Mining and Poverty Reduction

• Potential positive impacts affecting the poor or other vulnerable groups
• Potential negative impacts affecting the poor or other vulnerable groups
• What countries can do to maximize the benefits of mining for poverty reduction

On a more comprehensive level, the World Bank Group offers assistance to countries interested in working towards Poverty Reduction Strategies further information on particular sectors or issues can be found in the Poverty Reduction Strategy Sourcebook which contains a specific chapter on mining.

Potential Positive impacts Affecting the Poor or Other Vulnerable Groups

Mining can contribute to poverty reduction in a variety of ways, mostly through generating income and through creating opportunities for growth for lateral or downstream businesses.

• Fiscal impact and foreign exchange income: Commercial-scale mining can be an important source of foreign exchange and fiscal receipts for governments.  When managed well, the net foreign exchange and taxes generated by mining can be used by governments as an engine for overall economic growth and as a source of financing to support national budgets for social-sector and poverty reduction programs.  Substantial fiscal impact from mining can be found in countries such as Chile, Mexico, Peru, Botswana, Ghana, South Africa, and Papua New Guinea.
   
• Income generation:  Small-scale mining provides employment for about 13 million workers and their families worldwide, in particular, in countries such as Bolivia, Brazil, Colombia, Tanzania, Burkina Faso, Ghana, Congo, India, Indonesia, and China.  Commercial-scale mining provides employment and skills transfer to workers and can also be an important source of social services to remote communities.  All forms of mining can be accompanied by the growth of small and microenterprise activity, providing supplies and related services to mining companies, miners, and their families, and generating substantial further incomes.
   
• Local economic development:  Large mining operations can be found to invest substantially in local economic development, through providing training, public services such as education and  health, and public goods, such as clean water, transport, energy, and infrastructure. 
   
• Source of energy:  In countries with large coal resources, such as South Africa, India, and China, coal is an important source of energy contributing to economic growth.  In countries with severe winters, such as Russia, Ukraine, Mongolia, and Kazakhstan, coal provides a lifeline for heating.  (See section on energy.)

Potential Negative Impacts Affecting the Poor or Other Vulnerable Groups

Mining, as well as the cessation of mining where it has become uneconomic, can also be a cause of poverty or adversely affect the living conditions of the poor and other vulnerable groups.

• Environment:  Environmental damage can be caused by small-scale mining and large-scale mining.  Water pollution, water quantity, tailing management, noise, dust, and land disturbance are issues that can adversely affect the health and livelihood of the poor and vulnerable groups with little mobility or means of alleviating negative impacts.
   
• Health and human development:  The often harsh living conditions for miners in small-scale mining as well as in large-scale mining, along with the lack of information and education about prevention, can contribute to a high prevalence of human immunodeficiency virus (HIV) and other communicable diseases among miners and their families.  Also, work-related injuries and health risks—lung cancer, for example—reduce the miners' life expectancy and often put families in particularly precarious situations.
   
• Governance, macroeconomic management, and corruption: Not all countries with substantial natural resources provide an attractive framework for foreign direct investment to leverage existing opportunities for generating fiscal income; nor are mining companies, in particular, when state owned, always managed with appropriate financial and operational effectiveness and efficiency.  Mineral- dependent economies are often more prone to governance and corruption issues than nonmineral-dependent economies.  Also, negative consequences of macroeconomic mismanagement may be harsher in the context of mining than in a nonmining economy:  the presence of mining will inflate wages and keep the exchange rate strong, which can prevent other sectors, for example, agriculture, from being internationally competitive and thus from realizing the opportunity for export-driven growth.  The costs of macroeconomic mismanagement are high, given the often substantial fiscal revenue from mining, particularly when considering that these natural resources are nonrenewable.
   
• Sociocultural impact: Mining activities can have a negative impact on the livelihood of indigenous people, with sociocultural conflicts surrounding the establishment of mining activities in otherwise rural areas or in the "wilderness."
   
• Economic development:  The higher incomes of mine workers can lead to rising local prices—with the poor left behind; at the same time, the poor and nonmining population may have only limited access to services provided by the mine.
   
• Barriers to economic restructuring and mine closure: Large losses by state- owned mining industries, especially coal mining, have been a significant barrier to economic restructuring and recovery, especially in Eastern Europe and the former Soviet Union.  Closure of noneconomic mines has added to poverty, especially in mono-industry communities and mineral-dependent regions.  In addition to the loss of jobs among the local population, essential public goods and services originally provided by the mining company—transport and  water, for example—cease to be delivered, with particularly harmful effects on the poor and other vulnerable groups.  Mine closures have also affected other countries such as Zambia, Bolivia, Namibia, and the Philippines.

What Countries Can Do to Maximize the Benefits of Mining for Poverty Reduction

Countries can take six steps to obtain the greatest benefits from mining for poverty reduction. 

• Collect data on the mining industry and its fiscal, economic, social, and environmental impacts.  This includes collecting and organizing accurate data for commercial-scale and artisanal or small-scale mining.  Data can include size, location, production, revenues, investments, employment, exports, imports, sources of local supplies, and financial performance.  Note that a lack of geological data can inhibit private-sector investments in a country's mining sector, and thus prevent appropriate use of existing resources for economic development.  Also, countries need to monitor the social and environmental impacts in communities and regions affected by mining and in particular,  by mine closure. 
   
• Establish a sound mineral regulation and licensing system for commercial-scale mining.  This involves creating "a level playing field," with ease of entry and responsible exit, sound fiscal policy and avoidance of subsidized state-owned mining enterprises (SOE), or, if they already exist, the privatization of SOEs.
   
• Ensure sound macro-economic policies so that mineral-rich countries benefit from the developmental impact that mining can have, rather than seeing nonmining sectors obstructed and opportunities wasted.
   
• Attract private-sector investment  through appropriate laws and regulations.  Questions of ownership, land and water use, socioenvironmental standards, and responsibilities need to be reliably clarified and appropriately implemented and monitored.
   
• Encourage planning for mine closure, already upon the first investment by a mining company, by supporting the buildup of local administrative and management capacity and by designing and implementing appropriate regulation and oversight for mine closure. 
   
• Mitigate health, environmental, and sociocultural risks for the population engaged in mining through information and education, as well as through agreements with the mining company to provide acceptable work conditions while supporting the provision of appropriate and accessible community, health, and education facilities.  The key to mitigating these risks is setting and monitoring appropriate standards.  It is important, however, not to ask the company to invest in services typically provided by the government, such as health and education, but rather, to find a public-private partnership arrangement that makes use of the company's ability to invest while not taking over government's role.