Established in early 2008; A joint Center of Columbia Law School and the Earth Institute at Columbia University (for those following our work, we are just rebranding from the Vale Columbia Center on Sustainable International Investment).
Our mission is develop and disseminate practical approaches and solutions to maximize the impact of international investment for sustainable development
FDI is a major global economic force and can play a crucial role in advancing sustainable development through the transfer of capital and technology, job creation, linkages with local industries, infrastructure development and capacity building. But importantly, the extent to which these benefits accrue to host countries depends heavily on the policies of the host country and the investor, and the institutions available to find mutually satisfactory outcomes for both.
Our Guiding belief is that: cooperative, transparent, and equitable investment that contributes to development is both achievable and in the mutual interest of private sector investors and host country populations. And that It is a shared priority of investors, governments, donors, and other stakeholders to create an investment framework that is favorable for long-term investments, political and social stability and sustainable development.
Such an investment framework is particularly important for extractive industries for a number of reasons.
On one hand, the transformative potential of extractive industries to catalyze sustainable development is greater than in most other sectors. Long-term (investments are often for many decades) Capital intensive (Projects can be profitable while generating billions of dollars of revenue for governments) Major infrastructure and supply chain needs with potential spill-over effects and the cooperation of the communities and the governments required to support such investments.
On the other hand, there are unique challenges associated with resource-based development: - Deposits are often located in poor countries, where there are pre-existing governance constraints, political instability, and major development challenges. - The resource curse can be a reality, in which the benefits of the mining sector are squandered through overvalued exchange rates and mismanagement of the revenues. - Extractive projects may be treated as enclave sectors, with few linkages to the rest of the economy. Often the linkages are only potential, and are not perceived by the companies or by the government. - The resources extracted are non-renewable, making depletion a core reality that must be planned for. - The industry and their government counterparts have historical records of environmental and human rights shortfalls, leading to distrust among the stakeholders. - Contracts, which are kept confidential, may include terms that are counter to public policy and that make it difficult for governments to regulate in the public interest. - Mining is often highly politicized, with home-country governments leaning on weaker host-country governments. More often than not, such lobbying backfires for all parties.
Our belief is that Extractive industry investments can truly be win-win investments for governments, companies and communities but there is a lot of work to be done to build the institutional framework, capacity, information sharing, regulatory framework and common understandings among all stakeholders.
This is becoming increasingly urgent as more and more countries- particularly low and middle-income countries, are becoming dependent on their fuel and mineral resources, (calculated by the share of exports that are made up of fuel/minerals).
Overall 45 countries are non-fuel mineral dependent and 40 are fuel-based mineral dependent countries (nearly half in Africa) More than 80% of non-fuel mineral dependent countries were low- and middle-income countries and 70% of the fuel-dependent countries
The background note for this conference asks excellent questions about both the opportunities and challenges for realizing resource based development. I would highlight just a few that that will underpin the rest of my presentation. This is certainly a non-exhaustive list, but it highlights some important considerations.
The first is the need to encourage all stakeholders to adopt a longer-term perspective -- Both companies and governments often take a short-term approach: -- Many companies tend to focus on optimizing short-term financial performance “ignoring the broader influences that determine their long-term success.” -- Governments may also tend to take a short-term view, for instance by focusing on attracting investment, and overlook opportunities to maximize the contribution of the sector over the long term.
-- However, resource-based development requires a long-term approach. -- for governments, the old assumption that FDI will naturally bring revenues and create jobs is of course not true, and really realizing the benefits of these investments requires a similar long-term horizon, to anticipate all linkages and all potential impacts.
- And for companies, extractive industry investments have large upfront costs, and not profitable for several years, so to maximize profit, extractive industries must: Ensure investment stability over the life of the mine Minimize costs over time This requires a long-term approach. [SHOW NEXT SLIDE]
The second is the need to level the playing field’ in terms of information, resources, capacity, -- the asymmetry of access to information, resources and capacity is shocking. -- Many governments and stakeholders do not have access to contracts signed by their own governments, let alone contracts signed by other governments, whereas companies have access to virtually all contracts -- companies have large teams of lawyers, economists, political scientists, etc, doing modeling, research and due diligence, while countries have few if any of those resources, particularly not with the necessary experience -- Most governments are not aware of experiences of their neighbors, etc…
The third is the need to distill good practices, optimal linkages, successful models, etc… In some cases, there is more work to be done to understand the effectiveness of certain policies, practices, etc… some examples include, for instance, local content policies (since some policies may not be as effective as designed), community engagement practices, models for sharing infrastructure, etc… So there is a role for other stakeholders in academia (with support from donors and others) to continue to understand these best models and practices.
The fourth is the need to Implement regulations that improve standards, accountability, access to justice and remedies Finally, some challenges really do require legal solutions. To name a few, there will need to be coordination action around tax evasion, transfer mispricing, access to justice at the local level but also transparency of investor-state dispute settlement mechanisms, and the like.
I’ll try to highlight these throughout my presentation.
As I mentioned, the goal of all stakeholders is a mutually beneficial, long-term relationship, which enables the profitability of the industry as well as ensures that the investments translate into widespread development benefits for the population.
At CCSI, we have developed a five-pillar investment framework that promotes the long-term stability of investments and aligns investors’ activities with development priorities of the region and country.
For governments: highlights the many areas in which these investments can contribute to national development priorities, and the types of policies, institutions, and in many cases, support that will be required.
For companies: aligning with and supporting the framework promotes stability and reduces political risk and unforeseen costs that result from an unstable deal
For both governments and companies and other stakeholders: highlights areas in which partnerships and collaboration-– including with third-party partners-- can align mutual interests, commitments, responsibilities and benefits
Each of these pillars has numerous components and implications for policies, tools, resources, etc… but I will try to highlight a few key areas in each pillar just to give an overview of the interrelated challenges and opportunities in each pillar for strategic engagement with the sector.
A transparent and mutually beneficial legal framework that enables a stable and predictable investment climate, maximizes benefits for host populations, and minimize the risk of disputes includes:
Balanced fiscal and non-fiscal benefits in legislation and contracts
Contract Transparency, which encourages a fair deal and clear allocation of responsibilities
Use of innovative, flexible fiscal mechanisms that balance investors’ needs for a fair return with governments’ need for a fair value for their resources
Active, broad, inclusive, and detailed Extractive Industry Transparency Initiative – Jonas will of course tell us much more about this
Collaborative action to combat tax evasion, havens, and transfer mispricing
Increased transparency and capacity around investment treaties and investor-state dispute settlement
Increased capacity on auditing, financial modeling and contract negotiation
Again, each of these could be considerably unpacked, and I’m especially happy to do so later today or by email or if there is a particular interest.
In each of these cases, we and many other partners are working to document good cases, research optimal models, and to develop resources.
For instance, in terms of contract transparency, I will talk later today about work that we are doing with Revenue Watch and the World Bank Institute to promote contract transparency through a database of annotated, publicly available contracts.
We also did a study in response to some of the frequently advanced arguments by some companies that transparency (especially of payments) will hurt their competitiveness and financial indicators and showed that actually the more transparent companies had better financial indicators AND fewer incidences of costly human rights and environmental incidences than non-transparent companies.
We also have a major project with support from many donor governments (German, Australian, British, the US) to support developing countries in their negotiation of contracts and in the development of their legal framework that I can talk about.
With respect to the fiscal mechanisms, we’re looking at whether progressive fiscal regimes have been successful at minimizing disputes and renegotiations, and if so, what barriers there are to their implementation.
So this slide is really highlighting SOME of the aspects of a legal framework that are critical for resource-based development, but of course, much more could be said about each.
A second core pillar is the role of national planning and the related (but distinct) component of revenue management.
This includes, for instance,
Including medium-term plans for infrastructure, linkages, domestic resource needs and environmental impacts in medium- and long term development plans It’s amazing how few development plans (including the poverty reductions strategy papers done with the World Bank and others with donors) even mention the extractive industries in these countries, when these industries are meant to be the catalyst for growth.
The plans should lay out specific linkages between the industry and development objectives, including direct linkages (jobs, training, infrastructure, etc…) and also how the revenues will be allocated to support development priorities.
Identifying public investment priorities with costs and implementation plans
Most governments (including the US!) have not properly identified and costed their public investment priorities, which makes it extremely difficult (if not impossible) to channel resource revenues to those development needs or to identify other strategic linkages.
Aligning the budget with development priorities and plans
Ensure budget transparency (including of resource revenues)
Moreover, these national and regional development plans enable companies to support national priorities and coordinate with other public and private actors
There are also unique and important issues for governments with natural resource funds, which an increasing number of emerging producers are considering; we just completed profiles of 22 natural resource funds with RWI and issued policy briefs on a number of key issues related to governance, transparency, fiscal rules, management, etc…
Example of the need for Government planning/ resource allocation.
The third pillar is optimizing opportunities to create economic and infrastructure linkages from the extractive sector.
This pillar highlights the opportunities to leverage both the infrastructure needs of the industry (for instance in power, rail, roads, ICT, and water) and also the labor and procurement needs as opportunities to both expand critical infrastructure and to develop local supply chains and employment.
For infrastructure development and expansion: Governments should map their existing infrastructure and gaps to help identify alignment with industry’s infrastructure plans, which enables a critical discussion about shared platforms, collateral use by other sectors, grid expansion, etc… Governments need to develop effective operational and regulatory capacity in the energy and transport sectors to make multi-user models and third-party access feasible from a business perspective This is certainly quite complex; We have been working on a long-term project to develop a regulatory, operational and institutional framework for shared-use of infrastructure, including case studies for Sierra Leone, Mozambique and Liberia.
[Project preparation (supported by donors or IFIs) lowers costs of (and barriers to) industry-financed infrastructure and identifies where additional resources can leverage trunk infrastructure]
For diversification and supply chain development: There are real opportunities to leverage the needs of investors for local employment, services and goods, but in many countries, that will require coordinated efforts of the public sector (investing in education and training), additional partners like donors and banks to help with business support services, access to finance, etc,, and the private sector, to identify opportunities for local procurement, develop local procurement policies, and support sustainable supply chain development programs
The fourth pillar is about prioritizing human rights and integrated rural development, to protect the rights of local stakeholders and to ensure that local stakeholders and the population benefit from the investment.
There are a variety of opportunities including: Developing Local development plans to identify integrated approaches for sustainable development interventions, primarily by building pubic systems but also to enable companies to identify appropriate and sustainable points of entry, to ensure companies are complementing, not replacing, local government Without public services (health clinics, schools, water supply, infrastructure), CSR programs include physical infrastructure and limited service delivery that is often unsustainable, under-provided, disconnected from local and national systems, and may not be tailored to local contexts We did this for instance in Guinea and Tanzania
Companies and other partners can develop Agri-business Alliances to support smallholder agriculture (including agricultural extension services)
Finally, companies and governments both need to develop and adopt Strategies and approaches to protect and promote Human Rights of affected communities
In most cases, this will require real partnerships with development experts and true inter-disciplinary approaches.
The final pillar looks at ways for the stakeholders to manage environmental and climate risks. This includes two dimensions:
Managing the impacts of mining projects, and in this respect, it is important to look at the cumulative impacts of all mining operations and other economic activities in an area, early enough in the project development (or before project development) to be able to adjust policies accordingly.
And the second is to identify other environmental risks and vulnerabilities in the region and to work collectively to address those risks; this may include managing climate risks with strategies to reduce rainfall-induced production variability, for instance.
A five-pillar framework for resource-based development
A five-pillar framework for resource-
IBIS International Conference on Emerging Oil, Gas and Mining
Columbia Center on Sustainable
Mission: To develop and disseminate practical
approaches and solutions to maximize the impact of
international investment for sustainable development
FDI can play a crucial role in advancing sustainable
development through the transfer of capital and
technology, job creation, linkages with local industries,
infrastructure development and capacity building.
Extent to which these benefits accrue to host countries
depends heavily on the policies of the host country and
the investor, and the institutions available to find mutually
satisfactory outcomes for both.
Extractive Industries and Sustainable
Why extractive industries?
Potentially Transformative Opportunities
Long-term partners (investments are often for many decades)
Capital intensive: projects can be profitable while generating billions of dollars
of revenue for governments
Major infrastructure and supply chain needs with potential spill-over effects
Cooperation required of communities and governments to support such
Special Challenges in Extractive Industry Investments
Deposits often in poor, unstable countries with developmental challenges
Threat of the “resource curse”
Extractive projects can be treated as enclave sectors
Resources are non-renewable
Historical records of human rights and environmental shortfalls
Confidentiality and asymmetry of information
Highly politicized at times
Extractive industry investments can truly be win-win
investments for governments, companies and communities
Dependence on Extractives
IncreasingBlessing or curse? The rise of mineral dependence among low- and middle-income countriesBlessing or curse? The rise of mineral dependence among low- and middle-income countries 15
Map of fuel- and non-fuel, mineral-dependent
TRINIDAD AND TOBAGO
dependent countries OPM 2011
New discoveries across Africa
Source: Revenue Watch
Challenges and opportunities for resource-
Encouraging all stakeholders to adopt a longer-term
‘Leveling the playing field’ in terms of information,
Distilling good practices, optimal linkages, successful
Implementing regulations that improve standards,
accountability, access to justice and remedies
Potential for short term consequences
Santa Ana – Silver Mine (Peru) / Bear Creek Mining
10,000+ protestors respond to development of Santa Ana Silver
Asset represents 20% of Bear Creek silver reserves - $96 mm
invested to date
June 24, 2011 – Peruvian government annuls mining concession
Market Response: $311 mm decline in market capitalization (43%
May 9 June24
Gov't Annuls MiningConcession
Bear Creek Mining – 2011 YTD Share Price
Framework for Extractive Industries and
The goal of all stakeholders is a mutually beneficial, long-
term relationship, which enables the profitability of the
industry as well as ensures that the investments translate
into widespread development benefits for the population.
At CCSI, we have developed a five-pillar investment
framework that promotes the long-term stability of
investments and aligns investors’ activities with
development priorities of the region and country.
Five-pillar framework for sustainable investment
in Extractive Industries
Medium-term planning, a public investment
strategy, strategic resource management,
and effective budgetary mechanisms and
Multi-stakeholder management of the
cumulative environmental risks, impacts
and challenges associated with resource
extraction and development.
2- Planning and
An integrated strategy to promote human rights
and to ensure that stakeholders benefit from the
project both during and beyond the life of the
A transparent, legal and fiscal framework,
mutually beneficial to industry and the host
1- Legal Framework
Leveraging extractive industry investments for
infrastructure expansion, vocational training, and
upstream and downstream linkages.
Pillar 1 – A Transparent and Mutually Beneficial Legal
Framework for Extractive Industries
Increased capacity on auditing,
financial modeling and contract
Active, broad, inclusive, and
detailed Extractive Industry
Transparency Initiative and
mandatory payment disclosures
Use of innovative, flexible
fiscal mechanisms that
balance investors’ needs for a
fair return with governments’
need for a fair value for their
Balanced fiscal and non-
fiscal benefits in legislation
A transparent and mutually beneficial legal framework that enables a stable and
predictable investment climate, maximizes benefits for host populations, and
minimize the risk of disputes includes:
encourages a fair deal and
clear allocation of
Collaborative action to
combat tax evasion, havens,
and transfer mispricing Increased transparency and capacity
around investment treaties and
investor-state dispute settlement
Illustration: Disproving that transparency hurts valuation
Transparent companies: 17 companies that disclosed
payments on a country-by-country basis in 2010
Non-transparent companies: 17 companies that are
either EITI or GRI supporters but do not disclose
payments on a country-by-country basis
0.00 5.00 10.00 15.00 20.00 25.00 30.00
Return on Equity
Average of Selected Ratios in 12/31/ 2010.
Pillar 2- Resource-based development planning and
resource revenue management
Align the budget with
development priorities and plans
Ensure budget transparency
(including of resource revenues)
Include medium-term plans for
infrastructure, linkages, domestic resource
needs and environmental impacts
Identify public investment
priorities with costs and
Medium to Long
Coordinate donor and private
sector activities with national
Governments and companies can avoid the ‘resource curse’ and
maximize the development impacts of extractive investments
Snapshot of Timor-Leste
Population: 1.1 million
Per capita GDP 2009: US$717 (PPP)
Stunting rate in children: 58%
Child mortality rate: 64/1000
Children with malaria: 50%
Literacy rate (above 15 years old): 58%
Secondary School enrollment: 41%
The balance of the Petroleum Fund is now over
In 2010, government drafted a Strategic
CCSI helped to create an Infrastructure Fund and a
Human Capacity Fund for increased, multi-year
allocations to key sectors from the Petroleum Fund
Timor-Leste also has implemented a transparency
portal for budget execution.
Pillar 3- Leveraging the Mining Investments for
Opportunities to create economic and infrastructure
linkages from the extractive sector:
Pillar 4 – Integrated Rural Development
(IRD) and Human Rights
Agri-business Alliance to
Strategies and approaches to protect and
promote Human Rights of affected
Local development plans to help
companies identify appropriate and
sustainable points of entry, to ensure
companies are complementing, not
replacing, local government
Pillar 5 – Managing Environmental and
Managing climate risks
and realizing opportunities
Identify primary (exogenous)
environmental risks in the regions
so that companies’ programs can
be tailored and proportional to the
risk (eg. flooding, drought,
Coordinate public, private, and
NGO or donor-funded
conservation, rehabilitation or
adaptation projects to maximize
the effectiveness of each
Managing climate risk with
strategies to reduce rainfall-
induced production variability
Risk Management System
environmental impacts of
Expanding the Cumulative
Impact Assessment to
include competitive land and
water uses and inform policy
among public and private
The responsibilities for resource based development are shared
among companies, national governments and local governments,
with critical roles for civil society, donors, NGOs and academia
Corporate Social Responsibility must be partnered with good
governance: strategic medium-term planning, sound resource
management, and effective partnerships.
At each stage, planning, transparency and cooperation in the
process are critical for realizing the mutual benefits for both
companies and governments.
Collaborative efforts to leverage extractive industries for
development in new (and existing) producing countries
should reflect the following: