Transcript Risks and Opportunities of Resource Extraction: The

Risks and Opportunities of Resource
Extraction: The Resource Curse and
Beyond
Dashdorj Zorigt
Dashdorj and Dashdorj Partners LLC
Sustainable Management of the Extractive Sector in
Guyana
14-15 November2012
Georgetown, Guyana
Story of Mongolia
• Successful transition to market economy and
democracy over the last 20 years
But by 2007
• GDP per capita below USD 2000
• Poverty level at 30 percent
• High unemployment
In 2009 Mining boom starts
• End of 2011 GDP grew by 17.3 percent – fastest growing
economy globally
• GDP per capita USD3600
• Unemployment down to 7.4 percent in first quarter of 2012
• Each students gets 40-50 percent of tuition fees paid by
government
• Each person above 60 years old gets close to USD1000 in
cash through monthly and lump sum payments,
government still will pay another USD350
• Everyone gets a share of strategic mining assets for free
GOOD?
Economic policies against resource
curse are in place
• Budget stability law: mineral price determined
by formula, deficit is less than 2 percent, no
rapid increase in spending
• Stabilization fund
• Human development fund
• Development bank
• Thriving democracy, elections every four years
Paradox
• Results of the last election gave rise to populist parties
• At the crossroads in terms of the public debate on how to
go forward with the mining industry.
• The mining boom is, paradoxically, shifting the political
discourse more and more towards populist alternatives
Important lesson:
Political economy of mining is as much important in
avoiding the resource curse as the economic
policies are
Ingredients of political economy:
• Overall legal framework is always better than ad hoc
negotiations on specific project
• Thorough debate on legal framework preceding major
mining developments is necessary (“the worst quarrel
is always better than the best fight”)
• Do not make the law hostage to neither industry nor
NGOs nor lawmakers exclusively – try to make it a joint
effort but provide a firm leadership and commercial
ground to discussion
• After that put some legislative locks to ensure stability
– two thirds voting rule is the best. But be aware of
pressure building up – it may blow into your faces.
Tackle hard issues in the law, not
during the negotiations
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State equity participation
Level of taxation
Local procurement an employment
Growth of national companies that are able to
become global flagship enterprises – Vale
• Local authorities and communities – their
participation
• Mine related infrastructure and their linkage to
local economy
Best lesson learnt from Mongolian
case
Despite all the difficulties most important lesson:
HEALTHY TRANSPARENT DEBATE IN
THE PARLIAMENT ENSURES SUCCESS
OF THE PROJECT AND MINING
INDUSTRY IN GENERAL