Mineral Policy

5. Mining and development

In developing mineral policy, the objective of government is typically to realise the best possible financial return from the nation’s mineral resources, as they are a valuable untapped source of wealth. However, given that minerals cannot be replaced, government also needs to ensure that the impact of mineral wealth supports the country’s development agenda.

If government wishes to attract private sector investment, it needs to consider the policy implications of its financial and regulatory framework. If taxes and royalties are too high, or if the regulatory framework is too complex, ambiguous or uncertain, investment will be constrained. If, however, financial obligations on companies are too low, or the regulatory system has loopholes that allow for generous tax holidays, the country will not benefit fully from its own mineral wealth.

Government therefore needs to strike a balance between attracting good mining investment partners and ensuring that it gets fair financial compensation for allowing these companies to extract a national resource.

There are several ways to do this and the route selected will correspond to the direction of government’s own economic policy.

If a government is pursuing a free market policies, where it is the administrator/regulator and the company is the owner/operator, it will organise its mineral regime in line with free market principles. If the government wants more control, involvement and ownership of the mineral sector, it may create a state-owned mining company and mine its mineral resources itself or in partnership with the private sector.

Whether operators are publicly or privately owned, a government’s role is to ensure that minerals are being extracted by responsible and experienced mining operators and that the resource is not being squandered.

Securing and maintaining the support of citizens is also essential, particularly those living close to mining operations. An important factor in obtaining this support is to reassure citizens that government is choosing good partners to develop their minerals. Part of being a good partner is to extract minerals safely and to ensure that the process poses as little threat as possible to local communities or to the environment.

Mining operations need goods and services and a skilled workforce to operate efficiently and these requirements present an opportunity for local people to benefit from these operational needs. In seeking out these benefits, it is important for government to put in place a policy framework that requires mining companies to develop local content and socio-economic development programmes.

Mining as a catalyst for development

Governments and communities alike anticipate that mining activity should be used as a catalyst for development. Policies relating to requirements for local content (typically local employment and local procurement) will ensure that mining is not an isolated activity that fails to boost other areas of economic activity.

Economic linkages both upstream (at the mine site) and downstream (when the product leaves the mine site) can help to create employment opportunities and help fulfil developmental objectives.