[miningmx.com] – THE propeller heads at McKinsey&Company spent nine months trying to understand how resource-rich countries can avoid the so-called “resource curse’, the failure of foreign investment to translate into long term prosperity.
One of the authors of “Reverse the Curse’, Adam Kendall says there’s six dimensions developing economies need to bring into their consideration in order to thrive from foreign resource investment in their countries.
On the face of it, the dimensions seem obvious such as the importance of establishing institutional integrity. Mark Bristow, CEO of Randgold Resources, has been hammering on about this for years. In his estimation, Mali’s vulnerability to Islamic extremism was partly related to the immaturity of its institutions.
Dig a bit deeper into the report, however, and there’s a lot of subtlety worth absorbing. In fact, it’s a pity the report wasn’t bound and sold in a bookstore. For a journalist who’s had to trawl through a plantation of reports over the years, this is highly readable and, thankfully, free of circumstance.
Institutions, Kendall and his white-coats observe, don’t necessarily have to house minority government involvement, or necessarily ban state control, but they do have to be consistent. Any of these models can – and does – thrive provided the rules are clear and observed.
One applauds other insights such as the need for the development of a local content industry to supply foreign investment in mining. Beneficiation be hanged!
World Bank director, Gary McMahon, delivered a similar version of this inconvenient truth at a recent panel discussion convened by attorney Webber Wentzel. McMahon said beneficiation was power intensive, and didn’t create many jobs. He urged developing nations to develop a capital goods industry.
Perhaps the best element of McKinsey’s study is its ability to contextualise the importance of developing economies adopting these strategies now.
For instance, in order to meet global urbanisation, up to $17 trillion in investment is required of which up to $3tr is possible in low income and lower middle income countries by 2030, McKinsey says.
At the upper end of this estimation, this is investment equal to $170bn a year, or three times the development aid flows to othese countries in 2011, it says.
What’s concerning, however, is how poorly Africa has fared in establishing dimensions required to parlay this investment into real economic benefits. Only Botswana, South Africa and Namibia feature – and fitfully so.
Says Kendall and his co-authors: “If all resource-driven countries were to match the average historical rate of poverty reduction of the best performers in this group, there is potential to lift 540 million people out of poverty by 2030 overall.
“This is more than the number of people that China managed to shift out of poverty over the past two decades.’
