Avoiding the Resource Curse: Challenges — And Progress — in Harnessing ‘Green Mineral’ Wealth for the Benefit of Developing Countries
As global leaders from governments, the private sector and civil society scramble to support the development and uptake of renewable energy to transform the world’s energy supply, we have an opportunity to simultaneously transform some of the poorest communities on our planet.
This opportunity is driven by the growing need for “green minerals” — i.e., those used in constructing and powering clean energy technologies. This demand is predicted to skyrocket over the coming decades. To take a few key examples, the shift to renewable technologies is expected to double the demand for copper by 2035; quadruple the demand for nickel by 2050, and increase lithium demand by a whopping factor of 40 by 2040.
The countries that are rich in these minerals are often among the poorest and least developed in the world. Hundreds of millions of people experiencing poverty live in countries rich with vast mineral resources. This paradox, often called the “resource curse,” has plagued developing countries for decades.
This is the case around the world — natural resource wealth tends to be associated with slower economic growth. A variety of explanations have been posited for this phenomenon, including the theory that concentrated resource wealth, sometimes called “lootable commodities,” creates opportunities for corruption and seeds conflict. As we collectively work to address climate change and harness sun and wind to power our world, we have an unprecedented opportunity to ensure that the people living in green mineral-rich, cash-poor countries — such as the Democratic Republic of Congo (DRC) — avoid the resource curse and succeed in utilizing mining proceeds to lift their countries out of poverty.
Turning the DRC into Botswana: Two Approaches to Managing Resource Wealth
Thus far, the DRC has served as a poster child for what unbridled corruption and state capture of mineral wealth looks like. It is considered one of the world’s richest countries in terms of wealth in natural resources — it sits on an estimated $24 trillion of coltan, cobalt, copper and other minerals key to the global energy transition. Yet the Congolese people have little to show for all this mining wealth. Instead these resources have enriched kleptocrats and foreign mining companies, and subsidized militia groups that have displaced and terrorized its population, while more than 60% of Congolese live on less than $2.15 a day and the World Bank ranks the country as one of the five poorest nations in the world.
But there are also developing countries that demonstrate that the resource curse isn’t destiny. Botswana’s Pula Fund offers a good example: Funded by the country’s natural resource wealth, it serves as both a stabilization fund that uses previous years’ fiscal surpluses to finance future deficits, and as a savings fund that will serve future generations, even after these resources have been depleted. Flush with money from the country’s diamond mine earnings and used to finance investments in health, education and infrastructure, it shows that it’s possible for a developing country to leverage its natural resources for the benefit of its citizens. As a result of these efforts, Botswana has grown from one of the poorest countries in the world when it gained its independence in 1966, to an upper-middle income country with a growing economy (despite high inequality and an over-reliance on diamond exports).
One leader, organization or institution can’t transform the DRC into Botswana. Multinational entrenched corruption isn’t something that just one organization or even one sector can tackle alone. It will require broad coalitions of funders, governments, private sector leaders and multilaterals. It will also require profound changes not just within developing countries themselves, but also in the global banking sector and extractive industries — both of which have not, as yet, effectively confronted bad actors.
Efforts to prevent and root out the corruption that has historically plagued extractive supply chains should be focused on five pillars:
- Strengthening standards for transparency and accountability in supply chains in the global extractive industry;
- Strengthening standards for transparency and accountability within countries rich in green minerals;
- Supporting global and national banking regulations that require transparency and enhance public and private sector accountability;
- Supporting global and national efforts to detect and disrupt illicit finance in trafficking and commodities;
- Raising the cost of corruption by auditing, investigating all allegations of impropriety against companies and government officials, and supporting whistleblowers.
These five pillars stem from existing best practices of natural resource governance. Rather than setting up new mechanisms or developing new recommendations, efforts to ensure low-income countries benefit from the green minerals under their feet should build upon the platforms and practices that already exist.
The Responsibility of the Global North in Addressing the Resource Curse
Addressing the resource curse will also require urgent, coordinated action by citizens, governments, businesses and other institutions in the Global North. High-income countries have significant leverage in this effort, because profits throughout corruption-ridden supply chains, no matter where they start, flow through banks around the world, eventually often secreted away in accounts in North America and Europe. Just as the banking industry in Wyoming, South Dakota and Delaware successfully lobbied those state legislators to open the door to suspect funds, state legislators can be convinced to deny safe harbor to kleptocrats’ ill-gotten gains.
The Global North also bears a particular responsibility for seeking solutions to this issue, as it is the ultimate destination for both corruptly acquired wealth from mining, and the minerals themselves. It is also the home of many large mining companies operating in the Global South, some of which have been accused of undermining the rule of law in emerging economies by cutting illicit deals with government and business leaders that enable them to capture natural resource wealth that rightly belongs to all citizens.
To address this, policymakers in the Global North must work with anti-corruption campaigners from these green mineral-rich, cash-poor countries to develop and enforce transnational and national transparency and accountability initiatives, laws, policies and institutions. For example, laws in the EU that came into force after civil society lobbying require extractive companies like Shell and Eni to report payments they make to governments for natural resource deals.
Signs of Progress Against Corruption in the Extractive Industry
The extractive industry has already made some progress against corruption with its Extractive Industries Transparency Initiative (EITI). The 50+ countries that have signed onto the EITI have committed to disclosing information about their extractive industry value chains, including how mineral rights are awarded, how revenue from mining is used by governments and how this revenue benefits the public. These countries have agreed to the EITI Standard, a common set of rules that governs what must be disclosed and when. These rules can play a pivotal role in supporting the responsible and transparent production of minerals that are critical for a sustainable future — if more countries and mining companies sign on. But we need carrots and sticks to make that happen. There should be a cost to countries and companies that don’t follow these best practices, as well as incentives for those that do — similar to the blood diamond campaign that pressured companies and countries to curb the trade in illicit diamonds.
There is a role here for non-extractive businesses too. Consider Google’s partnership with the Responsible Minerals Initiative, USAID and the U.S. State Department: The partnership has allowed the company to trace over 600 tons of tin from mines in Peru, the DRC and Rwanda, while improving the transparency of its own supply chain. Similarly, USAID is also working in partnership with Amazon, the BHP Foundation and the Chandler Foundation (where I serve as director of social investment) on the Just Energy Transition (JET) Minerals Challenge. This anti-corruption initiative launched last year, with the goal of supporting the development of tools and standards that can enable the private sector and governments to root out corruption in their green mineral supply chains.
The JET initiative has already identified and provided support to promising interventions, including: a proposal by Resource Matters to help authorities get the data they need to fight transnational corruption; a proposal by Sustainable Development Strategies Group to improve the transparency of mining agreements; and a proposal by the Center for International Private Enterprise to develop a green mining transparency scorecard. This scorecard would incentivize integrity in the private sector by encouraging transparency in payments, establishing systems to trace the source and destination of exported green minerals, and encouraging due diligence by suppliers who are providing the green minerals necessary to build everything from electric cars to solar cells. Similarly, Transparency International Australia, another JET partner, is working to scale up an online tool that offers companies involved in green mineral extraction a flexible, effective and systematic approach to understanding the corruption risks in their operations, and closing those gaps with tailor-made solutions to strengthen their operational transparency and maintain a clean, ethical supply chain.
As these initiatives illustrate, the green mineral sector is facing a perfect storm of risk and opportunity. If it carries on with business as usual, it will condemn the people of the DRC and other resource-rich countries to a hellish future, toiling in mines to power our electric cars and solar panels while the wealth they’re generating funds militias and enriches kleptocrats — a dirty backstory to the global clean energy revolution. But if industry, governments and other stakeholders can seize the moment and clamp down on corruption, they can deliver a potential win-win on an unprecedented scale. They can ensure that the people in countries like the DRC are benefiting from their national resources, and that the electric cars and solar panels used worldwide are helping pay school fees and build health clinics across some of the most underserved communities on the planet.
With the right institutional foundation and a culture of transparency and accountability, the green mining boom has the potential to fund transformative, inclusive and sustainable economic growth in many of the world’s poorest countries. To learn more about these efforts, watch this discussion hosted by the Chandler Foundation and USAID on powering a just energy transition, and this discussion from the Wilson Center’s Environmental Change and Security Program on the same subject.
Photo courtesy of Responsible Sourcing Network.