Donors get creative, take risks on extractive industry

In today’s tight and uncertain fiscal climate, donor countries are in constant pursuit of new strategies and viable partners that can help maximize each aid dollar they invest in developing countries. The private sector has been the answer in some cases, approaching development challenges in emerging markets differently and opening up to public sector aid donors to coordinate development investments. Donor countries are restructuring their aid programs to capitalize, in part, on these new realities and alignments. In 2013, Canada and Australia folded their aid agencies into their country’s foreign affairs and trade ministry. While it remains to be seen exactly how both donor countries will integrate aid, diplomacy and trade, and the impact it will have on developing countries, there are signs that Canada and Australia are testing new avenues at the intersection of development and commerce, and one of those avenues is leading to enhanced public-private partnership in the extractive sector. “Sustainable private sector growth and poverty reduction are directly linked,” said Christian Paradis, Canada’s minister for international development during the World Economic Forum on extractives and sustainable growth on March 1, 2014. “It is nearly impossible to have one without the other.” The extractive sector — which typically includes the subsectors mining, oil and gas — holds huge development potential, but is marred by a history of irresponsible corporate practices and environmental degradation. There is also a prevailing perception that extractive sector operations negatively impact local communities in developing countries due to cases of human rights violations, land grabbing and political corruption. Australia and Canada are home to some of the largest and fastest growing extractive companies in the world. Currently, there are approximately 1,100 extractive companies based in Australia and 1,300 extractive companies based in Canada. According to Publish What You Pay, a global network that campaigns for transparency in the extractive sector, the majority of these firms are operating globally. Among the largest Australian extractive companies are BHP Billiton, Rio Tinto, Vale Australia and Newcrest Mining, while the largest Canadian extractive companies are Teck Resources, Rio Tinto Alcan, Barrick Gold and Suncor Energy. Over the past few years, the extractive sector contributed on annual average about 16 percent to Canada’s gross domestic product and 18 percent to Australia’s GDP. The two countries also have comparable foreign aid programs, averaging $5 billion annually in recent years. According to a Devex analysis of donor data, both the Australian and Canadian governments are increasing public sector funding to support extractive operations abroad. They are also facilitating stronger links between the extractive industry and international development efforts and moving beyond basic programming to more innovative programs. In 2011, Australia formally took on the role of adviser to developing countries on sustainable mining with the launch of the Mining for Development Initiative, a 127 million Australian dollars ($114 million) program on sustainable resource management. The government is yet to publish how much it will allocate for 2014-2015, but has thus far spent $55 million during the first two years of the program. Canada has also ramped up funding for its development programming in the extractive sector in fiscal 2013, allocating approximately $113 million. Notably, year-on-year funding increased significantly beginning 2013, with previous two years averaging only $16.4 million in disbursements. This significant increase in programmable spending is a direct result of Canada’s recent efforts to prioritize capacity building in the extractive sector, funding multiyear projects beginning in 2013. According to a Devex analysis of donor data, both the Australian and Canadian governments are increasing public sector funding to support extractive operations abroad. View larger version. Like many other Western nations, Australia and Canada source oil and mineral products from lesser developed areas in Africa, Asia and Latin America — which are also priorities for Australian and Canadian development assistance. While Australia is battling some aid austerity under the Abbott administration as revealed in the FY2014-2015 budget, the country spends a large portion of its aid portfolio in resource-rich Asian states such as Indonesia, Papua New Guinea and Afghanistan. Consistent with the administration’s “aid for trade” policy, Australia, through the M4D Initiative, will continuously explore opportunities to provide direct assistance to a range of resource-rich partner countries, including Afghanistan, Indonesia, Mongolia and Papua New Guinea. In 2013, Australia imported $30 billion in petroleum and $2 billion in minerals from Asian countries. Canada also sources much of its oil products from Asia, and meets most of its mineral needs through Latin America. Last year, petroleum and mineral imports reached $9 billion and $8 billion, respectively. Of the 20 countries that Canada’s aid program has prioritized, more than a dozen of them claim mineral resources, including Bolivia, Ghana and Peru, where Canadian extractive companies are currently working. An internal review of bilateral aid programs, conducted by the now defunct Canadian International Development Agency, suggested that commercial motives drive Canada’s aid disbursements. The report, “Reviewing CIDA’s Bilateral Engagement,” identified more than a dozen aid partner countries as having mineral resources that are of interest to Canadian firms. While these allegations are expected to continue now that both countries have merged their aid and trade regimes, many proponents of private sector approaches to development suggest that Australia and Canada are right to focus on what their countries know and help resource-rich development partners reap the socio-economic benefits of the industry. Giving aid “is not a zero-sum game,” Scott Gilmore, founder of a development organization called Building Markets, pointed out. “There are lots of things that Canada can do that maximize our ability to reduce poverty which also, simultaneously, are of benefit to Canada, either our foreign policy interests or trade interests.” At the program-level, there are some similarities and differences between Australian and Canadian approaches to engaging the extractive sector. To leverage their expertise, both donors have established mining research and training institutes, and launched a series of development projects and initiatives involving their mining companies. Aside from aid initiatives, Australia and Canada have corporate social responsibility and sustainability programs to boost the competitive advantage of their extractive companies operating overseas. While Australia’s sustainability program advances the adoption of industry best practices, Canada’s CSR strategy supports initiatives that enhance Canadian extractive firms’ capacities to manage social and environmental risks. On the whole, Canada is more open with its private sector partnerships, often co-sponsoring some CSR projects with companies. Australia, on the contrary, is more subtle in its approach and engages with universities to transfer knowledge and technology. Last year, Canada established the Canadian International Institute for Extractive Industries and Development. Spearheaded by the University of British Columbia, Simon Fraser University and École Polytechnique de Montréal, CIIEID aims to improve and strengthen governance of extractive sectors in developing countries. In 2011, Australia launched the International Mining for Development Center to drive its M4D Initiative. Implemented by the University of Queensland and the University of Western Australia, IM4DC helps host governments and communities source social and economic benefits from the use of their mineral and energy resources. In line with its CSR strategy for the extractive industry, Canada piloted a series of development projects in Ghana and Peru that leveraged the resources of several Canadian mining companies. From 2011-2014, Rio Tinto Alcan contributed 428,000 Canadian dollars ($392,000) to improve access to clean drinking water, quality education and livelihoods of mining communities in Ghana. In 2013, Barrick Gold gave $421,000 to help finance a project by the international nongovernmental organization CARE in Peru, which aims to boost the productivity of farming communities near the company’s Lagunas Norte mine. Australia’s sustainable mining program promotes the adoption of industry best practices, including CSR. PanAust’s Livelihoods Investment Program in Laos, for example, boosted incomes by promoting and facilitating market gardening and fish farming along local villages near its gold operations in Phu Kham. PanAust is a Brisbane-based gold mining company operating in Southeast Asia. Australia also promotes sustainable mining by holding conferences, workshops and visits to mine sites of large extractive companies such as BHP Billiton and Rio Tinto. In 2011, Australia allocated $27.9 million for the operations of IM4DC. Of the total, $6.3 million was used in 2013 for various programs, including subsidizing short courses on Australian mining for participants from developing countries. Civil society groups, including aid and environmental watchdog organizations, have expressed concern that the new initiatives, as well as the broader focus on supporting extractive companies in developing countries, allow commercial motives to drive the disbursement of aid, which is designed to alleviate poverty. “At best, this is an expensive exercise in corporate welfare,” asserted Thulsi Narayanasamy, director of the watchdog organization AidWatch. The Australia’s M4D Initiative, she added, delivers “direct financial and regulatory support to mining companies, and indirect support through ‘green washing’ these companies and rebranding their image as sustainable.” Both donors have countered that their aid programs aim to help host governments maximize their mineral resources and do so in a socially and environmentally responsible way without prioritizing mining companies from their home countries. Australian aid does not “promote the interest of specific Australian companies through the aid program,” stressed Ian Satchwell, director of IM4DC. “If we deliver capacity-building [projects] through the M4D Initiative that inevitably enhances the Australian reputation,” he added, “that reputational benefit no doubt reflects upon Australian firms. But I think what is important is that we are agents of good governance in and around mining. We are not explicitly agents for Australian companies.” Join the Devex community and gain access to more in-depth analysis, breaking news and business advice — and a host of other services — on international development, humanitarian aid and global health.