Extracting Benefits From The Natural Resource Industry

Mining giants haven’t failed to take note of opportunities in West Africa. The Financial Times reports that six major mining groups are planning on spending billions of dollars in Liberia, Guinea and Sierra Leone in a bid to profit from the region’s rich resources, particularly iron ore.

In Guinea, for example, Vale – a Brazilian company, the world’s largest iron ore mining firm – bought a $2.5-billion majority stake in BSG Resources (Guinea). In addition to the cash value of the deal for the Guinean government, Vale’s indispensable infrastructure investments to move minerals from mine to port will also be significant. Plans include the renovation of 410 miles of railway between the two countries, and the construction of  a $1-billion port in Didia, a town in southeastern Liberia. Infrastructure investments will total between $5 billion to $8 billion by 2020.

The recent deal by Vale underscores the West African region’s increasing appeal for mining companies, who – for better or worse – are well-equipped to work in politically and economically unstable countries. Recent trends in corporate social responsibility are slowly paving the way toward greater transparency and social accountability. This includes the creation of international regulations and standards for the natural resource industry, like the Extractive Industry Transparency Initiative, or theGlobal Reporting Initiative. For publicly-traded mining companies, whose shareholders are becoming increasingly more aware of the human and environmental costs, a real shift is beginning to occur in tems of how a company works with the communities in which they operate.

The natural resource industry can be as much of a bane as it is a boon in developing countries, and there is plenty of evidence showing just how corrupting of a force the industry can be in places with poor governance. That said, mining can also bring about significant economic gains – if the revenues generated are reinvested properly. Furthermore, mining companies often come into remote areas and communities where they generate employment and demand for services. Companies who are leading in social responsibility take it one step further, and partner with governments and development organizations to ensure that sustainable investments are made in infrastructure, health and educational facilities, helping to support local businesses.

In Tanzania, for example, Canadian gold mining giant Barrick is partnering with USAID and EngenderHealth, an international reproductive health organization, to fund and implement the Lake Zone Initiative, aiming to combat HIV/AIDS, malaria and tuberculosis and improve the availability and quality of health services for underserved populations in the Lake Zone region (home to nine million residents in Tanzania).
The key to having these new investments in West Africa truly benefit the local population is to ensure that the investments correspond to local development priorities. New infrastructure such as railways and ports should benefit the people of Liberia and Guinea as much as it facilitates a company’s operations. Vale, for example, intends to reconstruct a railway line for passenger use in Guinea. If a company plans to spend significan amounts of money on infrastructure or health care (building hospitals, for example), they should be doing so in coordination and partnership with local authorities.

Countries like Liberia and Guinea can catalyze potential development opportunities by creating a regulatory environment that attracts foreign mining companies. They can also help secure positive outcomes for their populations. Liberia, for example, has launched the Liberian EITI, an initiative meant to ensure proper and transparent management of forestry revenues.
At a time when foreign aid and development assistance budgets are under tremendous pressure, there is a real opportunity for governments and local populations to leverage the additional revenues and ancillary investments that come from natural resource companies operating in their countries.

Image: Derelict iron mine facility in Bong County, Liberia (Penelope Chester)