In some countries, mineral resources represent a huge source of income and wealth. But resource abundance does not always bring sustained economic growth and development – it can have the opposite effect, which is sometimes referred to as the “resource curse”. Countries that are heavily reliant on their mineral wealth often have weaker institutions, spend less on education and are more corrupt.
The mining sector generally provides little direct employment in the countries and regions where extraction occurs. Seeking to create more jobs, some countries restrict the export of unprocessed minerals in an effort to encourage the creation of higher-value downstream processing jobs in the domestic market.
Export restrictions of raw materials are also used to meet other objectives; for example, to generate revenue for the government, to control the export of illegally mined products, to enhance environmental protection, or to offset exchange rate impacts caused by exports of several commodities. These are all legitimate policy goals to be determined in each country by its citizens’ preferences.
But export restrictions often do not achieve desired objectives
OECD analysis suggests that export restrictions are not the best way to achieve these crucial policy objectives. And in some cases, they can actually have the opposite effect. A recent study examining the use of export restrictions by four African countries on different minerals and metals, with the stated goal of encouraging downstream processing, suggests that in none of the four cases did the downstream industries benefit. In some countries, the mining sector experienced a substantially negative effect.
Further OECD analysis has estimated the effect of removing all export barriers in the steel and steelmaking raw materials sector. The impact was positive on global welfare and—somewhat surprisingly— was even positive in those countries that use export restrictions on steel-making raw materials. Evidence suggests therefore that export restrictions are not an appropriate policy instrument to respond to the challenges of regulating the extractive sector for economy-wide, sustainable growth.
Despite this, measures restricting exports are prevalent for many raw materials such as minerals, metals, wood, and food and agriculture. In some emerging economies, a large percentage of minerals exports are subject to restrictions. The prevalence of such measures begs the question: why do policymakers use this trade policy instrument to address domestic policy challenges? One reason is simply because they can. Some regional trade agreements have attempted to bring discipline to this area. Under WTO rules, member economies are obliged to notify their use of export restrictions, but implementation to date has been patchy.
Policy alternatives to export restrictions
Fortunately, there are concrete examples of how mineral resources can contribute to sustainable, economy-wide growth. OECD analysis points to some successes and shares some lessons from their experience.
- Regulatory stability – including tax frameworks, in particular – is critically important to mining firms as they are obliged to make long-term capital investments. Regulatory frameworks should be transparent and apply to all firms, reducing the potential for corrupt or rent-seeking behaviour.
- The way in which revenue from raw materials is spent and invested is also important. For example, the government of Botswana has spent the totality of revenue earned from its vast diamond reserves over the last three decades on health, education and infrastructure.
- Some countries have successfully created clusters around their mining sectors. In Australia, mining services—engineering, mapping, geological analysis, specialised equipment and technologies for extraction and processing—have grown five-fold in the last 15 years, now accounting for 7% of Australian employment, far more than mining itself.
- In other countries where illegal mining persists, civil society organisations have been working with small-scale miners to adapt sustainable mining practices.
- Good quality, detailed geological information is key for minerals-rich countries looking to attract investment. Such information is a public good and can enhance the efficiency of mining and prospecting operations.
While these are only a few examples of how some countries are successfully imposing stable, balanced regulatory environments for their industrial raw materials sectors, a more complete set of policy recommendations can be referenced in case studies on Chile, Botswana and Peru and Colombia.
You can use our interactive data visualisation tool to see what trade in raw materials looks like in your country.