As a “data person” jumping into a project on opening up and communicating extractives industry data, I initially felt like a fish out of water. I was suddenly overwhelmed by a lot of jargon and complicated concepts that I had either never heard of, or only had a cursory knowledge of.
Luckily, there was a handy way for me to get a great overview of all the interrelated and complex concepts related to the extractives sector: a free massive online open course (MOOC) called Natural Resources for Sustainable Development: The Fundamentals of Oil, Gas, and Mining Governance. It’s being offered again this year, beginning 5 February, at no charge.
I anticipated the course would be very technical and challenging. It turned out to be quite understandable, even for someone like me, with very little background knowledge of extractives. Rock stars in the development field like Jeffrey Sachs and Paul Collier led online lectures on a wide range of interrelated topics. Below are five of my takeaways from the MOOC.
1. The resource curse
The main reason why extractives sector management is so important is because of the “resource curse.” While it is not universally true, resource-rich countries do tend to be poor. Usually, this is not just a coincidence—ironically, the lack of economic development is directly caused by the fact that they have a lot of natural resource wealth.
Why does this happen? Governments don’t have to be accountable to citizens if they can get funded by extracting natural resources. By contrast, in a country with no resources, you need your citizens to pay taxes, and in turn citizens want accountability. In resource-rich countries, there is also little incentive for the government to develop and invest in the non-extractives sectors of the economy, or in human capital. Extractive industries also tend to concentrate wealth into the hands of owners and producers of the resources; these often tend to be powerful elites, who form cozy relationships with the government, which encourages corruption and weak legal systems. Concentrated resources also invite conflict for control over them, both in the form of civil wars and international disputes.
2. Lifecycle of an extractives project
Before the MOOC, I had the naïve view that a mine or an oil and gas field is an automatic way to make money: once the project starts, money just starts flowing into your coffers. This is definitely not how extractives projects work.
Only 1 in 1,000 mineral projects that start out at the exploration stage actually come to fruition. For both mining and oil and gas, there is a long lifecycle involved in developing a project.
3. Fiscal Regimes
Extractives companies usually have a whole set of different rules for taxation than normal companies. The specific way in which extractive industries are taxed is called the fiscal regime.
Extractive industries produce what economists call “rents,” which are profits that do not relate directly to how competitive or productive the industry is. Ideally, these rents should be used to benefit the country as whole. This is why different types of taxation are required to capture these rents.
The best fiscal regimes try to find a balance between capturing rents from the companies without being so onerous as to discourage them from operating. They also have to try their best to prevent companies from finding loopholes and exploiting government corruption.
4. Environmental challenges
Extractive industries can be hugely damaging to the environment.
I learned that while large environmental disasters still occur in both sectors, the oil and gas industry in particular has become relatively more responsive to environmental concerns. For example, in the wake of oil spills from tankers in the 1980s, civil society put pressure on companies and governments stepped up regulation, leading to a redesign of the way hulls are built so that spills are a lot less likely to occur. Similar coordinated efforts from civil society, governments and industry will also be necessary to see this kind of change impact the mining industry.
5. Social challenges and artisanal mining
The first time I heard of the term “artisanal miners,” I pictured bearded hipsters sipping lattes while working in vintage mines that you’ve probably never heard of. But that’s not artisanal mining. Artisanal mining means mining that is not done with industrial equipment, but with basic tools like picks and shovels, and usually using human labor.
Ninety percent of the world’s mining workforce are artisanal miners, but they produce only 10 percent of the outputs of the global mining sector. Industrial mining produces the lion’s share with a small fraction of the workforce. This said, there’s variation across different mined materials. Artisanal miners produce about 80 percent of the world's color gemstones, up to a quarter of all gold in the world, about a quarter of all cobalt and tin, and about 15 percent of all diamonds.
Artisanal mining is hard work, and is usually done by individuals or families who are not organized into companies or collectives. They get into the profession for various reasons, often due to low barriers to entry and lack of other opportunities. Artisanal miners also tend to be very mobile, and thousands might migrate to a mining site within a few weeks. This leads to many social and environmental problems, including an impact on local communities.
Communities located near mining sites can suffer adverse consequences when either industrial mining operations or migrant artisanal miners move in. Local communities who have ties to their ancestral land and depend on it for their livelihoods can face a great deal of disruption. Human rights abuses and public health problems also adversely affect communities; women can suffer disproportionately.
So, if you are new to the extractives sector and want an accessible and enjoyable way to to dig into the weeds to explore the complex interplay of economic, political, social and environmental issues related to the sector, I highly recommend signing up for the MOOC.
Yan Naung Oak is a 2017 School of Data fellow for NRGI Myanmar working on data literacy and data availability in the jade mining sector. This post reflects his experiences and opinions, and does not represent the views or work of the Natural Resource Governance Institute.