3rd SDIMI Presentation

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The document discusses mineral development funds which are used in many developing countries to manage revenue from mineral resources and foster rural development. These funds can serve as stabilization and savings mechanisms. The document examines Ghana's Mineral Development Fund which allocates 20% of mining royalties to development projects in mining communities. However, mineral funds are sometimes mismanaged and not linked to creating alternative livelihoods outside of mining. Strengthening legal frameworks and increasing transparency, accountability and community participation are recommended.

Giving back to the African People Fostering rural community development through mineral development funds Shishir A. Shahnawaz Institute for Development Policy and Management University of Manchester, UK 3 rd International Conference on Sustainable Development Indicators in the Minerals Industry (SDIMI) 17-20 June 2007, Milos island, Greece.

Introduction Why are Africa’s mineral rich countries performing so poorly economically? Poor economic performance of many mineral rich developing countries is more a result of corruption and host govt.’s mismanagement of ‘royalty payments’ ‘ Resource curse’ v/s. welfare of mining communities

However… Prudent management of mineral development funds => social development

Basic economic interpretation of mineral development funds Stabilization mechanism Reduced impact of commodity prices Improves budget predictability by stabilizing investment patterns Savings mechanism Share of wealth for future generations

Examples of funds off natural resources revenue Venezuela’s Stabilization Investment Fund Norway’s State Petroleum Fund Iran’s Foreign Currency Reserve Account Oman’s General Reserve Fund Other trailblazers: Chad, Ghana, Nigeria, Chile, Kuwait, Tanzania etc.

Two questions Why and how are these funds so popular in many developing countries? How are such popular funds devised in order to foster community development? ……… While the aims seem to be ideal – their utilization has since provoked criticism examples : - Kuwait’s Reserve Fund - Revenue in Chad-Cameroon pipeline project - Sierra Leone, Gabon, Ivory Coast, Angola …. the conflict zones

Ghana’s Mineral Development Fund (MDF) MDF is funded with 20% of royalties paid by mining companies to redress some of the harmful effects of mining activities; to undertake development projects in mining communities; and to support the budgets of mining sector institutions and carry out special mineral projects Background of establishment of MDF to see mining as a catalyst for its own growth; to set up a Mineral Development Bank (funded through royalties); to establish financing schemes to support small-scale mining; and to support non-mining economic activities in mining communities.

Stakeholders Govt. take : corporate income tax, dividend tax and royalties Local take : percentage of royalties contributing MDF

Economic environment of MDF Mining in Ghana contributes  33% of total exports  11% of Govt. revenue  5% of GDP  7% of corporate tax earning  Mining employs 50% of the labour force in Ghana

MDF: An Analysis Mining law enacted in 1986 Article 22 Effectiveness? Bill passed in 2006 in the Ghanaian parliament to better manage MDF Recommendations

Weaknesses in mineral development funds management ‘‘ Who pays what to whom’’ Contribution of funds to development? Appropriate reporting and accounting of monies paid to beneficiaries? Absence of legal backing Unplanned and sometimes illicit use of funds Passive involvement of mining companies in the management of funds Linkage with creation of alternative livelihoods

In short… The main political consequences of relying solely on external rents Countries relying on mineral exports: implications The empirical evidence till date?

Looking ahead Mineral funds be covered by a legislative act Board of Trustees to be incorporated to monitor Additional act to be incorporated. Separation of executive from judiciary! Mining companies should put all-out effort to adhere to and comply with the rules and regulations implemented Mining communities need to be engaged in dialogues concerning their ‘effective’ welfare Civil society may be empowered to have ‘a say’ in “ who-pays-what-to-whom ” Mining, MDF and .. an ‘Alternative Livelihood Model’ ?

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3rd SDIMI Presentation

1. Giving back to the African People Fostering rural community development through mineral development funds Shishir A. Shahnawaz Institute for Development Policy and Management University of Manchester, UK 3 rd International Conference on Sustainable Development Indicators in the Minerals Industry (SDIMI) 17-20 June 2007, Milos island, Greece.

2. Introduction Why are Africa’s mineral rich countries performing so poorly economically? Poor economic performance of many mineral rich developing countries is more a result of corruption and host govt.’s mismanagement of ‘royalty payments’ ‘ Resource curse’ v/s. welfare of mining communities

3. However… Prudent management of mineral development funds => social development

4. Basic economic interpretation of mineral development funds Stabilization mechanism Reduced impact of commodity prices Improves budget predictability by stabilizing investment patterns Savings mechanism Share of wealth for future generations

5. Examples of funds off natural resources revenue Venezuela’s Stabilization Investment Fund Norway’s State Petroleum Fund Iran’s Foreign Currency Reserve Account Oman’s General Reserve Fund Other trailblazers: Chad, Ghana, Nigeria, Chile, Kuwait, Tanzania etc.

6. Two questions Why and how are these funds so popular in many developing countries? How are such popular funds devised in order to foster community development? ……… While the aims seem to be ideal – their utilization has since provoked criticism examples : - Kuwait’s Reserve Fund - Revenue in Chad-Cameroon pipeline project - Sierra Leone, Gabon, Ivory Coast, Angola …. the conflict zones

7. ��

8. Ghana’s Mineral Development Fund (MDF) MDF is funded with 20% of royalties paid by mining companies to redress some of the harmful effects of mining activities; to undertake development projects in mining communities; and to support the budgets of mining sector institutions and carry out special mineral projects Background of establishment of MDF to see mining as a catalyst for its own growth; to set up a Mineral Development Bank (funded through royalties); to establish financing schemes to support small-scale mining; and to support non-mining economic activities in mining communities.

9. Distribution of MDF to beneficiaries

10. Stakeholders Govt. take : corporate income tax, dividend tax and royalties Local take : percentage of royalties contributing MDF

11. Economic environment of MDF Mining in Ghana contributes  33% of total exports  11% of Govt. revenue  5% of GDP  7% of corporate tax earning  Mining employs 50% of the labour force in Ghana

12. MDF: An Analysis Mining law enacted in 1986 Article 22 Effectiveness? Bill passed in 2006 in the Ghanaian parliament to better manage MDF Recommendations

13. Weaknesses in mineral development funds management ‘‘ Who pays what to whom’’ Contribution of funds to development? Appropriate reporting and accounting of monies paid to beneficiaries? Absence of legal backing Unplanned and sometimes illicit use of funds Passive involvement of mining companies in the management of funds Linkage with creation of alternative livelihoods

14. In short… The main political consequences of relying solely on external rents Countries relying on mineral exports: implications The empirical evidence till date?

15. Looking ahead Mineral funds be covered by a legislative act Board of Trustees to be incorporated to monitor Additional act to be incorporated. Separation of executive from judiciary! Mining companies should put all-out effort to adhere to and comply with the rules and regulations implemented Mining communities need to be engaged in dialogues concerning their ‘effective’ welfare Civil society may be empowered to have ‘a say’ in “ who-pays-what-to-whom ” Mining, MDF and .. an ‘Alternative Livelihood Model’ ?

16. Thank you & Questions [email_address]

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3rd SDIMI Presentation

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