Theme pack raw materials

Mine Oyu Tolgoi, Mongolia

By 2050, global consumption of raw materials will triple to 140 billion tonnes per year according to estimates by the United Nations. The reasons behind this are an expanding population and economic growth. As a country with relatively few natural resources, Germany is reliant on secure supplies of metals, minerals and raw materials for energy generation. These supplies are imported from more than 160 countries, many of them developing countries, where the extractive industries hold enormous potential for sustainable development. At the same time the raw materials sector poses huge challenges for the countries of origin. On behalf of the German Government, GIZ advises 30 partner countries on developing legal, political and economic frameworks for this sector and putting these frameworks to effective use.

In many regions of Ghana, mining is fundamentally changing the living conditions of large numbers of people. By way of compensation, the local communities receive a specified proportion of the government’s revenues from raw materials, and mining companies undertake to help finance the building of local infrastructure. The situation is similar in Mongolia’s Zaamar Soum mining area. The municipality receives funds to enable it to enhance the locality’s prospects on its own initiative. For economic development to be sustainable, however, it is not enough for the state to rely solely on revenues from raw material exports. The amount of work and income generated directly for the local population from mining is limited. Establishing supplier companies for the mining industry and other companies to process raw materials can create significantly more employment opportunities than mining itself. One example is northern Afghanistan, where many families make a living by working the gemstones extracted there to produce jewellery. With support from GIZ, the local jewellers have received training in new processing techniques, and are now better equipped to face the future with confidence.

Mongolia: Mining communities

For the Mongolian people, one thing is certain: they are not going to sell off their resources without the population seeing the benefit. With German support, mining communities and the state are working on exploiting the wealth in the ground for their own development.

Erdenetungalag is a teacher in Zaamar Soum, a mining community with 5,400 inhabitants some 200 kilometres north-west of Mongolia’s capital, Ulan Bator. Several times a week, in the afternoons, she meets up with her group ‘Ireedui’, which she founded along with seven other women at the beginning of 2013. Ireedui means future. ‘We chose this name because we hope that the group will help us shape our own future and improve our situation in years to come,’ she says.

For the last 20 years, gold and iron ore have been extracted on a massive scale in Zaamar Soum. The 22 mining companies working there dominate local economic life. For a long time, the residents have not benefited from the riches in the ground. On the contrary: more than 2,000 hectares of land have been destroyed by resource extraction. Mining companies have diverted the Tuul River to help them to wash gold. As a result, the places where nomads used to water their animals have dried up. With livestock breeding representing the region’s other important economic activity, this has caused many people to lose their livelihoods.

Erdenetungalag and her women’s group aim to improve living conditions in their community. One way in which they hope to achieve this is by working to improve water quality. ‘We are cleaning the wells in our road and fitting water filters,’ she reports. They have jointly drawn up a project application that they are submitting to various mining companies. Until a while ago, the companies provided the local administrative authority with a budget for municipal development tasks, but the authority invested the money without involving the population. Today, though, this is no longer the case: a round table now gives citizens, the local authority and the mining companies the opportunity to exchange opinions. They now cooperate closely, and are supported in doing so by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, which is implementing the Integrated Mineral Resource Initiative on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ), thereby promoting the economic and social development of mining communities such as Zaamar Soum. The need is great: ‘The nomad lifestyle and a distrust of collectives, which has its roots in the communist era, have had the effect that there is little sense of cohesion,’ states Stefan Hanselmann, who heads the project.

Mongolia is rich in gold, copper, coal, uranium, oil, tungsten, molybdenum and fluorite, and 80% of its export revenues are derived from raw materials. Despite this, around one third of the population live in poverty. The country lacks the administrative structures and expertise to make better use of the resources for the benefit of its people. As well as supporting civil society through community work, GIZ primarily trains employees at state institutions, authorities and ministries to enable them to develop technical expertise in raw materials, the valuation of resource deposits and the negotiation of investment and trade agreements.

Since Erdenetungalag has been involved in the women’s group in Zaamar Soum, her life has changed: ‘In the past, we teachers had no means of finding out about community work or of continuing our professional development. Nobody advised us on how we could put our ideas into practice and do something for our communities. Today I can act as a moderator and explain concepts to others through presentations, and I can express myself much better. I am very grateful for the support and encouragement I have received.’ GIZ has appointed two local experts as community developers who help the groups identify local needs and set projects in motion. Planning has begun on a bus stop, a well and several fences around the community land. The citizens are also thinking about how they can create additional opportunities to earn income, for example by setting up a print shop.

In this project GIZ is working with the Mongolian Youth Development Services Center, a local non-governmental organisation (NGO) that focuses on promoting young people. The NGO receives support in coordinating cooperation between communities, local authorities and mining companies. ‘To make sure everyone is pulling in the same direction, I teach the employees things like the basics of project management,’ reports GIZ development advisor Kathrin Raabe. As the rural communities have virtually no means of helping young people, the NGO has opened 25 youth clubs for 13 to 16-year-olds in the region. Tuul, a schoolgirl in Year 9 in Zaamar Soum, is among the young people benefiting from the new facilities: ‘Our youth club is called Flowers of the Future and has 26 members. I always look forward to going there, to see my friends and our youth club leader and to learn something new. The youth club has made me much more open and self-confident. I now dare to speak in front of other people and defend my point of view.’ The youngsters used to have little opportunity to meet outside school hours. Together with her friends, Tuul has carried out a campaign financed by a mining company to help livestock breeders in Zaamar Soum overwinter their animals. Other youth clubs have launched waste collection campaigns and have organised lessons in traffic safety in schools and kindergartens. ‘There is a lot of lecture-style teaching in the schools. They learn skills such as teamwork, discussion, presentation and facilitation at the youth club,’ says Kathrin Raabe.

The community and youth projects are an important part of the Integrated Mineral Resource Initiative (IMRI). There are also other crucial issues to be addressed, however, such as transparency, sustainability and the question of how raw material wealth can be used to develop the country’s economy. The first steps have already been taken: Mongolia is countering corruption and mismanagement by obliging mining companies and the state to disclose payments, to account for the use of funds and to comply with social and environmental standards in the mineral resource sector – in accordance with the requirements laid down by the Extractive Industries Transparency Initiative (EITI). IMRI has also established a contact point for German investors, the German Center of Excellence. ‘At present companies are still cautious, but mining technology from Germany could be used to process raw materials within the country, thus helping to establish an industry with a large number of skilled jobs and opportunities for the people living in the mining communities to earn an income,’ says Project Manager Stefan Hanselmann.

Integrate Mineral Resource Initiative Raw materials wealth – the population must also benefit

Ghana: Reform policy

Diamonds, bauxite, manganese ores and above all gold, oil and natural gas – these are Ghana’s main natural resources, and 40% of its export revenue comes from the extractive industries. Preparations to start mining in another large gold field in south-eastern Ghana have been in progress for several years.

Newmont Mining Corporation estimates that there are seven million ounces of gold deposits in the New Abirem region, worth USD 3.5 billion. Mining will profoundly transform the lives of people living in and around New Abirem, and that makes them mistrustful. The local residents have had misgivings ever since prospecting first started, and not without reason: some 1,900 hectares of land will be destroyed by the mining work, 74 hectares of which form part of a valuable forest reserve. 1,500 people will have to be relocated. The mining company is seeking dialogue with the population in order to gain acceptance for the project. A whole series of questions need answers: How will the people be compensated for their land? How will the damage to the environment be offset? What will become of the region in the long term? What will the mining company leave behind other than a lunar landscape? On the other hand the company is offering the local population jobs and training: during the preparatory phase the company needed 3,000 employees, while in the extraction phase there will be work for 1,500 people who can operate the heavy machinery. Some 200 local workers have undergone a four-year training course at Newmont to prepare for these tasks. The affected communities have also received assistance from Newmont in setting up communications infrastructure and health care and building a police station. Despite what the company is offering, the people’s concerns are understandable. The communities are demanding an appropriate proportion of the revenues from the raw materials business, plus compensatory measures.

In Ghana, mining communities receive a share of the levies that mining companies have to pay to the state. The companies surrender five per cent of their revenues as mining rights. Nine per cent of the total is redirected to the districts, according to a fixed allocation formula. This arrangement depends on the payments from mining companies to the state being transparent. For a long time this was not the case in Ghana, which led to regular controversy surrounding how the funds were distributed.

To defuse the debate, Ghana joined the Extractive Industries Transparency Initiative (EITI) in 2003. On behalf of the Federal Ministry for Economic Cooperation and Development (BMZ), the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH has been supporting Ghana since 2006 in implementing the EITI standards on the disclosure of revenue flows in the extractive sector. ‘GIZ advises the Ministry of Finance and the Ghanaian EITI National Steering Committee, which includes representatives of ministries, authorities, the Chamber of Mines and non-governmental organisations,’ reports Harald Küppers, GIZ Programme Manager.

Advanced technology is now also being used. As part of a development partnership with the private sector implemented by GIZ on behalf of BMZ, the German Software group SAP has introduced an IT system for Ghana’s EITI. Both the mining companies and the government use it to record, monitor and evaluate data on income from extractive resources.

In a shared commitment to transparency, GIZ also cooperates with non-governmental organisations such as the Ghanaian division of the international Publish What You Pay initiative. It calls on mining companies to disclose all details of taxes, revenues, fees and other payments made to governments. GIZ supports workshops for citizens and parliamentarians to improve their knowledge of relevant laws and explain the options available to them for demanding transparency from their government. This transparency includes contracts concluded with the mining companies.

Ghana’s EITI will also continue to be tasked with bringing extractive companies, the Government and the people affected by mining together around one table in order to safeguard the interests of residents of mining communities. At present, joining the EITI is voluntary for companies in the extractive industry. However, GIZ Senior Advisor Allan Lassey is convinced: ‘For the EITI to be sustainable, participation should be a legal obligation.’

There is huge potential for government revenues from resource extraction in Ghana. The first Ghanaian EITI report from 2004 revealed that only two out of eight mining companies had paid corporation tax. This triggered a debate on excessively high tax concessions, and since then revenues have risen significantly. By 2011, government revenues of 700,000 Ghanaian cedi – equivalent to just over a quarter of a million euros – were raised through taxes and charges on mining companies, along with 1.2 million Ghanaian cedi, a little under half a million euros, from oil earnings.

Good Financial Governance

Afghanistan: Reconstruction

The mining of gemstones and mineral resources can become a driver for development in Afghanistan. As well as creating jobs and generating crucial revenues for the state, mining provides a boost to economic life, for example through trades such as jewellery making.

Precious and semi-precious stones have been mined in resource-rich Afghanistan for 7,000 years. Working these stones is a traditional craft. In Dawlatabad District alone, in the northern Afghan province of Balkh, around 1,300 family businesses earn their living entirely or in part from jewellery production. One of them is run by 33-year-old Sakhi Murad. Like many other jewellers, he lacked modern tools to produce high-quality jewellery. That has changed, though, since he recently completed a six-month training course, which he looks back on with satisfaction: ‘Now I can cut gemstones in various shapes and polish them professionally. I also produce new designs myself.’ These skills have economic benefits for the father of four. He used to sell a 38-centimetre-long necklace for 50 afghani, for example – about EUR 0.86. Now his products are of a much higher quality, and he is earning twice as much.

The new training centre where Sakhi Murad learned his skills was established with support from the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, working on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ). It is part of a strategy to promote the economy in rural regions of Afghanistan by creating the conditions for more and better jobs. Jewellers in Afghanistan can now once again look to the future with confidence. Cutting, setting, faceting and mounting gemstones in silver and gold jewellery calls for skill and experience. The training covers gemmology and processing technology, working with modern machinery and the fundamentals of design. Today there are six training centres in the northern provinces of Balkh, Kunduz, Takhar and Badakhshan. Around 400 jewellers have been trained since 2011, and a further 150 are currently enrolled.

Afghanistan is not only rich in gemstones: copper, gold, coal, lithium and other resources also lie hidden beneath the country’s soils. Particularly high hopes are attached to mineral resources because they enable the state to generate urgently needed income of its own. At present Afghanistan depends on international donors for 90% of its revenues. The value of its resources is estimated to be USD 3 trillion, but it is currently impossible to put a precise figure on it. To do that, the country will need more expertise in prospecting for and assessing the value of mineral deposits. A first step in this direction was the establishment of the Afghanistan Geological Survey at the Ministry of Mines, which GIZ supported between 2008 and 2011 on behalf of the World Bank. This involved training 200 geologists in the mapping, investigation and valuation of mineral resources, in fundamentals of geosciences and in environmental and social standards. Since early 2013, GIZ has also been supporting an exploratory mission to search for high-tech raw materials that are needed in industrialised countries to manufacture products such as solar cells, fibre optic cables, microchips and LCD monitors.

On behalf of BMZ, GIZ supports the extractive industries sector with a variety of measures. The aim is to enable the population to benefit from the riches in the ground. This presupposes that all payments and contracts in the sector are transparent. Since 2009, GIZ has been assisting Afghanistan in implementing the requirements of the Extractive Industries Transparency Initiative (EITI). In 2010, GIZ began advising the government on shaping its mining policy, part of which covers the sale and lease of mineral mines. GIZ is also supporting the establishment of a mining inspectorate, which will be vital for effective implementation and supervision of the relevant laws and regulations. This includes inspecting and monitoring all mining activities, procedures and facilities as well as promoting operational and occupational safety.

The branches of industry associated with mining offer a variety of economic prospects that are yet to be exploited, as in jewellery making. Trained craftsmen such as the jeweller Sakhi Murad have reason to look to the future with optimism.

Sustainable economic growth for Afghanistan: The economy as the driver of development Open Policy Advisory Fund (OPAF): Promoting political reform