice, we observe that frequently all kind of means are employed by government and/or company to get approval of the project by the local population and that the information provided minimises the possible negative impact and maximises the possible positive results.
Protection of the community leaders and the human right defenders
Much too often, the protest movement against extractive projects is subject to criminalisation by the government. Often, conscientious use of false or misleading information is used to manipulate the public opinion to create the idea that protest movements work against the general interest of the nation or that these movements strive for a secret agenda. E.g. in Peru, it is said that the protest movements are led by ex terrorists of the Lightning Path or MRTA. In this way, the public opinion is incited to think that all protests are leaded by people with terrorist goals. By criminalizing the social protests, legal tools are also employed – often under false charges – with the purpose of criminal convictions and making silenced the leaders of the social organisations. Also human rights organisations, assisting local organisations and their leaders in the defence of their rights, are often targeted by government agencies or ‘security firms’ employed by the companies and become the victims of intimidations, persecutions and death threats. Hence the importance of the existence and the functioning of independent agencies like the ombudsman and the regional human rights commissions. These authorities have to look after the implementation of the human rights treaties and if necessary interpellate governmental agencies or impose special protection measures.
Preventing human rights violations and armed conflicts
Almost 20 years that the African continent attracts the attention of international observers (journalists, researchers, NGOs) about the links between the exploitation of natural sources and the dynamics of armed conflict. In the past, the case of the ‘blood diamonds’ in Africa, esp. in Sierra Leone and Liberia, has drawn a lot of attention. This led to the creation of the Kimberly process with the aim to take all ‘blood diamonds’ out of the circuit by the implementation of a certification scheme. Today, the focus lays on the ‘3T’s’ – Tin, Tantalum, Tungsten – and gold because the artisanal exploitation and the illegal trade of these metals is contributing most to the funding of armed groups in the east of the Democratic Republic of the Congo (DRC).
There are indications that Latin America on its turn is also touched by the phenomenon of ‘conflict minerals’, esp. in Columbia, where the parties involved in the internal armed conflict – guerrilla and paramilitary groups – are gradually swapping the cocaine trade for the trade in ores. Confronted with the situation in the DRC, a lot of government and private initiatives have been taken.
They comprise three separate, but complementary approaches:
the ‘certification’ of the trade in conflict-free ores;
the traceability of minerals starting from the mine, and
the process of ‘due diligence’,
in which each company involved in the supply chain of the industry does all efforts possible to avoid the use of conflict minerals.
Since 2010, ‘due diligence’ is largely considered as the ‘best practice’ in the field of regularization of the companies’ activities (extractive companies, melting companies, electronics industry).
The Due Diligence principle is applied especially in two important official initiatives: the OECD- Directive for the Supply Chain of minerals and Section 1502 of the American Dodd-Frank Wall Street Reform Act. The American law is very controversial, because in practice it has caused a factual embargo on the importation of ores from this conflict zone, with a heavy economic impact and not a real positive influence on the safety of the population.
The focuses we want to lay and the actions we want to support from the Belgian Network on Natural Resources are as follows:
- Contracts need to deliver more profit for the producing countries
Countries need to get the possibility to renegotiate existing non advantageous contracts with the aim to receive a fairer distribution of the profits and to generate better development opportunities from the extraction of natural resources. New contracts should be orientated by a model contract based on ‘best practices’ from the whole world, in which extraction should in the first place benefit the producing country and its population.
- Further steps need to be set to more transparency
A next step to transparency of payments to the government should be the transparency of contracts, so that one can confront payments with the contractual obligations and analyse whether these contracts are elaborated following the criteria of a ‘fair’ contract. The final goal needs to be full transparency covering the whole value chain – from concession permits to the use of the tax revenues.
- Need of fundamental measures for the protection of the environment
Governments of resource-rich countries, assisted by technical cooperation from the North, need to work urgently on an effective protection of their natural capital, esp. biodiversity and the different environmental services by: – Considering protected areas as ‘No-Go-Zones’ for extractive activities. – Implementing a process of land-use mapping. This should be a priority for the development cooperation with resource-rich countries. – By having an independent environmental agency issuing the exploration permits, basing its decisions on a critical analysis of a thorough impact study.
- More participation of the local population
To avoid social conflicts related to the exploitation of ores and oil, it is essential local population being consulted before permits are given and that participation is provided in the decision making processes. The application of Free and Prior Informed Consent (FPIC) – recognized by the UN – is the most appropriate tool for this goal. This principle of democratic participation in the decision making should be recognized for all local people affected by the exploitation of natural resources in their territory. This process also offers the best guarantee that in case of implementation of an extractive activity, there will also be an effective control on the contribution from the exploitation to sustainable local development.
- Protection of community leaders and human rights defenders
The specific guidelines of the European Union form a good base for the elaboration of concrete policy measures for the protection of human rights defenders. With our network, we want to raise awareness on these guidelines. At the same time we want to see these recommendations be applied in the different policy fields regarding European relations with the South such as trade agreements and investment treaties.
- Breaking the link between armed conflict and illegal ores’ trade
Europe can contribute in different ways to the limitation of the illegal trade in ores. The next years our network will focus strongly on a new European legislation or initiatives with regard to: – the introduction in the DRC of certification and traceability systems of minerals throughout the whole supply chain. – The obligation for European companies to implement due diligence with their suppliers and to report on risks regarding the import of ores from conflict regions.