For a developing country facing high poverty levels, a growing population with high expectations despite a poor revenue base and weak institutions, but with an abundance of natural resources, exploiting them looks like the path to glory. Experience from a range of countries shows that, to put it mildly, it's not so straightforward. The World Economic Forum has published a report on the topic - Natural Riches?.
It aims to offer guidance on responsible exploitation of natural resources in situations of violent conflict or a high risk of it. The guidance is intended for national governments, especially in a country such as Myanmar where there is a political transition under way amid conflict and risk of escalation.
The report begins* by posing the two obvious overarching questions:
- What is conflict risk?
- And what is responsible resource extraction?
The most useful and durable definition of peace does not prescribe an absence of conflict; if that were taken literally, peace would be the stuff of nightmares and totalitarian fantasy. Peace is, rather, the situation in which citizens can pursue their conflicts without damage to each other or their neighbours. Peace is therefore characterized by an ability to handle conflict, not to suppress it.
There never has been an armed conflict with a single cause. In every conflict a number of features of the social and political landscape interact with each other, so analysing conflict risk involves close attention to the particular circumstances of the country, especially its recent history and current development trajectory.
Though every case is different, there are important similarities among them because a number of elements recur. Key among them are:
- Institutional deficiencies: Risks are high when institutions that help manage disputes and conflicts are weak and/or lack general credibility - institutions such as parliament, courts, police, central government ministries, local authorities, chambers of commerce and other business organisations, professional associations and civil society organisations.
- Economic deficiencies: Risks are also high when ordinary people cannot meet their reasonable basic needs or when livelihoods are hit by a sudden economic shock and people have little or no social safety net.
- A lack of social well-being: Frustrations arise over poor or non-existent provision of basic public services like health, education, sanitation and transport. All this is often expressed in terms of resentment at the advantages thought to be enjoyed by another group.
All these factors reduce people's sense of belonging and commitment to the society in which they live. That makes individuals recruitable when it comes time to take sides in conflict and it makes conflicts harder to manage.
The "conflict risk" that is discussed in the WEF publication, therefore, is the risk that conflicts that arise are less likely to be handled peacefully than they are in countries that are richer, with established institutions and with a more solid sense of social well-being.
The problem of natural resources
Despite the promises that abundant natural resources seem to offer, exploiting them can go badly wrong. What matters, of course, is not the type or even scale of natural wealth but how it is exploited. When it goes wrong, instead of feeding growth it weakens it and, at worst, feeds violent conflict.
The primary reason is that exploiting natural resources offers many opportunities for unscrupulous looting of the wealth by an economic elite if it can get hold of the levers of state power. It makes possible power without much consent, unlike the situation when state revenues depend on taxes. There is a linkage between tax-based state revenues and participation-based state power.
And it's not just the state. There are equal opportunities for armed militias if they can take control of resource-rich areas.
As a result, natural resource extraction is widely associated with high levels of corruption, rent capture by elites and ineffective governance. In some cases, groups that are ostensibly engaged in violent conflict with the state are acting in covert alliance with some segments of it, to their mutual advantage and to the detriment of the country as a whole and its ordinary citizens.
A further issue is that the process of extraction has an impact on the environment, whether because it means village communities have to be moved so mining can go ahead, or because of environmental degradation. When these issues are handled arbitrarily by the authorities, grievances have tended to turn quickly to unrest.
To see the problems of natural resource management purely in terms of violent conflict, however, is only to see part of the picture. A big part of the issue is what happens to the state. If natural resource production falls under the control of those who have power and weapons but who need others to do the actual extraction, foreign interests take effective control of natural resources. The state loses sovereign control and, with that, sovereignty, in exchange for short-term gain for a narrow segment of the country's elite. Corruption then hollows out the state. When the state does not provide services or security, ordinary people either have to fend for themselves or find other forces who can go some way towards meeting their basic needs. Armed groups often claim that role, reinforcing their strength against the state.
Aiming for responsibility
What makes responsible resource exploitation responsible is that it sets out to avoid exacerbating conflict risk. It depends in part on avoiding some negatives. A Do No Harm code for resource extraction prioritizes the following:
- It avoids feeding corruption and uneven development - because they would weaken institutions, deepen inequalities and undermine social well-being;
- It respects the human rights of those who live in the vicinity, including ensuring that security for mining or drilling does not become insecurity for everybody else;
- It sets out to minimize the grounds for conflict over who gains most and who pays the highest cost;
- It avoids raising expectations of social and economic benefit too high.
As well as avoiding harm, responsibility also involves undertaking some positive steps.
- First, obviously (and yet judging by how companies have all too often behaved, not so obviously), it involves widespread consultation with people whose lives will be affected. This helps strengthen institutions, decreases the likelihood of deepening inequalities and also helps with keeping expectations realistic.
- It also involves an emphasis on sharing benefits between different regions and social groups.
- Arguably more importantly, it involves sharing benefits between today and tomorrow. By this, I mean that revenues from resource exploitation are best used for strategic social investment and long-term job creation.
- Care is needed to establish the right legal procedures for transparency and accountability; current international standards set minimum criteria.
This approach to natural resources will work best within a social and economic development strategy that:
- Makes benefits of resource extraction visible;
- Uses resource income to invest rather than relying on it for short term gains;
- Diversifies the foundations of prosperity so that the economy does not rest on resource extraction alone .
Against this backdrop, the report examines in turn the following elements of a responsible approach to natural resources management:
- The development context
- International approaches
- Contract design
- Ensuring transparency of payments and revenues
- Security and human rights
- Institutional frameworks for managing natural resources
- Engaging the community
- How natural resources can stimulate broader social and economic development
In a nutshell
As a broad but tenable generalization, natural resource exploitation that is fast, furious and provides benefits to a narrow segment of the population offers a relatively high risk of generating conflict that escalates into violence, especially since in such circumstances the institutions that can manage conflict have probably not been built.
By contrast, natural resource exploitation that is relatively, broadly based and provides benefits to the population as a whole minimises the risk of violent conflict, especially since in such circumstances, conflict-management institutions almost certainly are being built along the way.
* In an introduction that I drafted, of which this is an edited and shortened version.