 I was last here in April, I think one or two of the audience will have heard some of the things I've said so I apologize in advance for that but we were there on that occasion to launch with Tony Addison a major UN wider project on extractive industries and the development of lower middle income countries and what I'm going to talk about today is a little bit more global than either the presentation of EB or Wisdom, try to sort of global context but I'm going to sort of pick bits and pieces from this work that we're doing. We now have something like 30 authors contributors signed up and there will be some working papers hitting the wider website by the end of this year. I've got 15 minutes, I can't do justice to 30 papers of distinguished authors in that time but I'll pick some. I have 20 minutes, oh gosh thank you very much. Let me just sort of kick off here. This is the introduction but it's also some of the priors about the wider project I mentioned. The first one is that there's been over the last 20 years an undoubted increase in dependence of extractive industries in low and middle income countries. This is a statistical fact I'll illustrate in just a moment and of course that rising dependence has generated far interesting new challenges for countries, low and middle income countries about how to best manage the volatility which Ibi has talked about in the context of Nigeria but also how to generate the longer term benefits. The risks we are obviously very clear, Ibi's presentation illustrates them very forcefully, the macroeconomic risks associated with the volatility of the prices and the management tasks associated with that. They are very very demanding, very very difficult but in the book and in the project we're looking also I think with more emphasis on the societal risks. The failure that we've seen in many countries of extractive industries by which I mean minerals plus oil and gas to generate sustainable development which is also broadly inclusive not only for the communities in the vicinity of mining and oil and gas activity but for broader societies within the country. Of course the test for that sustainability is that if you're extracting a depletable exhaustive resource that has minimum your you need to create capital whether physical or human which is at least equal to the resource you're exploiting. So we're going to look at some dimensions of that and I think the one of the other prizes that although it's extremely important and the Nigerian discussion draws attention to that the literature has given really a very strong emphasis to issues of Dutch disease and the macroeconomic ills that can come with high dependence on oil and gas and minerals and we're not saying it's that important we'll address that in the project but we want to address these broader complex risk issues for society of the type I've mentioned with a little bit more attention perhaps than has been done in other pieces of work. So let's start with a couple of facts about the macro risks. The first is this point about increasing dependency. These are data on exports as a percent mineral exports only as a percentage of total exports. You can see that here I've got the 15 countries in the world which are most dependent as of 2014 which is the latest data we have. We have some pretty striking numbers. Botswana 91% Congo 78% Mauritania 58% and so on. All of those top 15 countries are low and middle income countries except one. The one is Chile which was a lower middle income country not so long ago and if we extended this list to the next 20 or so countries most of those also are lower middle income countries undoubtedly very high dependence. Oil and gas similar you see in the same ranking of oil and gas countries countries like Algeria and Nigeria and Angola. There are a few more high income countries there because we've got the Middle Eastern countries but very high dependence. If we put this all together and it's in the paper I've done with Samantha Dodd we found 72 low and middle income countries in 2014 that have an export dependency on minerals or oil and gas of at least 30% of total exports of those 72-18 are low income countries 25 are low middle income countries and the I think the more important fact is possibly that over the last 20 years that dependency has increased for most of those countries. The percentage point increase in dependency between 1996 and 2014 has been 17 it's not 17% this is 17 percentage points on average a simple weighted average of those 72 countries. Now we looked at what the commodity shocks from 2011 and 2012 have done to this we don't have the data unfortunately for all the countries to do this properly but that 17% as of for the period of 2014 was actually 18% if you stop the calculation of 2013 so there has been a little bit of reduced dependency if you like in a statistical sense associated with the falling commodity prices that we've seen in the last two or three years. That dependency also is interpreted or is manifest as revenue dependency the data here is very poor you know the IMF has been working for a long time but they still only produce consistent data on mineral revenues on a consistent basis for a limited number of countries we can't do it for all countries but we get the data from national organizations here we've got some countries and you see these numbers are pretty high again Botswana is up there with something like 40% we've got Guinea 23% Mongolia Chile is here as well but and Zambia as well so mineral revenue dependency of governments is also high in minerals these bars tell you the variability over time so you take a case of Zambia which I know quite well as a minimum in the period from 2000 to 2013 Zambia revenue from minerals was as low as 3% of government revenue but as high as 30% the variation between 3 and 30% within a span of only 13 years now a casual observer looking at that as I did initially said well that's all to do with volatility but volatility of prices is only one part of that explanation and a more important part certainly in the case of Zambia is the lifecycle stage that we're in with the mining industry so in the year in the year 2000 Zambia was just embarking on a new way of huge investments associated with privatization which took place at the end of the 1990s most of the mining industry that we is now in place in Zambia the copper mining was not producing any revenue any profits in the early years of so the revenue from government was very low but by 2011-12 it was up to 30% and there was a huge political debate in in Zambia in the middle of the 2000 saying these mines are all there investing heavily but where's the revenue for government the answer was it's there but it hasn't arrived it arrived only by 2011-12 where unfortunately there was a price collapse and it went down again in the subsequent few years so revenue dependency is high the second fact about dependency and the risks and the lead into crisis that can arise is to do with volatility of prices now this is a chart which is familiar I think this is this metal prices a number of metals iron ore aluminium and so on and we see the dip in prices that have took place after a roundabout I date this from about the middle of the year 2011 but it's different for different metals the price fall is quite clear and that gives countries that are heavily dependent on on on minerals cause for pause you know is this an industry we really want to be in for the longer term but that question is much more complex when you look at the longer term because this is the same basic information and that's the period I just showed in the previous chart but if we take the long period from 1960 to 2014 instead of that shorter period I just showed you you see the metals prices even today are much higher than they were through a large part of this 65 year period 55 year period and the same is true with with crude oil if you look at crude oil prices this is from one of the papers for our our project by Paul Stevens and Chatham Chatham House if you look at the story from 1980 to 2014 you look at the mean average price of crude oil in this period of the 80s and the 90s and it's it's very very much lower than the price that we have today it's around about 20 this is in nominal dollars it's about 30 dollars now we're up to something like 40 which we crying about because it's a dramatic falling price if we pointed that out and it is you know if you've been expecting 112 but it's not in long term context it's not it's not a low price so this is one of the dilemmas you have if you're a country that is producing product like oil what is the future going to be and if you take a very long view this is from the 1800s 1860 I can hardly read this myself after the present time this is the price in today's money and this is the these charts are in 2013 dollars this is the price of crude oil so I'm not going to bet my pension on what's going to happen next I suspect it would be very bad bet and who else who else would bet the invention pension and what's going to happen next to the price of crude oil so these uncertainties are endemic in this these industries and very important then my next point is can these macro price risks be managed and we've seen and if he's given us a very clear example of the problems of the last two or three years in countries like Nigeria Nigeria but also in Venezuela and Ghana we know these these situations have been dramatic countries have lost fiscal revenue they've needed large fiscal adjustments they've had substantial exchange rate depreciation higher inflation and of course slower growth in some countries like Venezuela you know really serious political turmoil associated with that can the risk be managed the answer is yes technically they can be managed but the evidence is that in most lower and middle income countries they have not managed very well and I hope Peter will forgive me I'm going to contrast Ghana with Chile briefly it's a fairly dramatic comparison this is Ghana Ghana got oil of discovered oil in 2007 it started pumping in 2012 before that in 2004 Ghana had hipic debt relief which reduced its bed burn from 100% of GDP to something like 30% so the the interest payments in in the budget of the government were dramatically reduced in 2004 and then we started getting the oil coming along this is the fiscal deficit of Ghana 2011 4% of GDP by 2012 up to almost 12% of GDP now this was before the oil price started to fall you know and when the oil price started fall these problems became much greater of course Ghana did a number of things it went out on the back of its newly found oil and raised money in the sovereign debt markets very quickly the interest burden went up arguably the terms of that borrowing were extremely unfavorable and if you then look at the budget composition of expenditure you find that by 2015 this is a projection not the actual figure Peter may know the actual figure but that figure was something like five or six percent of GDP when committed just to interest payments this was far higher than the revenue from oil so the new oil quickly translated into a problem for Ghana rather than a success you can compare that with Chile Andre Andre Solimano is here so I'm really hesitant to talk about this but let me do it I'm sure I should make some terrible mistakes but he'll he will kindly point them out to me afterwards this was Chile in the period 2000 to 2010 this was a period of the I'm sorry I just want about this was a period when copper prices were rising very dramatically this was a so-called supercycle and in full swing the copper prices have calibrated on on that axis and you see they were going from something 200 to something like over 300 in that same period fiscal surpluses in Chile as a percentage GDP went up to six or more percent of GDP what happened when we had the global fiscal financial crisis in 2009 Chile ran a deficit the copper price went down by something like 50 percent but that was a response of fiscal terms a pro cyclical response on in the part of the the budget and there was an amazing I think this is an amazing statistic Andre we've had a little discussion the bar the other night I Chile was able in 2009 to put the equivalent of nearly 3 percent of GDP as a fiscal expansion into the economy it didn't stop growth being slightly negative but it was only slightly negative and it was far higher than what was achieved in neighboring in Brazil and far higher than in most European countries not these countries like Greece and Portugal and Spain where there was the opposite there was an austerity budgets instead so that contrast is a very dramatic one but it does tell us that technically we do we can do this now whether Ghana did something's right and something's right whether Chile should have had as much as money set aside as this these are debates but the stabilisation can be done and has been done in some cases the problem now let's turn to the longer term what do we do with these natural resources in the longer term and there is a I think an increasing I think body of opinion that says that we've had the resource curse we know all about it we've got disaster stories all over the place no we should keep it in the ground we've got a pressure to keep it in the ground which is linked to climate change if if you're talking about things that connected to the climate change that's one solution but that's not going to happen in lower middle-income countries I predict comfortable I would bet my pension on that statement this is a I'm not coming where I got this from this these are logarithmic scales this is per capita income of a variety of countries and this is the per capita value of the known reserves of natural resources including metals and and oil and gas there are a lot logarithmic scales this is the sort of unity line and a simple glance at that tells you very quickly that most of the many low-income countries most ambiguous their Tanzania is here Nigeria is here they have per capita resources already known about in the ground far far a multiple of their per capita these are poor countries these are not going to keep these resources in the ground unless they are some sort of dramatic change in global governments that somehow bribes them to do it in a really big way so I think that's the first important fact Guinea I think is a dramatic case you know it has one quarter of the world's total reserves of bauxite one quarter the total reserves most are high-grade most unexploited but it only produces at the level of China and India that only have one tenth of the known reserves that the Guinea has so Guinea is not going to leave that bauxite permanently in the ground over the next 10 to 30 or 40 years so I think that's the first point on the longer term the potential is huge but we if we look at what countries have done in the past with this these reserves that the results have been as we know pretty disappointing but not unambiguously bad they've not been unambiguously bad this is a graphic from the McKinsey Global Institute which shows the this is the per capita growth rate of countries that they define as resource dependent slightly different from extractives slightly different than what I've been talking about so it's per capita compound growth rate between 95 and 2011 and this is the per capita income in this block here we've got this average income countries in this group in that area there are basically falling behind their per capita income growth compound was not sufficient to as it were raise raise the overall income but there were 37 percent of the countries that were catching up you know they were leaping ahead if you like in terms of catching up with richer countries in that period on the back of natural resources but Kinsey wrote this study in 2013 and they came up with this really dramatic thing it was of course before prices started to fall big time but they say if if the countries that fell behind could have replicated those that were sort of doing really quite well with natural resources this would have had the potential to take something like two or three hundred million people out of poverty in the country's concern over a 20-year period now that's sort of in the same ballpark as the poverty reduction we've seen in China which everyone says has been absolutely amazing so we can't write off natural resources as a complete nut to disaster there are countries that have done reasonably well with it and there are countries that have not the key then and this is where I think the project that Tony and myself are running is going to be making a contribution is how do we build success how do we build the institutions and the capacity in more of these poorly performing countries to do well with the long term to build the inclusivity to make sure the community is affected by mining are indeed benefiting macro management is important and it but it's only one limited dimension of this problem there are other management challenges policy challenges and the problem is there are a lot of them and the problem for a country I work a lot in Tanzania the problem is they need a lot of coordination and we've counted up in relation to managing oil and gas in Tanzania something like 12 government ministers that ought to be involved and there ought to be coordination but there isn't coordination because the ministry of mine said well mines and petroleum thinks well it's gas so it's us to do with us so they don't sort of involve other departments in the well-issued the natural resource governments into has done a great job I think in articulating through its natural resource charter and through the questionnaires which they use to benchmark countries in terms of performance in governments and institutions the areas in which work is needed and I'm listed just a few here but not by no means or the broad strategy for the long term what you do with the mineral resource or the oil and gas the legal structures the contracting the licensing the the geological databases the setting the taxes not just collecting them but collecting is important and then when you've collected them what you do public expenditure management do you sort of what do you do with the windfall gains in public expenditure regulating environment communities on there's a long long list this is only about a third of it but under all of those there are some very very important sort of points to be done now how are we going to get there well this is a sort of little scenario setting thing that Tony and myself are starting to work on is very embryonic but the basic idea that action is needed both in relation to government which is defined on that axis but also in terms of the companies the mining companies of the oil and gas companies and we simplified it you know at the top here we've got governments are very very effective in most senses I've just described on the previous slide they're also inclusive these are not governments that are sort of discriminated against ethnic groups or minorities or particular regions or particular communities they're they're doing their best to be inclusive okay they may not be perfect but they're they're doing their best at the other extreme we've got what we've called warlords governments which are clearly ineffective you know they're not they're not doing well in any of those areas that I put on the previous slide and they're probably extremely divisive you know their work is favoring particular ethnic groups or particular regions or particular parts of their societies and then we've got a similar mapping of companies the enlightened companies that can occur that comply with international standards that are increasingly emerging and we've got I described them as the you know the mining country companies a hundred years ago um Anglo not um what's called Anglo-Gaudi Shanti and Awasi and Ghana for example you know it was started a hundred years ago you go there now it looks like it you know it's still quite frozen a hundred years companies like like that we've got a spectrum and what we need to surmise is where countries locate in that mapping the four zones and we don't know we do know in terms of government because we've got very good measurements of government effectiveness from both the World Bank but also natural source governments institute so we know that a lot of governments are low income middle income countries down here you know they're not perfect but they're not bad we don't have the same mapping for companies so we have to surmise but the first I've run out of time so this is this is my last small as my last slide um what we do know that if we if we've got governments and enlightened companies in that sort of broad area recently inclusive governments and recently enlightened companies all of these international initiatives that have happened and this is from where I get great hope because in the last uh in the period since 2000 Tony Hodge who has written a paper for this book I keep referring to has identified 46 separate international initiatives of various types that are all designed in different ways to contribute to this institution building or governments improvement that we're arguing is needed to get this more inclusive benefits from mining and extractive resources 46 things like the natural resources charter the IFCs sustainability principles the principles of international council on mining metals ideas from the african mining vision from the responsible mining global reform and so on now if so if it's the case that our countries are located there I'm out of time I'm really pinching well I put those charges as surmise you know the governments aren't bad but the the companies aren't too bad it seems to me that these international initiatives can be extremely effective and that they will make a difference and they're all very recent this is only the last 15 years um if of course you've got um situations down here where the governments are really divisive warlords and you've got roads companies then forget it these initiatives pretty much a waste of time extractive industry transparency initiative in you know a civil strife country poor companies it's not going to do anything just it's just a window dressing so I stopped there um the last strides are pretty one that's why I left it on there as the last this is the NRGI um rate ranking of countries in terms of governments most of the ones we're interested in I think in this room certainly based on the previous present day are in Africa and unfortunately it corresponds to what I said they don't quite meet the standards being effective governments they're not warlords most of them or many of them are not um but they have a long way to go if you like in meeting the standards of good governments the NRGI seems to be a desirable thank you very much indeed