SUMMARY

Analyzing the Role of Resource Governance in the Social Progress of Mining-Dependent Countries

In Asia, coal producer Mongolia was among those found by the study to have the biggest relative improvements in overall socioeconomic performance since 1995. Photo credit: ADB.
In Asia, coal producer Mongolia was among those found by the study to have the biggest relative improvements in overall socioeconomic performance since 1995. Photo credit: ADB.

Published: 05 August 2021

An enabling environment and strong governance lead to better socioeconomic outcomes.

Overview

Does an abundance of mineral resources hinder rather than enhance economic progress? This complex question is the subject of extensive study and debate. In 2018, a study by the International Council on Mining and Metals analyzed the socioeconomic progress of mining-dependent countries across the Sustainable Development Goals (SDGs) over 2 decades. The findings showed that, even after controlling for income effects, these countries generally improved on both absolute and relative terms, with over 80% of them narrowing their social development gap with the most socially advanced countries.

Mining-dependent countries include some of the world’s poorest nations and are home to almost 30% of the global population with more than 200 million people living on less than $1.90 a day. In Asia, these include Georgia, Indonesia, Kyrgyz Republic, Mongolia, and Uzbekistan. Unfortunately, many of these countries are also likely to be the most vulnerable to the fallout from the COVID-19 pandemic. This makes it more urgent than ever to examine the drivers and requisites for progress in mining-dependent countries so necessary actions can be taken to maximize the benefits of their resource endowment.

This article summarizes the key findings of a recent follow-up by International Council on Mining and Metals (supported by economic strategy firm AlphaBeta) that sets out to understand the strength of linkages between resource governance and socioeconomic development. The report first discusses the results of the updated global socioeconomic index (combining 41 metrics over 12 SDGs), which provide a baseline of the status of 34 mining-dependent countries prior to the pandemic. It should be regularly updated and tracked as new data becomes available so that the full extent of the impact of COVID-19 on social progress in these countries could be measured. Next, governance is broken into its different components to study their linkages with specific SDG areas.

The overarching message is that governance matters. The higher the quality of governance, the stronger the socioeconomic progress observed in the countries. While many countries have invested time and effort in adopting clear and modern legislative frameworks, the actual implementation is proving more challenging. Countries that are more peaceful, have lower levels of corruption, and a vocal and active civil society with sufficient civic space are better able to translate natural resources into social progress.

To measure socioeconomic progress, the report tracks 41 established and widely accepted indicators across 12 SDGs between 1995 and 2018. It also draws upon the Natural Resource Governance Institute’s 2017 Resource Governance Index to examine the correlations between resource governance and socioeconomic development. This is the only international index dedicated to measuring three components of resource governance—value realization, revenue management, and the enabling environment. Each country has an overall composite index score and scores for the three components.

Social Progress from 1995 to 2018

In absolute terms, the countries improved in more than 70% of metrics measured over a period of 23 years. Overall, citizens are healthier, wealthier, and better educated. The countries made the greatest progress in promoting good health and well-being (SDG 3), introducing quality education (SDG 4), providing people with improved access to clean water and sanitation (SDG 6), providing more affordable and clean energy (SDG 7), and improving access to infrastructure (SDG 9). Child mortality rates declined significantly, access to electricity improved, and internet and mobile penetration increased. In Asia, the best performers on the health metrics are Indonesia and Mongolia. There was a sharp decline of maternal mortality in Indonesia, while deaths from noncommunicable diseases fell significantly in Mongolia. This represents a counterpoint to the widely held perception that mining is likely to impede the economic, and in turn, social progress of host populations.

In relative terms, almost 80% of mining-dependent countries have closed the gap against global best performers. Evaluating progress on a relative scale is useful for country comparisons and targeted recommendations given varying differences in areas such as geography, population, and income. It is important not just to understand if the countries have improved in absolute terms but also to assess their relative development compared with leading global peers.

The International Council on Mining and Metals Social Progress Index measures the gap between a country and its most socially advanced global peer over time—on a specific indicator and as a whole. The index is constructed using a “distance-to-frontier” approach where each country’s overall socioeconomic development in a particular year can be scored on a scale of 0–1, with 0 being the worst and 1 being the best outcome.

Figure 1 shows that approximately 74% of mining-dependent countries had overall socioeconomic performances that were below the global average in 1995, but 77% of them managed to close the gap on the global leaders since then. Asian countries with the biggest relative improvements include Georgia, Indonesia, Kyrgyz Republic, Mongolia, and Uzbekistan. For instance, Indonesia’s socioeconomic performance was below the global average in 1995, but it has managed to improve its overall social progress score by almost 24% since 1995. This was particularly evident for SDG 1 (No Poverty) and SDG 7 (Affordable and Clean Energy).

Figure 1: 1995 Global Average Economic Score

  1. Considers 34 mining-dependent countries from 1995–2018. These include countries that are both mining- and hydrocarbon-dependent. However, only 27 countries have RGI scores.
  2. NRGI also calculated the scores for each country’s quality of legal framework and practice. While these scores do not directly contribute to the composite scores, they are useful indicators of a country’s ability to put into practice the policies and rules it sets for itself. These scores are simple averages of all the legal framework or practice questions. A negative gap score implies that the country does not act on the policies and rules.

NRGI = National Resource Governance Institute, RGI = Resource Governance Index
Source: AlphaBeta Analysis

Strong Correlation between Resource Governance and Social Progress

Amalgamating the index and the Resource Governance Index scores to understand the nature of linkages, we further confirm that overall resource governance is positively correlated with good socioeconomic outcomes in the mining-dependent countries (Figure 2). This is also supported by existing literature, with evidence from both quantitative econometric analyses and qualitative case studies across countries of different incomes groups. The report further finds that there is a time lag between designing a policy, implementing it, and the resulting socioeconomic development outcomes. This is consistent with the fact that social progress could have a long gestation period while certain aspects of resource governance, for instance, the drafting of a new law, can take a much shorter time to implement. Guinea, for example, took 10 years for structural governance reforms to turn into improved socioeconomic outcomes.

Figure 2: Positive Correlation between Resource Governance and Better Socioeconomic Outcomes

  1. Considers 34 mining-dependent countries from 1995–2018. These include countries that are both mining- and hydrocarbon-dependent. However, only 27 countries have RGI scores.
  2. The socioeconomic score ranges from 0 to 1 (best) while the RGI composite score ranges from 0 to 100 (best).

RGI = Resource Governance Index
Source: AlphaBeta analysis

Good resource governance appears to lead to better socioeconomic outcomes, but are there aspects of governance that are more critical to unlocking better outcomes? By running correlation analysis of the index against the three Resource Governance Index components, we find that “the enabling environment” component has the strongest positive relationship with good social outcomes (Table 1). The enabling environment measures the broader quality of governance in the country and covers areas such as political stability and absence of violence, control of corruption, and rule of law. It goes beyond mining policies, such as improvement of regulatory effectiveness and control of corruption that are critical to mining sector development. Evidence from existing literature corroborates the finding that the enabling environment, focusing on overall governance, is more significant than other aspects of mining governance. Investors also value broader governance quality over specific investment incentives in their allocative decisions. For example, regular changes to tax rates in Chile’s minerals sector have not dissuaded investors, in part owing to the political stability over much of the last quarter century. In Asia, Georgia’s anti-corruption reforms in the 2000s, including dissolving entire ministries and adopting online payment systems, contributed to an improved enabling environment. These doubled tax revenues and boosted foreign direct investment flows into the mining sector.

Table 1: The Importance of an Enabling Environment in Achieving Good Socioeconomic Outcomes

  1. Considers 34 mining-dependent countries from 1995-2018. These include countries that are both mining- and hydrocarbon-dependent. However, only 27 countries have Resource Governance Index scores.
  2. A value greater than 0.7 is considered a strong correlation. Anything between 0.5 and 0.7 is a moderate correlation, and anything less than 0.5 is considered a weak or no correlation.
  3. There is likely to be bias between SDG 16 and the enabling environment component of the RGI as three of the metrics used in these components are similar, albeit with different base years. This bias is not likely to be significant for the overall social progress index given the large number of metrics across each index. Furthermore, the data used in the three overlapping metrics are from different years. RGI uses 2015 while the International Council on Mining and Metals index uses 2018.

RGI = Resource Governance Index, SDG = Sustainable Development Goal
Source: AlphaBeta Analysis

This research also shows that appropriate mining laws and regulations are necessary but insufficient for social progress, and that strong implementation mechanisms are critical. Unfortunately, monitoring and enforcement have not kept pace with mining booms in many mining-dependent countries, including those in Asia. This is particularly pronounced in many developing countries with weak regulatory systems, especially those that are emerging from civil unrest and authoritarianism. The distinction between “law” and “practice” scores in the Resource Governance Index allows for analysis of a country’s ability to put into practice the policies it sets for itself. For instance, a country might have a licensing process requirement but might not actually enforce it. Figure 3 highlights the law and practice scores of the countries, as well as implementation gaps. In Asia, Mongolia and Indonesia score highly on the law aspects, but they fare poorly on the practice scores.

Figure 3: Implementation Gaps in Mining Policies across Many Mining-Dependent Countries

  1. Considers 34 mining-dependent countries from 1995-2018. These include countries that are both mining- and hydrocarbon-dependent. However, only 27 countries have Resource Governance Index scores.
  2. NRGI also calculated the scores for each country’s quality of legal framework and practice. While these scores do not directly contribute to the composite scores, they are useful indicators of a country’s ability to put into practice the policies and rules it sets for itself. These scores are simple averages of all the legal framework or practice questions. A negative gap score implies that the country does not act on the policies and rules.

MDCs = mining-dependent countries, NRGI = National Resource Governance Institute,  RGI = Resource Governance Index
Source: RGI

This suggests that policymakers should pay more attention to effective implementation, rather than having a “more is better” approach to resource governance. Mining-dependent countries in Asia that have clear implementation gaps in mining policies could improve coordination and buy-in by creating a dedicated mining sector task force made up of a diverse set of stakeholders—including government officials, environmental nongovernment organizations, and the private sector—that will prioritize key actions and draft an implementation roadmap similar to the British Columbia Mining Jobs Task Force.

Resources

International Council on Mining and Metals (ICMM). 2021. Social Progress in Mining-Dependent Countries: Analysing the Role of Resource Governance in Delivering the UN Sustainable Development Goals (SDGs). London.

ICMM. 2018. Social Progress in Mining-Dependent Countries: Analysis Through the Lens of the UN Sustainable Development Goals (SDGs). London.

Ask the Experts

  • Bingxun Seng
    Principal, AlphaBeta

    Bingxun Seng is an experienced economist and expert on Southeast Asian economies. He leads the public sector and economic development work of AlphaBeta, a Singapore-based economic strategy firm. He collaborates with the private sector, governments, multilaterals, and nongovernment organizations to address critical topics, including growth strategies, labor force transformations, socioeconomic development, regional integration, and public finance management.

  • Cheng Wei Swee
    Associate, AlphaBeta

    Cheng Wei Swee has significant experience working with stakeholders, including government agencies, investors, and companies on sustainability, technology, and inclusive growth projects, such as business opportunities linked to the Sustainable Development Goals, the economic potential of digital transformation, and regional action plans for Southeast Asia. 

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