CIDA’s Risky Business Venture

Published: March 28, 2012

Why the public-private development partnerships forged between the government and large mining companies are unlikely to improve the record of Canada’s extractive industries.

Canada is home to more than 75 per cent of the world’s exploration and mining companies. For a country that prides itself on its positive role in international development and human-rights promotion, this raises some awkward issues. Local populations tend to benefit little from the vast resources generated by the extractive sector. Instead, they often suffer from human-rights abuses and increases in violence, to say nothing of environmental degradation. In many cases, the companies around the world that manage the extraction process (including those that are Canadian-owned) are deeply complicit in human-rights abuses and political repression.

Private-public development partnerships have become an increasingly popular response to concerns about the adverse effects of mining. This trend has seen the Canadian International Development Agency (CIDA) co-finance community development projects with mining companies around the world. The main idea behind this approach is to help communities in production areas benefit from the revenues generated by extraction.

The Prime Minister’s Office also recently announced additional funding for research on corporate social responsibility for mining operations, with the aim of improving the capacity of Canadian companies in this area.

These arrangements have considerable intuitive appeal. Some observers have pointed out that such partnerships are pragmatic responses to real-world challenges, arguing that since extractive industries are here to stay, development policy might as well leverage corporate resources. Who would be against helping local groups capture the benefits of mining? Canadian companies have also been very much in favour of the initiative, emphasizing their readiness to supplement public development funds.

In reality, however, such partnerships suffer from a central flaw: While companies make only voluntary and non-binding commitments, government development funding directly benefits their commercial operations. This provides little incentive for companies to change their practices to the extent that is necessary to improve the development impact of extractive industries. Without increased monitoring and oversight, this may end up further entrenching a status quo that is often harmful to local populations in mining areas.

Related: An Ethical Minefield

The mining companies benefit from development partnerships in three ways:

First, the support they provide for local communities is good for business – their mining-related investments in community development are not acts of charity. Good relations with local communities can help prevent local violence, which often slows the progress of extractive projects. Furthermore, unlike longer-term and legally binding revenue-sharing agreements with local communities, such investments have the distinct benefit of being voluntary. They can be ended and adjusted at will, leaving significant power in the hands of the companies.

Second, well-advertised development activities create positive publicity. They help gloss over the very real challenges created by environmental pollution and conflicts over revenue allocation in production areas. Most crucially, the partnerships help deflect public attention away from the way in which daily operations of specific projects are managed, and towards the purportedly charitable activities of the companies involved. While this may not necessarily mean that specific instances of misconduct are hidden, it certainly does help move public debate away from issues that are unfavourable for the companies.

This is a common strategy adopted by oil companies around the world. In the oil fields of the Niger Delta, for example, western oil companies have gone to great length to publicize increases in their spending on local development projects. At the same time, however, rampant pollution continues unabatedly and funds earmarked for development activities often end up in the pockets of long-established oil-company cronies. Since companies focus on public perception, the quality of development projects is often low.

Third, operating in partnership with CIDA implies an ethical stamp of approval for particular projects. What could be wrong with an extractive project if the government finances development projects that are associated with it? In the event that local conditions deteriorate or a particular project generates unfavourable news for the company, this can represent an invaluable hedge against reputational risks. In essence, the companies can claim that they did their best to minimize harm and maximize the development impact of the project by partnering with CIDA.

The World Bank’s experience in Chad offers some insights in this respect. In supporting the development of the country’s oil fields, its role was initially to mitigate social risk by designing and overseeing an elaborate system of oil-revenue management. Ultimately, however, the World Bank was unable to oversee the application of these mechanisms, and the government began to use oil revenues to finance civil war and repression. Oil companies can claim, however, that they did their best to avoid this outcome – and therefore continue to operate in Chad regardless.

Against this background, and given the record profits recorded by mining companies in recent years, it is hard to justify allocating scarce CIDA resources for development partnerships with extractive industries.

Related: CIDA: The Shape of Things to Come

What, then, should be done to improve the record of extractive industries?

A crucial first step would be to recognize that making progress in this regard is largely a question of will. It is not so much a question of lack of knowledge or need for additional research. There exists a very large body of relevant research, as well as myriad relevant standards and operational guidelines that mining companies could follow. What is missing is the will to act on those insights and to enter into binding agreements that enforce compliance with those standards.

With this in mind, the government should focus not on forming partnerships, but on strengthening its oversight of Canadian companies operating abroad. This would require the development of an enforceable legal framework for corporate conduct as well as the capacity to monitor compliance. The draft mining ethics bill, which was defeated in Parliament in 2010 after much industry lobbying, was a useful step in this direction.

Finally, we should move away from thinking about community development projects, and think instead about ways in which communities can obtain a just share in natural-resource revenues. To achieve this objective, the government could work directly with local communities in their efforts to negotiate with mining companies and their own governments. In most places, advocacy networks already exist and are often linked closely with civil-society groups in Canada. Strengthening those networks would go a long way in levelling the playing field between multilateral corporations and local communities.

Photo courtesy of Reuters.