October 2003, Ginger Gibson / CoDevelopment Canada
The Extractive Industries Review, launched by the World Bank Group (WBG) to discuss its future role in the extractive industries with concerned stakeholders, aims to produce a set of recommendations that will guide involvement of the WBG in the oil, gas and mining sectors. CoDevelopment Canada has profiled the portfolio of oil, gas and mining insured or guaranteed by two arms of the World Bank Group, reviewed cases of investment and discussed the mandate of poverty alleviation with WBG staffers. The principal focus of the work has been on community perceptions of the impacts and benefits of investment in the extractive industries, and anticipated contributions of these industries to poverty alleviation.
This document reviews the range of anticipated impacts and benefits in the following regions: Africa, Asia, Eastern Europe and Turkey and the Former Soviet Republics (FSU), and Latin America. This research employed qualitative and quantitative methods. First, each investment or guarantee by the IFC or MIGA was reviewed from 1993-2002. Research entailed detailed investigation of each case of investment using publicly available data. An Access database was built to archive 44 variables on each case of investment or guarantee. Second, interviews were conducted with 17 individuals within the IFC and MIGA to better understand insider perspectives. Finally, case studies of IFC investments in Bolivia and Turkey were prepared on community perspectives on the nearby mining projects.
There is little evidence from the multi-project analysis or the case studies to indicate investments and guarantees in the extractive industries have had the outcome of poverty reduction at the local or regional level. The goal of poverty reduction has not been the prime mover for project development until recently. The WBG, under pressure from civil society and from internal champions for change, has become more attuned to the issue of poverty at the sub-national level in recent years. The key conclusions of this study are:
- There is little evidence to indicate that poverty alleviation is achieved through direct investments and guarantees in the extractive industries. The multiproject analysis and the case studies indicate that historic project funding in the extractive industries has not had the main goal or the outcome of poverty reduction.
- A key benefit of investment for communities near the extractive industries involves upgrading of public services due to investments or guarantees, although government capacity and transparency with revenue remains a key concern. These investments are typically made to improve project proponent capacity to operate in an area but benefits can extend to the broader population. There is little evidence that these public services reach the poorest people.
- Qualitative investigation reveals that the poor do not benefit from the extractive industries. In-depth qualitative research reveals that investments that might look like contributions to poverty alleviation (i.e., electrification of a region, potable water systems) do not benefit the poorest because tariffs are out of reach or distribution systems are not egalitarian.
- Community support for mining is apparent in one case study: the mine in Turkey. At the same time, citizens launch many complaints with this mine.
- The key drivers of poverty are not reflected in the portfolio or the project goals of the extractive industries. Gold mines and oil and gas fields comprise the bulk of the IFC and MIGA portfolio, and the portfolio is largest in Latin America (whereas the poorest people in the world are in sub-Saharan Africa). Multinationals are favored in the portfolio as the majority partner, although many joint ventures are found between these companies and smaller incountry partners. The short life span associated with these projects is unlikely to generate long-lasting funds and programs for poverty reduction and the key economic goals of corporations do not favour poverty alleviation or development outcomes.
- The bulk of the investments and guarantees are not in the poorest countries in the world. The most diverse and successful projects occur in Latin America, whereas in Africa mainly oil, gas and a few gold mines are running. Economic drivers as well as risk to the investor drive project success and investments more than development outcomes.
- Communities interviewed for case studies are unaware of the involvement of the WBG, suggesting a lack of transparency and access to information at local levels. Communities were able to correctly identify the company, but often held inflated views of how much ore was extracted and how much money the corporation made, particularly in Bolivia.
- There is a need to develop community driven poverty assessments and evaluations of projects with sequencing of data collection over time. Since poverty reduction is a key goal, the communities closest to extractive projects should become involved in participatory assessments of projects, giving prior informed consent to plans and projects and developing poverty reduction plans before projects begin.
