Many countries with large reserves of natural resources have failed to achieve higher living standards – countries like Brazil, Chile, South Africa and Peru. Can too much of a good thing be somehow ‘bad’ for the wealth and welfare of countries?
The debate has raged on for decades. On the one hand, the ‘pessimistic’ view says that a relative abundance of resources is a ‘curse’ for development: since it produces incentives to rent-seeking behaviour and lack of knowledge linkages with the rest of the economy. On the other hand, the ‘optimistic’ view highlights the opportunities created by the exploitation of natural resources; opportunities like increased demand for locally-developed technologies and the extra public revenue that generates.
Last week at UNU-MERIT, I presented a paper at the workshop ‘Reversing the curse? What are the pathways and pitfalls for innovation in the mining sector in developing countries?’ At the event, we had an open discussion on the latest evidence and policy challenges faced by mining economies, as they move towards innovation-driven economic growth. I was joined by Prof. David Kaplan, Prof. Carlo Pietrobelli, and Dr Michiko Iizuka, who shared recent trends and experiences across Brazil, Chile, South Africa and Peru.
Our discussions turned on various insights and new findings. First, that activities linked to natural resources can help increase investments in knowledge. For example, some Latin American countries have set up dedicated Funds to finance Science, Technology and Innovation (STI) policies – and they have done this using revenues from mining royalties. However, these instruments are not straightforward to design. The allocation and use of these funds needs to be regulated and implemented in a transparent and accountable manner, avoiding the dangers of corruption and ‘capture’. At the same time, these Funds need to be flexible enough to allow investment in capacity building, where necessary, while adapting to the technological capabilities of different regions.
We also heard how technological development is spurred on by mining companies, especially in their precompetitive cooperative R&D activities. In South Africa, for instance, mining companies routinely partner up to solve common production challenges. These joint initiatives allow companies to share the inherent risks and uncertainties of knowledge activities while increasing the competitiveness of the entire industry. Meanwhile, this creates learning opportunities for the community of local knowledge-intensive suppliers.
From another angle, we learned how new challenges for the mining industry can be turned into new opportunities: for knowledge-driven economic growth. Most mining operations in Latin America face not only productive but also new environmental and social challenges – challenges that often require new technological solutions. Due to the local specifics of these issues, local suppliers are better able to address these needs and, in turn, to gain access to global demand.
Finally, we heard how local knowledge-intensive suppliers rarely develop in an organic way. Despite clear demand for solutions, suppliers (and the economy) face multiple problems – and so benefit less than expected. Problems include access to finance, asymmetries of information, and coordination failures (among others). All told, these problems limit the number of co-innovative projects between mining companies and suppliers. Chile and Peru have seen mixed success in tackling these problems for knowledge-driven suppliers.
Overall, it was clear that so much remains to be done. First, to understand the role of governance in the global mining value chain: to increase opportunities for local companies, to help build stronger links between mining corporations and suppliers, and to get universities involved in the industry while promoting new new mining-oriented start-ups. All this, without neglecting the crucial role that high-quality institutions play in each country.
Here, at UNU-MERIT, we continue to address these and related issues, to find new solutions to the economic and technological development of emerging economies – economies both blessed and cursed by natural resources.
UNU / S.Brodin ; Flickr / unefunge