Revenue Distribution and Local Impact

9. Building local support and performing cost-benefit analyses

Both positive and negative local effects of extraction are likely, so both governments and extraction companies should work towards minimising negative effects and/or compensating local households. Doing so effectively requires a thorough account of environmental and social effects, before extraction begins. It requires pro-active leadership by government and the engagement of all stakeholders. For companies, it is also in their own interest to be aware of their corporate social responsibility, because it will generate more local support for mining activities and fewer protests and delays. For governments, it is in their interest to care for the long-term development of extraction regions because deposits will eventually be depleted.

Government should identify the likely winners and losers from extraction activity and formulate a policy that balances the interests of the nation versus those of the directly affected local population. Moreover, it should consider postponing extraction if the environmental costs are too great under the current level of extraction technology, or if the local social costs are disproportionally borne by disadvantaged groups, such as when extraction takes place in poor areas. This requires the design of cost-benefit analyses, in which both direct impact and indirect impacts can be quantified. Direct impacts include infrastructure such as ports, pipelines, pumping stations, roads and railways, as well as on-site facilities, local labour market and environmental effects and risks. Indirect impacts include those that cross borders, such as air pollution, and those that compound over time, such as degradation of soils and biodiversity. Quantifying these is not easy but improved methodologies have become available.

Implementation of project decisions requires a suitable level of government capacity at all levels in terms of the number and quality of civil servants. This is required to ensure that agreements can be monitored and enforced, and corruption and waste can be avoided. Monitoring should involve all stakeholders to ensure it is independent and credible and should be written into law. At the same time, extraction contracts should be signed with companies that can demonstrate their ability to assess and mitigate the environmental and social impacts of extraction.

Useful resources for analysing the potential costs and benefits of extraction include: 

A paper from the Natural Resource Governance Institute (NRGI), that examines the challenges of generating lasting benefits from resource revenues (also available in the Guides section of this topic). 

An analytical framework, developed by the International Council on Mining and Metals (ICMM), offering a practical toolkit to assess the impacts of mining at a project level (also available in the Library section of this topic). 

A position paper prepared by the Collaborative Africa Budget Reform Initiative (CABRI), drawing on deliberations at the Accra Policy Dialogue and two keynote papers that were prepared to facilitate the dialogue.

In addition, case studies summarised in section 10 of this topic overview examine a wide range of practice and highlight key learnings from each case.