Oil, Mining Seen as Curse for Poor Countries

by Emad Mekay

It urged the World Bank to back away from financing these sectors.

"Oil and mining investments are highly profitable for the World Bank but our research shows they do little to help the poor," said Keith Slack, policy advisor for the non-governmental organization Oxfam America.

Oil producing countries, mostly in the Middle East, and mineral dependent countries, typically in sub-Saharan Africa, have "worse records on poverty indicators than states with similar levels of income, health, and education but little or no oil and mineral wealth," the group said in its report.

These countries suffer high rates of child mortality, and spend more on their militaries than do countries with more diverse economies.

"These findings are especially worrisome for countries like Chad and Kazakhstan, which are almost certain to become more oil dependent in the next decade, in part with encouragement and financing from the World Bank," Slack said.

The World Bank classifies twelve of the world's 25 most mineral-dependent states and six of the world's 25 most oil-dependent states, as "highly-indebted poor countries," or HIPCs, the Oxfam report noted.

The report comes as the World Bank Group -- made up of the Bank, its soft-loan International Development Association, private sector affiliate International Finance Corporation, and insurance wing Multilateral Investment Guarantee Agency -- conducts a review of its role in these industries.

Bank President James Wolfensohn proposed the review at the lender's annual meeting in Prague last year; environmental and development groups had clamored for it for years.

As part of the review, the bank is launching a series of regional consultation workshops aimed at helping reshape its future policies towards the now controversial mineral and oil industries.

The consultations are scheduled for Eastern Europe, Africa, Latin America and the Caribbean, and Asia between next month and March 2002.

Traditionally, the Bank has maintained that mining can contribute to poverty reduction by generating income and by creating jobs in "downstream" and other related businesses.

In a recent report on poverty reduction and the oil and mining industry, the Bank said that small-scale mining provides employment for some 13 million workers and their families worldwide, mostly in Brazil, Tanzania, Burkina Faso, Ghana, India, Indonesia, and China.

According to the Bank, mining also provides the energy for economic growth in countries with large coal resources, such as South Africa, India, and China. In countries with severe winters, such as Russia, Ukraine, Mongolia, and Kazakhstan, coal provides a lifeline for heating.

Activists in borrowing and wealthy countries alike have become increasingly vocal in demanding restrictions on multilateral financing for such industries because of their negative impact on the poor.

In June, Friends of the Earth International called on international financial institutions to phase out their credits for oil and mining projects "within a period of five years" because lending practices in these sectors failed to end impoverishment and "often entrenched corrupt and dictatorial governments." The group said these lenders committed $55 billion to oil and mining projects between 1995 and 1999.

The Oxfam report said oil and mineral dependent states tend to suffer from unusually high rates of "corruption, authoritarian government, government ineffectiveness, military spending and civil war."

Oxfam also linked oil reliance to child malnutrition, saying an average of 26.5 children per thousand are malnourished in the developing world but that in oil-rich Nigeria, the rate is 37.7 per thousand and in Yemen, it is 51.7 -- one of the highest rates in the world.

The report, authored by political scientist Michael Ross, said that such extractive sectors tend to be capital-intensive and use little unskilled labor. Therefore, they do little to help the poor or the employment rate.

He also argued that such industries are geographically concentrated and consequently create small pockets of wealth that "typically fail to spread."

Oxfam recommended that poor states avoid export-oriented extractive industries altogether and work to develop agricultural and manufacturing industries. It said international financial institutions should only support oil and mining projects in democratic countries committed to "using revenues for poverty reduction purposes," transparency, and economic diversity.

"This report should encourage the World Bank and other development institutions to re-think their approach to oil extraction and mining as poverty reduction tools," Slack said.