9.2 Two Key Challenges

Differential approach

This chapter makes three distinctions that help in understanding how sustainable development issues arise and can be addressed in the EI sector and with what instruments. These distinctions are between

1. hydrocarbons and mining activities, 2. social and environmental impacts, and, 3. where appropriate, the stages in the life cycle of the particular activity.

Oil, gas, and mining can be vastly different in the terms of their potential social and environmental impacts and of their management processes. Pollution from oil spills can be major challenges without parallels in mining (although tailings spills in large mining projects may be an equivalent). Issues associated with artisanal and smallscale mining (ASM) are equally important but have no parallel in the oil and gas sector. Oil and gas are almost exclusively capital intensive, while mining has various gradations from capital intensive down to ASM, which is labor intensive but has very little capital investment. Where these differences appear, they are treated separately. They sometimes involve different sets of actors, tools, regulations, guidelines, and analyses. These and other differences also vary in importance according to the life cycle of extractives projects. There are no one-sizefits-all solutions.

9.2 TWO KEY CHALLENGES

Of the various sustainability challenges in the EI sector, two have an overriding importance.

1. How does a government meet the challenge of identifying and implementing policies to ensure that EI sector investments lead to positive and sustainable impacts on growth and development (the development question)? 2. How can policies be developed to avoid, minimize, manage, and mitigate the environmental and social costs and risks that accompany a decision to develop a mining or hydrocarbons industry (the environment and social question)?

It is important to note that the two questions are not mutually exclusive or independent of each other. Successful environmental and social policies, for example, underwrite positive and sustainable impacts on growth and development. Environmental protection puts the sustainable element into development.

The challenges are particularly stark in the case of emerging extractives producers, the countries identified as a key target group for the Sourcebook. Countries like Afghanistan, Ghana, Guinea, Mongolia, Mozambique, and Myanmar may be attracting investment in their extractives sector, but they suffer from deficiencies in areas such as transport infrastructure and a small pool of skilled labor. They also typically suffer from limited government capacity to manage the new developments. Rectifying this is a priority, but experience suggests it will not be easy or quick. Equally, all countries should be potential beneficiaries of integrated resource planning that takes into account environmental and social constraints and impacts.

The development question

The leveraging or catalytic effect of EI development was introduced in chapter 2 of the Sourcebook. EI sector development, through its links to other sectors, can generate benefits to the economy beyond the direct contribution of revenues and job creation. It can act as a catalyst for pro-poor job creation, poverty reduction, an end to aid dependence, and the establishment of forward and backward links, meaning sectors that deliver to and take deliveries from a particular sector (Liebenthal, Michelitsch, and Tarazona 2005, 1). The forward links can entail support for local or national small and medium-sized enterprises by involving them in the investors’ supply chains and developing nonmineral-resourcedependent clusters of industrial activity. The backward links entail measures to process the resources or to use the resources to build local industry. The distinction is used largely to quantify the impact of changed output in the extractives sector on the rest of the economy.

As a lever for infrastructure development (such as roads, railways, water systems, and power delivery) in settings where it is seriously deficient, the EI sector can open up opportunities in new industries, including agricultural exports and tourism. These can endure long beyond the exhaustion of the resources of the initial anchor project. If one were to seek a single justification for supporting the EI sector in low- and middle-income countries, in spite of the undeniable risks discussed in various chapters of the Sourcebook, this could be the most persuasive. It is addressed in section 9.3. It should

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