These rising local costs threaten to lead to a new “local resource curse,” where the negative side effects of resource production threaten to undermine the broader economic benefits of extraction.
China’s spending spree has fueled the boom.
China’s primary commodity imports skyrocketed from $32 billion in 2001 to $340 billion in 2016 (adjusted for inflation), reflecting the rapid growth of the country’s manufacturing sector. The need for raw materials created a boom in natural-resource extraction and exports in the developing world. Among low- and middle-income countries, natural resource rents as a share of GDP were 40 percent higher during the 2005-to-2015 period than they were during the 1990s.
There have been some important benefits. Since 2001, low-income, mineral-dependent countries have experienced greater economic growth and gains in education and health than non-mining countries. Across sub-Saharan Africa, growth has averaged above 3 percent, with high commodity prices and low interest rates providing an economic boost. Despite some collection challenges, the boom has increased tax revenue for developing-world governments.
But the new-resource curse is different.
The concept of a “resource curse,” a term coined by economist Richard Auty in the 1990s, describes the pattern when countries with relatively more natural resources paradoxically fare worse economically.
In contrast with the traditional understanding of the resource curse, which predicts macroeconomic havoc and national-level political mismanagement, the fallout from the current resource boom affects local communities hardest. Even as national GDPs grow and more citizens gain access to education and health services, communities surrounding mining sites feel the brunt of the mining industry’s downsides, rather than benefits.
The most commonly cited concern by locals tends to be the high levels of mining-related pollution. But there also can be community displacement, an influx of outsiders, a rise in road accidents from company vehicles — not to mention increased dust, noise and other nuisances.
And communities may have high expectations regarding the amount of work and public benefits that extractive projects offer — but then these expectations are not met because of neglect, corruption and poorly performing government.
My recent study finds that in Peru, higher international commodity prices drive a significant increase in water pollution and infant health problems near major mines — but don’t provide an immediate increase in government services to these areas. Weak local governance means that these communities are suffering the most and receiving few tangible benefits.
Not surprisingly, the combination of a dramatic increase in environmental contamination and little improvement to the provision of public goods tends to provoke resentment and anger from local communities.
Pollution is a flashpoint.
My research finds that rising natural resource prices caused a substantial increase in protests and riots related to the mining sector, especially where the pollution is highly visible. For intensive mining areas, a moderate increase in international prices drives a 64 percent increase in the number of conflict incidents, primarily because increased mining activity leads to a range of unwelcome consequences without corresponding benefits.
Here’s an example: The 2012 Tintaya conflict in Peru involved protests over environmental pollution and insufficient sharing of benefits from the local copper mine. Hundreds of local people in Espinar province clashed with police and private security. Dozens were injured and several were killed in these conflicts, which prompted the government to declare a state of emergency and opt for a military response.
This phenomenon takes place across Latin America, Africa and South Asia — nearly three-quarters of countries have experienced riots or protests related to natural resource extraction in recent years. One database lists more than 2,300 active social conflicts worldwide related to natural resource extraction. Other academic studies confirm that mining investments and high international prices can drive social conflict in Africa, with similar dynamics observed in Brazil.
How to solve this new-resource curse?
The evidence from Peru indicates that policies that can manage or offset the negative effects of mining are critical to mitigating this “local resource curse.” The strong relationship between international mining prices, water pollution and local conflict disappears when local government delivers a high level of public services. A new initiative led by social scientists at the University of California aims to spur cutting-edge research into how to improve local resource governance to do just that.
The World Bank and regional development banks are increasingly using “grievance redress mechanisms,” which allow local communities to make formal complaints to the government regarding development projects. Such systems have not yet been scientifically tested, but similar approaches may be applicable to grievances in the natural resources sector. Private-sector initiatives such as the Canadian Mining Association’s “Towards Sustainable Mining” program or global standards for transparency, labor regulations and sustainable mining techniques also are gaining traction.
From Chile to Zambia, natural resources hold economic promise. The question is how to manage the side effects from the mining industry — and the possibility of paralyzing social conflict.
The countries most needing an economic boost from natural resources are often the least equipped to address the accompanying governance challenges. And this is where scholars, policymakers and the international community can collaborate to test emerging approaches to resolve the local resource curse.
Renard Sexton is a postdoctoral fellow at Princeton University. He will join the faculty of Emory University as assistant professor in 2019.