Sustaining Development: Extractive Industries and Local Communities

Sustaining Development: Extractive Industries and Local Communities

For mineral-rich countries, large-scale extractive industry projects are a double-edged sword. On one hand, mining royalties and taxes provide funds that can be invested in infrastructure and social services. Mining projects can also create local jobs and spur demand for locally produced goods and services, supporting livelihoods and spurring economic growth.

On the other hand, mining revenues can be—and there is plenty of evidence that they routinely are—spirited or frittered away, leaving little to show by way of long-term productive investment or better living standards. Moreover, mining booms undermine growth in other industries by skewing labor demand and swelling the exchange rate. Adding injury to dashed hopes, mining operations often leave a legacy of massive and long-lived environmental damage. Rather than receiving what amounts to manna from heaven, mineral-rich countries seem to suffer a “resource curse”—economic growth rates lower than those of countries without mineral resources.

For communities that live near mining projects, the stakes and trade-offs are particularly acute. A large mine might offer locals well-paying jobs, as well as social investment funds provided either by the government or by mining companies. But in practice, the share of mine revenues received by local communities tends to be very small. Moreover, jobs disappear when the mine closes or reduces production due to a commodity price bust.

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