Investment Climate l World Bank Group Nuts & Bolts Technical Guidance for Reform Implementation Public-Private Title Here Dialogue for Specific Sectors: Extractive Industries World Bank Group Public-private dialogue (PPD) is a structured engagement mechanism continue to have notable, positive development impacts. With effect that aims to bring together all relevant stakeholders, in a balanced from January 1, 2012, IFC introduced a and inclusive manner, to assess, prioritize, and achieve sustainable requirement that the principal contracts results. Sector-specific PPD can provide an integrated response to for extractive industries projects that it finances be disclosed, in order to factors constraining sector growth and improve the pace of sector enhance transparency in the negotiation reform. It can be particularly helpful in improving competitiveness process.1 and provide a highly valued platform for collaboration along the supply chain and across governments, businesses, and communities. What areas of extractive Sector-specific PPD can also be implemented at a subnational or industries could benefit? regional level. In the case of extractive industries, areas that could benefit from PPD interventions include: • Informing local communities about An extractive industries sector-specific ensure that natural resources contribute mining projects. PPD platform that brings together positively to economic development by key stakeholders can help overcome engaging along the industries’ value • Enhancing governance, accountability, the issues of transparency and chain. and transparency around contractual communication between the parties. agreements. This would also include reaching out The overall volume of FY2012 World to and informing citizens about the Bank Group financing in the extractive • Boosting investors’ protection and terms of contractual agreements. PPD industries sector was $695.5 million. In confidence and its policy outcomes will ultimately support of private sector investment, IFC enhance investors’ protection and provided $491 million of financing. IFC’s • Establishing the relationship between subsequently boost their confidence. In oil, gas, and mining client companies large investors and local suppliers. some countries, linkages and spillovers contributed approximately $6.2 billion to government revenues, created or • Identifying local content and training serve certain local communities while sustained about 102,000 direct jobs, needs. ostracizing others. PPD interventions will have to take this into consideration and supported communities with $100 • Improving communication between and appreciate the local context by million of dedicated community-related stakeholders. engaging the most relevant stakeholders spending. Total spending by these (companies, communities, the public companies on goods and services from • Fostering dialogue around security sector as well as marginalized groups) to local and national suppliers approached issues. build trust and avoid negative reaction $5.4 billion, demonstrating significant and even conflict. linkages to domestic business and • Understanding and negotiating making a major contribution to local benefit sharing at national and The World Bank Group’s objective in economies. The vast majority of IFC regional levels. the extractives industries sector is to investments in extractive industries Public-Private Dialogue (PPD) for Extractive Industries 1 With the World Bank Group’s support, the Extractive mining investments and resource exploitation, increased Industries Transparency Initiative (EITI) — a global coalition sophistication of local suppliers and skills, and shifts in local of governments, companies, and civil society — enables an institutional capacity. Timeliness is of the essence. independent review of payments made to governments by The mining value chain (Figure 1) includes two main stages: extractive industries companies and of revenues received by governments from those companies by a reputable third party. • Mine development (acquisition of a mining concession Besides its oversight function, EITI has an operational angle and mine construction). supporting governments and civil society. • Mine operations (mineral extraction and beneficiation).2 Multi-stakeholder engagement is crucial at every stage Key principles for effective PPD engagement of the extractive industries value chain. However, the in extractive industries acquisition and construction stage usually only involves the mining company and the government. International A cookie-cutter approach to PPD does not work. There is partners (such as EITI, Revenue Watch) are sometimes no one ideal format that would fit all types of dynamics, involved when it comes to contract negotiations, terms of stakeholders, and issues to be addressed. Being adaptive and contractual agreements, and so on. Nevertheless, when flexible while following key principles specific to a particular mining codes are negotiated, not all parties — especially sector is necessary. For the extractive industries sector, the officials overseeing tax regimes — are always at the table. following principles should be considered: Focused engagement between the mining company and 1. Determine the optimal point of engagement. Each the relevant ministries is necessary. Sometimes, the political country experiences a unique combination of factors that economy is such that a facilitated dialogue between will influence mining spillovers, including: ministries is required as well. In addition to companies • Stage of mineral resource development in the country. and the government, mine development stage will need to involve the private sector/suppliers, the Chamber of • Characteristics of global value chains and commodity Commerce, Chamber of Mines, local communities, and groups. Community Service Organizations (CSOs). Identification by • Type of FDI. extractive companies of the needs and challenges related • The wider host country environment. to local supply chain linkages will happen at that stage. • Domestic firm capabilities. It is important to seek community and other stakeholder views as early as possible. Equally important is to A customized approach to supporting mining spillovers understand and recognize the need to build relationships, is therefore required in each case. This should also ideally capacity, and knowledge before making decisions. shift over time in response to changes such as maturity of PPD will help communities and stakeholders raise Figure 1: Mining VaLue Chain • Permit application • Geological surveying and mapping • Drilling Mine Acquisition • Feasibility assessment and Construction • Environmental / social planning • Site preparation • Construction of infrastructure (transportation, water, power) • Pit ore extraction • Haulage Mineral Extraction • Mine closure and rehabilitation and Beneficiation • Basic processing (smelting, refining, waste water management, transportation, reprocessing) • Further processing (fabrication, manufacturing) 2 Investment Climate l World Bank Group and address issues; stakeholders review and respond groups, indigenous groups, women, and youth) early and to information. It will also establish clear and realistic throughout the process. timeframes for communities’ and stakeholders’ inputs. To ensure optimal participation of all parties, building Finally, while early engagement is crucial, maintaining stakeholder capacity — beyond government officials and engagement throughout the life of the project — from small and medium enterprises (SMEs) — is a prerequisite, planning to closure — is an absolute necessity to deliver especially to enable civil society and indigenous people’s maximum impact.3 organizations to participate fully in activities such as 2. Be Inclusive. Experiences highlight the need to approach consultations and participatory monitoring. Mining mining sector development from different, interrelated companies’ community development teams usually do this angles. Multi-stakeholder consultation and involvement directly or through NGOs. through PPD ensures that at every stage of the value In many communities involved in the extractive industries chain, stakeholders’ knowledge is used to help shape and sector, gender bias exists in the distribution of risks and implement solutions. While the public and private sectors benefits. The risks such as environmental damage and need to be involved, the principle of inclusiveness suggests social harm, fall more heavily on women, while the benefits that one needs to also recognize, understand, and involve such as employment and compensation, accrue mostly to communities and other relevant stakeholders (such as men. It has been noted that, “among the more than 20 nongovernmental organizations [NGOs], marginalized Key Issues the Extractive Industries Face The extractive industries sector faces a spectrum of operational as well as policy issues and constraints that have an adverse effect on the investment climate and local economic development. Key investment climate-related issues in the extractive industries sector include: • Lack of Governance and Transparency. About 3.5 billion people live in countries rich in oil, gas, and minerals. With good governance, the exploitation of these resources can generate large revenues to foster economic growth and reduce poverty. However, when governance is weak, such resource revenues may result in corruption and potentially conflict. In fragile and conflict situations as well as post-conflict situations, distrust exists among stakeholders, particularly those from opposing sides during the conflict. Reliable official data concerning the extractive industries sector is rarely available in the public domain; corruption remains a huge problem, especially in resource-rich countries. Resource governance problems may go well beyond the need for transparency of revenue flows, but go into the heart of the extractive industries value chain. • FDI and Investment Security. A key objective is to enhance the investment environment for extractives. A central issue identified by internal and external partners is that when mining codes (or frameworks in the case of no code and oil/gas investments) are negotiated, the conditions agreed in the initial contracts (concession agreements, mining agreements, production sharing agreements, contracts, and stabilization agreements) are normally not disclosed to all stakeholders involved. In particular, the stakeholders normally overseeing tax/incentives/customs regimes are not part of the process. Additionally, “stabilization agreements” — designed to ensure predictability of the fiscal conditions of the contracts routinely broken — cite shortsighted and/or non-inclusive policy negotiations. This creates an unpredictable business environment and a weak governance framework in the sector that can lead to a lack of investor security on the terms of investment. • Supply Chain Linkages and Spillovers. Mining investment does not take place in isolation and potential benefits to the local economy depend heavily on the supply chain links. Enhancing spillovers from investment in the extractives industries sector requires a multiplicity of instruments and approaches. It involves ensuring that the policy environment is neutral to regulatory or fiscal constraints, ensuring local content sourcing, identifying the relevant firms in the sector, and linking local supply with demand through PPD. Additionally, many host countries would prefer technology transfer and high value linkages, as opposed to demand for low-skilled services. However, local suppliers have limited production capacity and their participation has been limited to less specialized and critical services. There is also a general lack of coordination between internal and external stakeholders. In addition, there are complex procedures and costs for SMEs associated with procurement pre-qualification requirements in the extractive industries sector. The absence of transitioning and exit strategies as well as different approaches to supply chains by non-traditional investors (from emerging markets) are also identified as barriers to successful local spillovers into the local economy. Public-Private Dialogue (PPD) for Extractive Industries 3 Who are the Relevant Extractive Industries Sector Stakeholders? A PPD can foster dialogue, collaboration, and communication within and between the following stakeholders in the extractive industries ecosystem. This will help overcome the key issues identified, promote investment, and foster spillovers. Government. In Sub-Saharan Africa for example, there appears to be a correlation between governments having clear policy and regulation to support local procurement and increased supply chain spillovers. PPD will help governments adopt policies and regulations that will affect the investment climate and the ease of doing business. Facilitated dialogue will also be necessary to enhance coordination between ministries (Ministry of Mines and Ministry of Finance, for example) and between the central and regional public authorities. Business Associations. A strong Chamber of Mines has been shown to be critical in driving local procurement programs, including the identification of opportunities and associated local suppliers. Mining companies. Encouraging collaboration between mining companies, large and small, to identify opportunities will lead to more accurate identification of potential opportunities and wider opportunities for suppliers. In addition, involving other large customers will also lead to identification of opportunities for goods and services that are not specific to mining. Collaboration among companies in identifying supplier challenges, and developing and implementing support programs will also lead to more effective support as well as greater sustainability for suppliers. Local suppliers. As businesses, chambers of commerce, and SMEs need to become aware of opportunities, local suppliers also need to communicate with the mining companies to address their needs (capacity building) and partake in PPD initiatives with the public sector (discuss policy issues related to local content procurement, taxes). External partners. External partners such as IFC, the World Bank, and EITI are important for the delivery and coordination of technical assistance and to facilitate dialogue at the policy level between stakeholders. Citizens. As mining companies focus on the location of a supplier within a country (community, regional, or national), and whether the supplier is registered in the country, other indicators of “local content” include the level of local participation of citizens in terms of firm ownership, management, and staffing. Besides, communities and NGOs advocating on their behalf will need to be engaged early in the planning phase of the mining project in regards to revenue management, distribution, and monitoring. Local governments, who are closer to the communities impacted by the mining operations, will need to be engaged as well. Media. The media can be a key partner in efforts to promote accountability and good governance at the local level. A strong working relationship needs to be built on trust and recognition of each party’s needs. Media can fuel or dispel rumors, update on the outcomes achieved through a PPD initiative, and help monitor progress or issues related to revenue management. As in any PPD process, the media can be engaged early but a clearly defined communications strategy should inform the timeliness, the process, and the type (such as press conference, TV, radio, or social media). million artisanal and small-scale miners active around the miners, service providers, key members of the community world, the proportion of women miners was estimated at and households, and SME owners). about 30% in 2003; their involvement may now be much 3. Develop a Communications Strategy. One of the main higher. In Africa, women may make up anywhere from 40 factors leading to misunderstanding as well as missed to 100% of the workforce. In addition to working directly opportunities, frustration, and sometimes conflict between in mining, women often work part-time at informal mining stakeholders in the extractive industries space is the lack of operations and occupy ancillary roles (such as cooks and or weak communication between parties. service providers). Because women are more frequently associated with transporting and processing materials, For example, PPD can enhance the communication of as opposed to digging, they are not always identified as opportunities between mining companies and the local miners.”4 business community. Open and effective communication will also help mining companies engage with the A gender-specific element to PPD in general should involve communities and promote awareness and understanding women as key stakeholders of the value chain (such as 4 Investment Climate l World Bank Group of royalties and municipal investment, for example. Analysis and note prepared by Steve Utterwulghe (Investment Climate Communications strategies are also helpful for managing Department, World Bank Group). rumors and communities’ expectations. Likewise, transparent communication by governments will foster The findings and views published are those of the authors and should good governance and transparency, especially when it not be attributed to IFC, the World Bank, the Multilateral Investment comes to revenue management — the distribution of Guarantee Agency (MIGA), or any other affiliated organizations. Nor resource revenues to communities and local authorities —, do any of the conclusions represent official policy of the World Bank or and government investment in public goods at the regional of its Executive Directors or the countries they represent. level. Communities will themselves be more able to monitor The Investment Climate Department of the World Bank Group activities by the private and public sectors and engage in helps governments implement reforms to improve their business feedback loop with the help of professional media outlets. environments and encourage and retain investment, thus fostering competitive markets, growth, and job creation. Funding is provided by Conclusion the World Bank Group (IFC, the World Bank, and MIGA) and over 15 PPD offers stakeholders the chance to identify problems and donor partners working through the multidonor FIAS platform. suggest solutions in a safe and structured environment. It is a tool as well as a process that enhances transparency, Notes accountability, and sustainability around reforms and other outcomes that will ultimately improve the investment climate, 1 IFC, Annual Report 2012. foster growth, and create jobs. 2 Adapted from Kaiser Associates, Increasing Local Procurement by the Mining Industry in West Africa (January 2012). The term beneficiation refers to “a variety of processes whereby extracted ore from mining is separated Sector-specific PPD provides a more focused response to into mineral and gangue.” sector challenges. In the case of extractives industries, PPD 3 Ministerial Council on Mineral and Petroleum Resources (MCMPR), Principles can ensure that prevalent issues — governance, transparency, for Engagement with Communities and Stakeholders (November 2005). inclusiveness, investors’ protection, supply chain linkages, 4 World Bank, Gender Dimensions of Artisanal and Small-Scale Mining: A and spillovers — are addressed and solved for the benefits of Rapid Assessment Toolkit (2012). investors, governments, and local communities. Public-Private Dialogue (PPD) for Extractive Industries 5 Contact Steve Utterwulghe l Global Lead, Public-Private Dialogue l Investment Climate Email: sutterwulghe@ifc.org TEL: 1-202-473-3203 www.wbginvestmentclimate.org 6 Investment Climate l World Bank Group