Export restrictions and local content quotas in the mining sector are more likely to hamper than spark economic growth in developing countries, according to the Organization for Economic Co-operation and Development.
Jane Korinek, economist and trade policy analyst at the OECD presented findings from a study of 10 resource rich countries with various levels of export regulations, from outright bans on exports such as in Indonesia, to export quotas in place in countries like China, and export taxes as seen in Russia and Argentina.
“There was virtually no benefit and in some cases there were negative impacts,” on economic growth, Korinek said on a panel Wednesday, the final day of the Prospectors and Developers Association of Canada convention.
“In order to invest in a country long term, investors must be able to export the minerals they extract.”
Questions about export taxes and varying levels of tariffs and anti-trade policies have surfaced at this week’s PDAC convention amid an era of what many speakers characterized as “de-globalization” led by developments in advanced countries such as the election of U.S. President Donald Trump, who has taken a stance against free trade agreements and is considering raising tariffs, and Britain’s decision to exit the European Union.
Some of the negative impacts can include a less skilled workforce, contracting services to companies that are not ready to handle large scale operations or a decrease in competitiveness in a country’s mining sector because of lost productivity and higher production costs, she said. Restrictions could also jeopardize a developing country’s economic diversification plans because all of its scarce resources are funnelled into one sector.
“Local content initiatives should be about building capacity having info about where gaps exist not just to go and assume that 50 per cent of procurement should be done locally,” she said.
Korinek also gave examples of countries where policies were working to benefit local communities such as Australia, where there are no mandatory targets for local content or hiring, but requires companies to report on measures they’ve taken to hire locally, and Canada, which mandates a miner’s duty to consult with and sign impact benefit agreements with local communities.
Chile, where copper exports alone comprise one-third of government income, is another example of a country hoping to leverage mineral extraction into economic diversity. The country is focused on a broader strategy to include not just government and companies but also universities and local communities in development plans, noted panellist Jorge Cantallopts, director of research and policy planning at the Chilean Copper Commission.
The country has updated its economic development strategy to include training entrepreneurs and community members to supply the mining sector.
Cantallopts outlined the country’s updated strategy to increase the share of community participation in products and supply agreements. However, he added, the government must be careful not to overstep its role insofar as it is limited to offering incentives to companies and communities.
Ricardo Sanchez head of the natural resources and infrastructure division of the Economic Commission for Latin America and the Caribbean noted that there also must be clear limits on the role of companies in terms of what they provide for communities.
“I think it’s a sensitive matter and there can be some problems related to confusion between the two.”