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!