The decision chain of natural resource management (II)

Paul Collier, Professor of Economics and Public Policy, Blavatnik School of Government, Oxford University

  1. What are the key policy decisions that governments must get right to successfully turn resource revenues into sustainable development?
  2. What makes good revenue management particularly challenging?

So where we left off, we’d got the revenues. Those revenues are the main product of resource extraction and the main opportunity from resource extraction. There’s a lot of fussing about adding value to iron ore or something like that. That, in my view, is a sideshow. The main issue is using the revenues from resource extraction well, and that is really difficult because that is the thing that has most commonly gone wrong. There are, there are two big reasons why things go wrong. The first is that the revenues are volatile, and they are not sustainable. They only last at best as long as the resource is still available.

So volatility and temporariness of the revenues. The second big difficulty is converting those revenues into assets that are as productive as possible. So let’s take those two issues in turn. First, the time profile of the revenues. So key feature is that they’re volatile. Commodity prices go up, commodity prices go down. That’s been true for a century, boom, bust. If you track public spending around revenues, then public spending will have booms and busts, and that is terribly inefficient. In fact during the supercycle, it was often much worse than that because what governments were tempted to do, often pushed into it, because they were accountable to citizens who didn’t understand the right issues. Governments were tempted to go and borrow on the strength of these revenues. And so public spending soared during the supercycle disastrously.

A country like Ghana went out into the world’s sovereign bond market, borrowed two billion dollars on the strength of an oil discovery. And then the government spent it. So we had a huge public spending boom. Precisely the opposite of what the government of Ghana should have been doing. The country that just got this right is Chile.

Chile had a big copper boom. It didn’t push public spending up like a rocket. It recognized that copper prices were temporarily high, and so quite a lot of the revenues needed to be parked. The only way to park them is temporarily to park them abroad in a parking fund, a stabilization account, which just smoothes public spending so that when the copper prices came down, the government of Chile was able to carry on spending at a sustained level.

So you had a phase where revenues were higher than spending, followed by a phase when spending was higher than revenues. You pulled down the money you parked in the fund. That’s very sensible, but it’s quite rare. It’s quite rare mainly because citizens don’t understand the issues properly and push governments to spend as much as possible, as fast as possible. And in order to win elections governments then try and do that. Governments that do that need to lose elections, not win them. So much for dealing with volatility. The other time-related feature of resource revenues is that they are fundamentally unsustainable. They are going to run out. There are two ways in which they run out. The most obvious one is that the physical supply of the resource can get exhausted. You got a small oil field, it’ll be extracted over the course of a couple of decades, and then there’s none left.

By about 2002, Zambia had run out of copper. It was very lucky that the copper price went up, and it discovered some more, deeper copper. But as of 2002, it looked as if that whole copper game in Zambia was over. So we’ve got the risks of exhausting the resource physically, we’ve got the risks, a second layer of risks of obsolescence.

For example, until 1920, half of Chile’s revenues, entire government revenues, half of them were provided by nitrates, the tax on nitrates. And then in 1920, a German scientist discovered how to make fertilizer synthetically, and that was over. The price of natural nitrates collapsed, and the rents disappeared. Half of government revenue disappeared overnight and never returned, because of technological obsolescence.

So that’s always a fear with natural resources. The revenues are fundamentally unsustainable. And so you cannot afford to spend them as if they were normal sustainable tax revenues. They’re not. So when you do, you have a much higher proportion of revenues devoted to assets, if the revenues are coming from natural resources. So that when the revenues run out, you’ve accumulated other assets, which can generate equivalent revenues.

And so you need a high rate of saving into assets, whether those assets are domestic investment or foreign assets. I call them savings, but savings in this case covers domestic investment. And it’s a tragedy that most poor resource rich countries have had very low savings rates from natural resource revenues. Indeed, during the supercycle, many poor countries, the government actually had a negative savings rate. It used the revenues to borrow, and then it spent the borrowed money on consumption. Ghana would be a good example. You borrow two billion, what you do with that two billion, you put up public sector wages 50%. And so people consume it. And people vote for that, because they don’t understand that what they’re doing is fundamentally undermining their children’s future.

The oil and the gold that were providing the revenue boom should have been used to build a better future for Ghana’s children. It should have gone into education, into infrastructure, into a whole range of assets. And it didn’t. Fundamentally that’s a fault of citizens, not of government, because citizens didn’t understand the issue. So we’ve dealt with volatility. We’ve dealt with the fact that the resource is fundamentally unsustainable and needs to be converted into assets.

And now we’re going to come to the question, what assets? And there’s a big glamorous temptation here which is Norway. Norway, the richest country in the world, has created a sovereign wealth fund into which it puts part of it’s oil money. And that sovereign wealth fund is invested in abroad in countries like China, Brazil, America, whatever.  That’s a very sensible thing for Norway to do, because Norway already has more domestically invested capital per person than any other country in the world. Norway is awash with infrastructure, with factories, with schools, with universities, all the things that invested capital buys that makes the future more productive. And having run out of good things to spend on, as investments within the country, it’s sensible for Norway to invest in China or Brazil or America. The typical poor country is absolutely not like that. The typical poor country is desperately short of domestic investment.

And so creating a sovereign wealth fund and putting the money abroad is really foolish. And yet the glamour of that Norwegian model has meant that, for example, Africa is the fastest-growing region for the creation of sovereign wealth funds, parking money abroad. There’s not much money parked there, because African governments haven’t tended to save very much. But to the extent that they’ve saved, they’ve saved abroad rather than domestic infrastructure. That’s the wrong thing to do. Poor countries desperately need electricity generation, better ports, better roads, better education systems, better health systems. All these investments. And so the priority is to first get a much higher savings rate out of resource revenues and then channel it into domestic investment. Finally, there is a big but. If you’re going to spend a lot of money on domestic investment, you need to build a capacity to do domestic investment well. And I call that, investing in investing.

Building the capacity to manage a domestic investment process. Otherwise what you get is glamorous white elephants that are useless. The president looks out of his limo and says, build a highway to my village. Build a cathedral here. I’ve been to Cincinnati, and they have a racetrack. Let’s build a racetrack. Stupid investments. And so you have to plan investments, select them correctly, implement them correctly and then evaluate them to see what investments turned out to be good and what investments turned out to be bad and then learn from failure.

The IMF’s got an index called The Public Investment Management Index, which is quite a useful way of just checking: how does your country seem to do on these public investment management processes? So just to wrap up, the biggest mistakes during the supercycle were in converting revenues into sustained prosperity. And instead, a lot of countries, the resource supercycle was used to throw a party.

Governments went out into sovereign bond markets, borrowed, and used the money to for something that was ice at the time, but has bequeathed debts to the future. And instead, what should have happened. First, build the capacity to invest domestically. Then, have a savings strategy where a lot of the revenues are devoted to investing in the future. Some of the revenues are used to smooth the commodity cycle, the booms and busts, and then certainly some of revenues can be used for consumption, but in a sustained way.

A few countries in Africa, Botswana’s an example, in Asia, Malaysia’s an example, have actually managed that process of using revenues for sustained consumption rather than throwing a party. And that’s why Botswana and Malaysia are both now upper-middle income, prosperous countries, unlike the countries they were 40 or 50 years ago. Thanks very much.

The decision chain of natural resource management (I)

Paul Collier, Professor of Economics and Public Policy, Blavatnik School of Government, Oxford University

  1. What are the key policy decisions that governments must get right to successfully convert natural resources into revenues and economic opportunities?

Hello, I’m professor of economics at Oxford University, and I work predominantly on Africa.

The natural resources are the biggest opportunity for rapid development that many poor countries have. And the supercycle of the last ten years has been the biggest opportunity that they’ve had in history. And for most of them, it’s been a missed opportunity. And so it’s really important, society by society, to discover what went wrong and what is needed to be understood in order for next time to go better. And there will be a next time. So, I’m giving two lectures. One will look at the challenge of discovering natural resources, getting them out of the ground, and getting them into revenue.

The next lecture will look at what you do when you’ve got revenues, turning them into something that is sustainable. Because the revenues themselves are only temporary.

If you look at what went wrong during the supercycle, most of the problems occur in that second half. It’s using revenues for sustained development. And so, of the two lectures I’m giving, the more important one is the second one. But as a matter of logic, we are going to start with that process of discovering natural resources, getting them out of the ground, and turning them into revenue And that’s what we’ll deal with in the rest of this lecture.

So the first step in that is discovering your natural resources. And in most poor countries, this has gone badly wrong. The key evidence for that is, as of a few years ago, the typical poor country, if we look at how many resources it had discovered per square kilometer and compare that with how many resources the typical rich country had discovered per square kilometer, the poor countries had only discovered about one-fifth as much.

That’s not because there’s less down there under the ground. These are random geological processes of millions of years ago. They’ll be the same. It’s because the discovery process, which depended upon investment and prospecting in discovery, has gone wrong in poor countries. There are various reasons why it has gone wrong. We just haven’t got time to go into them. But I’ll tell you one key solution to the problem, which is that we need public geological information.

There’s a strong case for international public money, aid money, to be used to prospect the geology of poor countries so that poor countries know what they’ve got. And the World Bank now has launched a one billion dollar campaign to try and raise money for a comprehensive geological prospecting of Africa. And I think that’s the right way to go.

So that’s the first step of discover what resources you’ve got. Then we come to the next link in the chain, which is taxation. The key feature of natural resources, gas, oil, gold, whatever, the key feature is not the resource itself, it’s the money it generates.

So it’s easy to get fixated about some particular natural resource, what should we do with iron ore or something? But really what’s coming out of the ground predominantly is money. But the money in the first instance accrues to the companies that are managing the process of resource extraction.

Usually you need international companies because they have the skills, the core competence, the finance, in order to manage the extraction efficiently.

But then there has to be a taxation process, which takes the, what economists call the rents, which is the difference between costs, including reasonable return on capital, and the total revenues that are generated from natural resources.

Those rents have to be transferred to the government. To give you an example, the typical barrel of oil at the moment sells on the world market for about $60. It might cost about $30 to get it out of the ground, to discover it, to pay the labor costs, the capital costs, the return on risk that companies take in. And the difference between the $30 of cost and the $60 of the barrel, that’s the rent.

And those rents need to be taxed and transferred to the government. If we look at other commercial activities like manufacturing, or services, for the most part those activities don’t generate big economic rents.

And the distinctive feature of natural resources from a point of view of taxation is that there are these big rents, which have to be taxed.

And so the design of a tax system has to be specific to natural resources. You need a different tax system for natural resources than you do from the rest of the private sector. It also has to be geologically specific because the rents on oil are vastly higher than the rents on say, coal. And so you need a lot of information about costs.

Now that takes us to one of the big problems in designing a good tax system, which is asymmetric information. The companies have much better knowledge than the government. And so the government has to devise a system which gets around that asymmetry of knowledge. Partly that’s a matter of the government hiring-in expertise.

You don’t need expertise all the time, but you certainly need expertise at the stage of negotiation and design of a tax system. So you can do part of the solution by just buying in expertise that works for you, but you can also design a system which reduces the problem of asymmetric information. And that system is structured competition.

I’m a very strong believer in auctions, in selling the rights to resource extraction through a transparent process of an auction. Companies tend not to like auctions precisely because they force them to compete with other companies that have just as much information. And so a government which knows nothing can still benefit a lot as long as knowledgeable companies are competing against each other in a structured way. And so an auction flushes out, it reveals, the true value of the resource as a result of this competition between informed companies.

A lot of governments sell resource rights sequentially by the first company to get off the plane and get to the president and negotiate. And that’s precisely the wrong way to do it. Gather the field of three or four respectable companies, and then run an auction.

Let’s turn from taxation to the other upstream issue which is how to deal with the local environment, the local situation.

The resources are discovered somewhere, not everywhere. And that locality has some rights, but not absolute rights. The resources are under the ground. The local community that lives on top of the ground didn’t put the resources there. And so it’s not really right to think of the local community as owning the resources. They didn’t create them. Nobody created those natural resources. And so who should own them?

In most contexts it’s sensible to think of the largest group possible as owning them, which is all citizens of the country, both present and future. And so the rights of the local have to be balanced against the rights of the national.

That’s suggests to me that the locals shouldn’t have a right of veto, saying, unless you do things the way we like it, we won’t let you extract, but they do have rights to extract in such a way that protects the environment and gives them proper compensation for any environmental damage. And the local population has to be confident both that it’s participating in the benefits in a fair way, the national benefits, and that any of the environmental damage that it suffers, it’s getting rapid and fair compensation for that damage.

Resource extraction in a locality is also an opportunity for benefits in the locality. Probably the biggest single benefit is economic spillovers from the resource extraction. Old-style corporate social responsibility tended to be the resource extraction company would build a couple of schools, build a clinic.

That sort of thing. I think that resource extraction companies shouldn’t be in that sort of business. Providing schools and clinics is the responsibility of the local government, not of the company. And the company shouldn’t try and do things that’s the responsibility of local government.

It might be sensible for the company to work with local government to build the capacity of local government to deliver those services, but it’s basically a government job. What the company can do is share its infrastructure. If you’re running a mine, you’ll need a railway, you will need electricity. And at very little extra cost, that railway and that electricity generation can be designed not just to benefit the mine, but to benefit all the people living along the line of rail and all the people in the vicinity of the electricity generator.

So the company could do a local electricity grid and sell it, electricity at cost which will be very much cheaper to small businesses in the locality. In the places I work in, electricity is terribly scarce and terribly expensive.

It’s individual diesel generators. And so if you have reliable, cheap electricity in a locality, that’s a huge benefit to local companies. So that’s the first part of the decision chain. Discover resources, tax them, and deal properly with the locality where the resources are coming out. What we’re now going to turn to is the more important second half, which is how to convert those revenues into something that’s sustainable.

Challenges and opportunities of oil, gas, and mining

Lecturer: Jeffrey Sachs

Thought-provoking questions:

  1. Why do oil, gas, and mining play such an important role in sustainable development?
  2. What are the unique challenges that oil, gas, and mining present in the context of sustainable development?Jeffrey Sachs, Director, Earth Institute and Sustainable Development Solutions Network

In this chapter we’re going to talk about specific challenges of the mining and extractive industry sector. When you have a large mining sector or a large hydrocarbons sector or coal sector, it really shapes the nature of the economy, and it leads to particular challenges and distinctive kinds of economic performance. Of course in general it’s on the whole good to have mineral resources or coal, oil, or gas resources as major inputs to the economy, major inputs to economic development to countries that are bereft of these resources, have major challenges of producing other goods that they can export in order to be able to import these vital commodities. But having a lot of these resources also really does shape the economy and paradoxically can lead to massive problems as well.

So what are the distinctive challenges associated with the extractive sector? First, extractive resources, coal, oil and gas, which will be my focus in this chapter, are finite. They are depleting. You run out of them. So, many countries live high on the hog for a while, they’re living very, very well until the resources start to disappear because they’ve been mined out, they’ve been extracted, and economies sometimes go into a tailspin.

First lesson with finite resources is the need for an inter-temporal strategy. In other words, a strategy that looks across time, that says, today I have the resources, but I know twenty, thirty, forty years in the future, I’m going to have depleted these resources. I have to smooth the consumption that I get from the income from these resources so it’s not all used up at once and then collapse.

Now many countries don’t live that way, but the smart ones do. One of the exemplars of thinking ahead with the finite nature of these resources has been Norway, which has accumulated massive amounts of wealth from its gas sales and exports, knowing that when the gas runs out it’s going to have accumulated financial wealth that can be used in the future.

There’s a second very important challenge, it’s called a curse indeed, that comes with natural resources. I’ve been involved in the study of the “resource curse,” as it’s called for around twenty years. Because way back

then, colleagues and I noted that many of the resource rich countries, despite their wealth, were actually doing quite poorly. It’s a paradox. It should be a benefit, but it can be a curse. We looked into it.

There are two big reasons associated with this resource curse. One is called the Dutch disease, that the wealth that comes from these resources and the consumption that results from that wealth leads to a demand for lots of domestic, non-traded goods and pulls resources away from other internationally traded goods that otherwise would be competitive for example, the manufacturing or the agriculture sector.

So a heavy big mining sector, though it gives wealth and consumption, can draw resources away from technologically dynamic sectors, such as manufacturing. But there’s another part of the resource curse that surely is at play and that’s politics, not economics, because when you have a highly valued resource, an oil reserve, could be a diamond mine, it could be some other very valuable mineral resource, that’s a kind of natural rent.

In other words, in a way, income for free. And when you have that kind of rent, it seems like this great fountain of wealth, of course it leads to dreams of wealth and it can lead to internal conflict. Politics becomes a scramble. Who controls the oil, controls the wealth. Even countries fall into civil war over fighting for these very valuable resources, or international war. It’s no accident that the imperial powers, the U.K., France, and others focused a lot of their attention on the Middle East in the 20th Century, cause that’s where the oil is. It’s no accident that the United States has repeatedly, seemingly endlessly been at war in the Middle East, because in its interpretation, it’s keeping the oil lines open. In others’ interpretation, it’s grabbing for oil that belongs to somebody else.

But this is a curse. It can lead paradoxically to devastation, even of economies, the kind of Midas touch that goes seriously awry.

There’s a third dimension of the extractive sector that should be noted and that’s what it can do to inequalities of income and social exclusion. Have an indigenous group living in some part of nature discover oil or gas or diamonds under that indigenous population’s area and watch what happens. In country after country, throughout history: whoa! Swept aside. Conquered, pushed away. That’s our resource. So these mineral resources, because they’re so valuable, create inequalities, injustices that we have to keep our eye open in the 21st Century. It’s indefensible what’s happened so often in the past and until today in the mineral sector, and it’s a reason why the mineral sector is often the site of so much conflict.

A fourth decisive challenge of the mining and extractive sector more generally is the environmental challenge. Mining almost intrinsically means moving lots of earth, often deforestation, use of many industrial chemical processes that are highly toxic and highly polluting. Often regions are devastated by companies that don’t take care of the environment in which they’re operating.

Think of Shell and the Niger Delta. Shell operated for decades and decades and decades in the Niger Delta. It’s a polluted mess with massive amounts of cancer and poor health of the population. And Nigeria wasn’t able to defend itself in the face of this kind of environmental destruction. But of course that story is repeated in many parts of the world with deforestation, pollution, poisoning, destruction of habitat. And then when it comes to coal, oil, and gas, we know we have another very, very big environmental problem and that is that intrinsically when carbon-based fossil fuels are burned, they release carbon dioxide into the atmosphere.

And bad luck from the chemistry. Carbon dioxide is a greenhouse gas. It means that while it lets in the solar radiation, it traps the outgoing infrared radiation from the earth and warms the planet. We have now raised the concentration of carbon dioxide in the atmosphere so much that we are dangerously warming the planet and disrupting the climate.

Well, the fossil fuel industries, the coal, oil, and gas industries need to take note. They need to be part of a sustainable world economy. And that means that when you add all of this up, the resource curse, the governance challenges, the social exclusion that can come, the depleting resources leaving the future bereft of resources if one doesn’t take care, and the environmental challenges.

All together, it means that the extractive sector is really at the heart of the sustainable development challenge. Sustainable development means a holistic approach to our society, which takes into account not only the desire for economic development, but also social inclusion and environmental sustainability.

We believe that the mining sector and the fossil fuel energy industry need to become leaders of sustainable development to operate themselves sustainably and in recognition of responsible management to ensure that the ways that they operate and the patterns of their production and use of their products fits within a world in which economic development is accompanied by social justice, fair treatment, and environmental sustainability.

We’ll return in another chapter to the meaning of the climate challenge for the energy sector.

Natural Resources for Sustainable Development I


LISA SACHS: Welcome to the course. I’m Lisa Sachs. I’m the Director of the Columbia Center on Sustainable Investment. PATRICK HELLER: And I’m Patrick Heller, the director of Legal and Economic Programs at the Natural Resource Governance Institute.

LISA SACHS: Natural resources can be transformative for developing countries. Oil, mining, and gas can generate vast sums, in many cases larger than official development assistance or other forms of national income. If managed prudently, natural resource wealth can have a substantial impact on a country’s sustainable development efforts. And In addition to the capital flows, natural resources can have many other direct and indirect benefits for an economy, but those benefits are far from automatic, and in fact, in many cases, natural resource wealth has not transformed into long-term sustainable development. That’s because there are many real challenges associated with resource-based development. Many of these deposits are located in places with pre-existing governance constraints and major development challenges. There are economic challenges with managing volatile revenues, technical complexities with managing these large-scale projects. There are real risks of environmental and social disruptions and impacts. There’s a vast web of stakeholders with many different interests. And in many cases, these agreements are shrouded in secrecy, among many other reasons.

PATRICK HELLER: And that’s why we are here. Over the course of the weeks to come, we are going to be looking at the specific challenges that oil- and mineral-rich countries face in trying to convert their resources into national development and some of the strategies that have helped some countries succeed and turn these resources into engines for long-term development. This course is a joint project of the Columbia Center for Sustainable Investment, which Lisa runs, the Natural Resource Governance Institute, where I work, and the United Nations Sustainable Development Solutions Network. And it has been developed with support from the World Bank.

Over the course of the coming weeks, we’re going to try to look at all of the major elements of natural resource management and examine the particular policies and strategies that countries have used to try and get the most out of these industries.

So after this week’s introduction, we’ll begin next week by looking at the political economy factors that have caused problems in so many natural resource-rich countries, including the risks of corruption and the challenges of opacity in the management of public resources.

From there, we’ll turn to discussion of the fundamentals of how the oil and mining industries work and the implications of those industries in their structure on the decisions that companies make about where to invest and the decisions that governments make about what companies o choose.

Next we’ll dive into the legal frameworks governing the extractive industries: the legislation, regulation, and contracts that set the terms of relationships between the state and companies, and also condition citizens’ expectations about how their institutions are going to function. A key element of this framework is obviously the fiscal package. Now, as Lisa mentioned, one of the major ways in which national resources can benefit an economy is quite simple. It is through taxation. The company exploits the resource, sells it, and the state gains some benefits through taxation or other fiscal tools. So we’ll spend a week going in-depth into these fiscal tools and some of the challenges that go along with them.

From there, we talked about the benefits or some of the benefits that can accrue from the natural resource sector. We’ll talk about one of the most important risks, and that’s the risk of environmental damage or social disruption in communities near a mining or oil project.

So we’ll spend time looking at the specific kind of challenges that have risen and some of the strategies for dealing with them.

From there we’ll spend a week looking exclusively at the issue of artisanal mining. This relates not to the big mega-projects that are often talked about in the international press, but small projects that are typically run by citizens of the country itself or small- or medium-scale local enterprises. This can provide a real opportunity for communities and for private companies near the mining site, but there are also particular challenges that go along with this as well.

Next, we’ll look at the issue of natural resource revenue management. So, as I mentioned, these resources, if well taxed, can generate big flows of money to the budget. And that can be really important. It can help a country spend on its biggest development needs and can really help the government drive forward a strategic plan for economic management.

The problem in a lot of countries is that the size of these revenue flows can be disruptive to the overall economy and that their volatility can create problems that mean that public expenditure is actually less effective than it was. So, we’ll spend a week looking at these challenges in particular and again some of the strategies that countries have put in place to try and minimize the risks.

From there, we’ll have a specific focus on the issue of local content. And what we mean by local content is the furnishing of goods and services, including employment, to local individuals, to local industries, to local businesses.

It is a way that a country can develop benefits from the industry that aren’t totally dependent on taxation but that actually promote the flourishing of the private sector.

And then finally, we’ll take a look at the issues of how to move beyond extraction. So how to convert an extractive economy into a more diversified economy that is more sustainable for the long-term.

One of the challenges that go along with extractive industries is that a country can become too dependent and the extractive industry becomes the only game in town. What we’ll talk about in this last substantive week will be what a country can do to turn itself into not an economy that will be dependent forever on extraction but one that has a broader range of economic opportunities.

Throughout the course, we’ll be trying to look at all of these questions through a variety of lenses. The lens of strategy, so how does a government make fundamental decisions about what it wants and how does it consult in order to make those decisions?

The lens of policy, so what kinds of rules does the country put in place, and how does it enforce those rules?

The lens of institutions, what are the public agencies that are responsible for executing the strategy, how well are they constructed, and how well do they function?

And finally we’ll talk about communication between the government, its citizens, and the companies that are operating there, because it has been shown over and over again that even the best-laid plans, the best-developed strategies, don’t take a country toward a path of long-term sustainable development unless there is clear communication and a regular sharing of information about how the sector is being managed in the interest of citizens.

LISA SACHS: This is a twelve-week course. Each week has about four to six chapters, totaling an hour. The chapters are taught by leading academics and practitioners from around the world with diverse expertise in fields of natural resource governance. In addition to the chapters, there will be required readings and additional readings and a number of interactive elements as well, including discussion forums, exercises, Google Hangouts, and quizzes to test what you’ve learned.

This course is open to anyone. It does not assume any prior knowledge or expertise in the field of natural resource governance.

Some of the weeks will cover quite technical topics, but in those weeks, we’ll provide additional materials and guidance to help you master even those technical topics. Throughout the chapters, the readings, and the exercises, we’ll expose you to a range of different viewpoints and perspectives in order to generate some critical thinking and debate about the range of complex issues and challenges related to natural resource management.

PATRICK HELLER: Okay, now that we’ve gone through that introduction, let’s get started with the course.

This week you’ll have the opportunity to listen to two of the pioneers of the field of natural resource economics: Jeffrey Sachs of Columbia University and Paul Collier of the University of Oxford. Professor Sachs is at first, and he’ll take things back to the very beginning, back to the Paleolithic era, and we’ll trace the influence of the mining sector and ultimately of oil and gas on the global economy almost throughout human history.

Now what this will help us do is to think about how deeply ingrained natural resources are in the fundamentals of how the modern economy is functioning. From there, Professor Sachs will go into some of the foundations of what has made natural resource management so tricky. Why so many countries seem to have fallen short of their potential. And he’ll start to talk about some of the opportunities for improvement and some of the success stories that have risen above the broader challenges.

After that, we’ll turn to Professor Collier, who will examine natural resource governance through the lens of a decision chain. What the decision chain is, it’s a way of looking at everything that happens from the moment that a natural resource is in the ground undiscovered and undeveloped all the way through to when it is developed, converted into money, some of that money is captured by the state, and the state tries to manage it effectively, and to convert natural resource revenues into a vehicle for sustainable long-term development.

So the decision chain has four basic parts. It begins with the discovery process and the decision about whether to extract a resource or not. The second stage relates to taxation and the frameworks that govern the relationships between companies and the state. The third stage relates to the management of natural resource revenues and in particular the goal of avoiding volatility. And then finally, the chain looks at investing in sustainable development, so how to convert the revenues and the resources into a longer-term path.

And this decision chain that Professor Collier will talk about is embodied and is featured in the Natural Resource Charter, which is one of the documents that was included in your packet of materials.

And it’s a resource that I would encourage you to go back to over the course of the weeks to come, because it provides additional detail and a lens of analysis on which the various technical topics can be viewed. It is one of several resources we have shared with you. Others include the World Bank’s Extractive Industries Sourcebook and Columbia’s Five Pillars to Sustainable Development. We’ve included all of this in your materials, because we think that it provides a way to supplement what you’ll hear in these lectures and to really dive deeper into the issues that interest you the most. And with that, on to Professor Sachs. Enjoy the course!

A Museologia Social em Portugal, os visitantes dos museus e o futebol

No passado Sábado reuniu-se em Lisboa uma Tertúlia do MINOM Portugal com o tema “Economia do Património”, animada com uma palestra de António dos Santos Queirós WP_20160130_15_25_04_Pro.

O tema e o processo não me eram particularmente apelativos.  Estes encontros de MINOM, reproduzindo os modelos académicos potenciam a energia criadora que o MINOM tem inscrito na sua matriz genética.

Para mais realizados num sábado à tarde, no final duma intensa semana se sociomuseologia, envolvendo seminários, mesas redondas, juris de teses, reuniões de trabalho, etc. A presença dos miúdos fornecia o pretexto ideal para, passar pelo sítio, dar um abraço aos amigos, e escapar para o Museu da Politécnica, para explorar as suas salas silenciosas. Regressava no final para auscultar as opiniões gerais.

O tema “Economia do Património” também não constituía um atrativo. Há nas narrativas contemporâneas uma especial atração por ajativar substantivos. Agregar significâncias particulares para atribuir relevância a enunciados que procuram justificar campos de análise. É o caso desta “economia do património” , que me parecia querer medir o grau do valor do património. Não que não exista relevância na externalidades geradas pelo património na vida económica. Mas um sábado não é o dia mais indicado para pensar nisso. Adiante.

O objectivo era medir o pulso. E entre as discussões geradas saltou a questão dos visitantes dos museus, o nº de espectadores de futebol, e a relevância social dos museus.

Ora segundo os dados no INE, relativos ao últímo inquérito aos visitantes em museus (2014) 11.749.732  de pessoas visitarem os  cerca de 392 museus em Portugal (352 no continente), dados de 2012. Em 2010 haviam sido  10.362.944. Um nº surpreendente que dá uma média de cerca de 30.000 visitantes por museu. Ou se quisermos 82 visitantes por dia por museu.

Comparando, por exemplo, com o número de espectadores de futebol 2.231.258 espectadores em 2015 (dados dos jogos da Liga), o número dá uma medida da intensidade do fenómeno do museu que multiplica 4 a intensidade do fenómeno do futebol. Ora em termos de relevância social, por exemplo o tempo de televisão gasto com o debate sobre futebol, a intensidade dos fenómenos não parecem corresponder.

E´sem dúvida uma comparação grosseira sobre dois fenómenos diferentes.  O futebol afeta. O museu não afeta da mesma forma. Quem vai a um estádio (e as estatísticas mostram apenas os espectadores e não mede os que vêem na televisão, que são o que dão expressão ao mercado da publicidade que gravita em torno do futebol) vibra com o que assiste. Será que o museu afeta com a mesma intensidade.

É certo que há museus e museus. Espaços mais visitados, lugares que afetam mais. Mas mesmo como qualidades diferentes não valerá a pena interrogar as relevâncias dos investimentos públicos nos fenómenos. Uma questão que valerá a pena aprofundar no futuro.

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Breve historia das energias fósseis

1.1 Short history of oil, gas, and mining

Thought-provoking questions:

  1. Why has mining historically played such an important role in the world economy?
  2. What has driven changes and trends in oil, gas, and mining in the modern era?

JEFF SACHS: Hi, I’m Jeff Sachs, director of the Earth Institute at Columbia University and special advisor to U.N. Secretary General Ban Ki-moon. In this chapter I want to talk about the history of mining in the world economy. Now it doesn’t get more important than mining.

In fact, mining has been so important because of the materials that it produces and the technologies and tools that it enables that we even define the timelines of human history according to what is brought up from the ground.

Of course, in the ancient past of our species, before agriculture began, we have the so-called, Paleolithic or old Stone Age era. So stone was the main mining object and pouring object. After the end of the last Ice Age and at the beginning of agriculture, about 10,000 years ago, we have the Neolithic era, the new Stone Age era. But then, over time, humanity, human beings in specific locations close to mineral ores began to master the process of smelting metals.

And about 3000 B.C. we entered the famed Bronze Age, which was yet another massive advance in human civilization with the smelting of copper and tin and the alloys that were produced creating new technologies, new advances, new ways to make armaments and many other human tools.

About 1000 B.C., yet another crucial mineral, iron ore, was smelted to produce iron and small amounts of steel at least, we entered the Iron Age. And again, massive changes of civilization and technology which came with this new mining industry, with this new mineral deposit.

I would say that the modern era which we usually date to the Industrial Revolution can also be related to the extractive sector in a quite fundamental way, because it’s fair to say that the entire modern world, the modern world economy that came roughly around 1800 onward is the fossil fuel age.

It’s the age of coal, oil, and gas. What you’re looking at in this picture is probably the most important machine of modern history, it’s the steam engine. It’s the steam engine invented by James Watt and brought to market around 1776.

It transformed the world economy fundamentally by allowing humanity to tap coal for massive amounts of energy that made possible the industrial era.

This is a graph of world output over a 2000-year period. You see a kind of turning point, a disruption as we would now say, starting around 1800, when the world economy starts to grow relentlessly in the modern economic era.

That is because of coal. That’s because of James Watt. That’s because of the massive amounts of energy that we were able to tap. And coal created the modern world. From there came another great advance starting around 1850 and developed further in the 1860s, 1870s, 1880s, by people famous today, Daimler and Benz and names associated with the automobiles they drive. You’re looking at one of the early internal combustion engines, which allowed us to use petroleum, which before the internal combustion engine was just used for very limited purposes, but now could be used for mass transport.

Here you’re looking at a third major breakthrough, the gas turbine, which enabled the use of natural gas to create massive amounts of power, power to generate electricity, power to move giant ocean freight, power to power today’s jet airlines. And this means that with the steam engine, with the internal combustion engine, with the gas turbine, we had a series of breakthroughs that created the modern energy world, but all fundamentally part of the mining sector, the extractive industry sector.

Now the world’s also been defined by the basic fact that the location of these vital minerals and energy deposits is highly variable around the world. You’re looking here at a map depicting the coal deposits in the world. Lots of coal in North America, in Russia, China, India, Australia, South Africa. But look at the rest of Africa.

Almost devoid of coal, almost impossible for Africa to industrialize in the 19th Century until, indeed, until very, very recently. A lot of South America with very, very limited coal deposits.

In the next picture, you’re looking at oil reserves, where they’re located. Of course the Middle East is the center of about 70% of the proven reserves of oil around the world. Again, much of Africa, devoid of oil. Again, another great limitation to Africa’s economic development until recently. The United States, blessed with oil just as it was blessed with coal, blessed with almost everything. A continent of vast mineral resources.

The next map shows you where natural gas is produced. Again, in parts of Russia, the former Soviet Union, the Middle East, the United States, of course. Sad, again, for Africa, not very many major natural gas producers.

Well a short history really requires days, months to discuss this core subject of how mineral resources and energy resources transformed the world again and again and shaped geopolitics. Where there’s been oil, coal, gas, there’s been a competition that’s intense. We’re going to talk about that in another chapter.