Chapter 8: Managing Private Investments in Natural Resources

Table of Contents

Introduction Multimedia
Key concepts

Tools

Topics Results
Key messages Activity
Takeaways Further reading

 

Introduction

This chapter discusses ways to support governments in managing private investment in natural resources, with a focus on primary sectors or natural resource management areas including agriculture, forestry, fisheries and extractive industries, and introduces environmental, social and economic safeguards as poverty reduction and natural resource management tools.

 

Key concepts

  • Foreign direct investment can provide economic, social and environmental benefits for host countries, increasing production capacity, employment, productivity and government revenues.

  • Increased investment in primary sectors, including agriculture, forestry, fisheries and extractive industries, creates new growth opportunities for countries with natural resource potential.

  • Foreign direct investment can be effective in alleviating poverty by driving economic growth, while helping to introduce more environmentally friendly technologies and consumption patterns.

  • The challenge for policymakers is to ensure that foreign direct investment contributes to their development goals.

  • Without implementation of adequate environmental regulation, foreign direct investment-induced economic growth can result in loss of natural resources and environmental degradation which can exacerbate poverty.

  • Regulatory bodies are responsible to avoid or reduce negative economic, social and environmental outcomes that include forced evictions and involuntary resettlements, lack of labour standards, land grabbing, deforestation and land degradation.

 

Topics covered in this chapter

  • Foreign direct investment

  • Fiscal (tax and monetary) incentives

  • Special economic zones

  • Environmental regulations

  • Investment contracts (e.g. concessions, production-sharing agreements, joint ventures)

  • Capacity building (e.g. for local industries, skills training for workers)

  • Accountability mechanisms for the management of revenues generated by investments

  • Reinvestment of revenues from extraction of non-renewable resources

  • Free, Prior and Informed Consent

  • Public disclosure

  • Regulatory capture

 

Key messages

  • A supportive economic and institutional context in the host country is the most important factor in attracting foreign direct investment, including:

  • Macroeconomic stability

  • Predictable and realistic exchange rates

  • Availability of basic infrastructure, such as electricity, roads, transport and communication networks

  • Clear division of responsibility between relevant ministries and departments at all levels of government involved in foreign direct investment management (national, provincial, district and local), and avenues for effective communication between these bodies

  • Unambiguous investment legislation with clear incentives and implementing regulations that is not in conflict with other, sector-specific laws

  • A clear negotiating strategy should include:

    • Identification of the key sustainable development objectives to be pursued

    • Identification of likely expectations of the other party

    • Identification of areas where concessions and compromises are possible

    • A plan for the flow of negotiations and negotiation tactics

 

Takeaways

Did you know?

  • Lao PDR has realized over 7% annual Gross Domestic Product growth and almost halved poverty rates during the past two decades, driven largely by high inflows of foreign direct investment, mainly into the natural resource and affiliated sectors such as agriculture plantations, forestry, mining and mineral resources, hydropower and tourism. Many of these projects caused extensive harm to the environment. The Lao PDR Government has placed a moratorium on new agricultural plantations and minerals exploitation projects (Prime Minister’s Order 13) to give these sectors time to evaluate projects’ compliance and allow government to resolve problems experienced by investment projects that are not operating effectively or creating severe environmental and social impacts. All sectors and provinces are now monitoring mining and agriculture projects to evaluate their compliance with new regulations to ensure these investments deliver real benefits to the people.

  • The Government of the Philippines 2012’s Executive Order 79 called for mining activities to follow strict compliance laws, ensure the involvement of all stakeholders, and provide for transparency and accountability on the part of both government and corporate players. The village of Barangay Taganito is one that has reaped the benefits of responsible mining activities. Almost 98 per cent of its income has come from mining company revenues. A share of this revenue has been invested in improving the village’s public infrastructure. Mining companies have also been encouraged to invest in public education and have adopted and funded local schools as part of a corporate social responsibility initiative.

 

Multimedia

   

 

 

Tools

  • Proposal assessment and Feasibility studies

  • Social and Environmental Impact Assessments

  • Public consultation / Stakeholder engagement

  • Gender-sensitive approach / Women’s empowerment

  • Enforceable financial commitments

  • Direct and indirect employment

  • Technology transfer

  • Community infrastructure

  • Revenue generation

  • Local procurement

  • Environmental protections

  • Dispute settlement mechanisms

  • Public access to information

  • Due diligence

  • Extractive Industry Transparency Initiative (EITI)

  • Voluntary third-party certification

  • Forestry Stewardship Council (FSC)

  • Marine Stewardship Council (MSC)

  • Equitable benefit-sharing
     

Results

Case Study: Indonesian Palm Oil Industry. Box 8.1.

Support for Sustainable Development and International Investment Treaties in Myanmar. Box. 8.2

Revenues from Responsible Mining Practices Help Communities Lead Better Lives in the Philippines. Box 8.3.

Environmental and Social Impact Assessment Set to Promote Quality investments in Lao PDR. Box 8.4.

Contract Negotiation in Liberia. Box 8.5.

 

Activity: Mainstreaming into National Monitoring Processes

Discuss in a small group:

  1. Does the host government have the ability to provide a supportive economic and institutional environment, which is the most important factor in attracting FDI? This includes the following:

    • Macroeconomic stability

    • Basic infrastructure

    • Clear and well-enforced regulatory framework   

  2. Have the most cost-effective policy measures been pursued by the host government to address the imbalance in foreign direct investment inflows between regions and sectors, and to what extent? Measures may include the following:

    • Subsidizing the establishment of special economic zones in poorer regions

    • Investing in education, skills training and transport infrastructure

    • Training civil servants in more effective administration of investment regulations

    • Improving investment marketing

  3. Has the host government considered the risks and opportunities before engaging in the international investment agreement process?

  4. Does the host government have the capacity to successfully negotiate and implement international investment agreements?

  5. Is the host government pursuing measures to maximize the benefits of foreign direct investment in economic, social and environmental terms, and to what extent? Measures may include the following:

    • Promoting appropriate business and contract models

    • Improving the capacity of local businesses and workers to benefit from foreign direct investment projects

    • Maximizing public revenues and optimizing their distribution over time

    • Establishing robust, transparent and accountable mechanisms for the management of these revenues

    • Re-investing natural resource revenues into economically sustainable activities that benefit men and women equally

    • Establishing robust safeguards for social and environmental risks of foreign direct investment projects

  6. Has the host government undertaken the following procedures during the project approval process to promote economic, social and environmental outcomes?

    • Proposal assessment and feasibility studies

    • Social and environmental impact assessments

    • Formal consultations with local and affected communities with equal participation of women and men

  7. Has the host government taken the following into consideration to ensure that project agreements with private investors are structured to maximize benefits for the host country?

    • Well-defined and enforceable financial commitments

    • Direct and indirect employment

    • Technology transfer

    • Community infrastructure

    • Revenue generation

    • Local procurement of inputs

    • Dispute settlement mechanisms

  8. Has the host government taken the following into consideration in developing a negotiating strategy

    • Identification of the key sustainable development objectives to be pursued

    • Identification of likely expectations of the other party

    • Identification of areas where concessions and compromises are possible

    • A plan for the flow of negotiations and negotiation tactics

  9. Have factors contributing to short-comings in project monitoring and law enforcement been identified? Factors may include the following:

    • Ineffective coordination between different agencies responsible for law enforcement and monitoring

    • High levels of government corruption

    • Lack of resources and technical capacity of government departments

    • Lack of clear laws and regulations

    • Non-application of sanctions for non-compliance

  10. Has the host government considered measures to address the lack of law enforcement and monitoring? Measures may include the following:

  • Improving regulatory structures

  • Addressing lack of resources and human capacity

  • Ensuring application of sanctions for non-compliance

  • Ensuring equitable benefit sharing

 

Further reading

Aarhus Clearinghouse for Environmental Democracy (2017). United Nations Economic Commission for Europe.

Access and Benefit-sharing Clearing-house (ABSCH, 2017). Convention on Biological Diversity. 

AfDB Group’s Policy on Disclosure and Access to Information (2013). African Development Bank Group.

The Business Case for Mainstreaming Gender in UN REDD+ (2011). Food and Agriculture Organization of the United Nations, United Nations Development Programme and United Nations Environment Programme.

Community infrastructure (2012). United Nations Office for Project Services (UNOPS).

Dispute settlement (2017). World Trade Organization.

Environment Safeguards (2017). Asian Development Bank.

Gender equality as a pathway for sustainable development: Lessons learned in Eastern and Southern Africa (2015). Center for International Forestry Research (CIFOR), UNDP–UN Environment Poverty-Environment Initiative and UN Women.

FDI Statistics (2017). United Nations Conference on Trade and Development.

Fair and equitable benefit sharing: Manual for the assessment of policies and practices along natural ingredient supply chains (2013). Union for Ethical BioTrade.

Fiscal Policy and Long-term Growth (2015). IMF Policy Paper. International Monetary Fund.

Foreign Direct Investment Introduction (2017). Peace Palace Library.

Foreign Direct Investment for Development Maximising Benefits, Minimizing Costs (2002). Organisation for Economic Co-operation and Development.

Free, Prior and Informed Consent (2017). Forest Peoples Programme.

Gender and land dispossession: A comparative analysis: A comparative analysis (Levin, M., 2017). UN Women.

Good Practice Guidelines on Conducting Third-Party Due Diligence (2013). Partnering Against Corruption Initiative (PACI), World Economic Forum.

Integrated Environmental and Social Impact Assessment Guidelines (2003). Convention on Biological Diversity.

Linking Poverty Reduction and Environmental Management: Policy Challenges and Opportunities (2002). Department for International Development, United Kingdom, Directorate General for Development, European Commission, United Nations Development Programme, and The World Bank.

Managing Private Investment in Natural Resources: A Primer for Pro-Poor Growth and Environmental Sustainability (2011). UNDP–UNEP Poverty-Environment Initiative.

The Nagoya Protocol on Access and Benefit-sharing (2017). Convention on Biological Diversity.

Pilot database on stakeholder engagement practices (2017). Organisation for Economic Co-operation and Development.

Promoting Women's Participation in the Extractive Industries Sector: Examples of Emerging Good Practices (2016). UN Women.

Public access to information for development : a guide to effective implementation of right to information laws (2016). The World Bank.

Regulatory Capture: A Review (Dal Bo, E., 2006). Oxford Review of Economic Policy, Vol. 22, No. 2.

Special Economic Zones (n.d.). Trade Issues Brief. The World Bank.

Tax and Non-Tax Incentives and Investments: Evidence and Policy Implications (James, S., 2009). In Use of Tax Incentives in Attracting Foreign Direct Investment (2010). Committee of Experts on International Cooperation in Tax Matter, United Nations.

Transfer of technology and knowledge-sharing for development: Science, technology and innovation issues for developing countries (2013). UNCTAD Current Studies on Science, Technology and Innovation, No 8.

Understanding changing land issues for the rural poor in Mozambique (Filipe, E. and Norfolk, S., 2017). International Institute for Environment and Development.

Women Leading Change: Experiences promoting women's empowerment, leadership, and gender justice (2012). Oxfam.

 

Published Date: 
Wednesday, November 1, 2017