Jobs, resources, democracy

gas project in Papua New Guinea

In its newest jobs report –mentioned previously by my colleague Pablo–, the World Bank dedicates a large section to resource-rich countries, some of which (in) famously struggle to manage the impact of the extractive industries’ revenues on the democratic practices of the state. The section starts with an important warning: investments in extractive industries do not create many jobs, regardless of their often sizable fraction of GDP and potential to foster “spectacular increases in export revenue”.

What does that have to do with democracy? Well it could have quite a lot to do with it, particularly in developing countries. Now, this is a complicated area of study (“resource curse”, anyone?) and I do not want to make a case for a causal link not fully established, but some things are worth noticing, particularly when we use examples.

While nations like Angola and Mozambique boast huge growth rates due mostly to the oil and mineral industries, their populations sink into poverty and find it hard to reap the benefits of living in a resource rich region of the world. Jobs, or their lack thereof, are a big part of that. The World Bank estimates that extractive industries “may not account for more than 1 or 2 percent of total employment in resource rich countries”, even when taking indirect ones into account. The numbers get worse when seen in parallel to investment in mining projects. A liquid natural gas project in Papua New Guinea, for one, had an investment cost of over twice the country’s GDP at the start-up, and while it may lead to double digit growth rates for years to come, it is “unlikely to generate more than 1,000 direct jobs in the longer term”.

Mozambique is also featured in the section as an example of low job creation. The Benga mining project, with an investment of 13,6% of the country’s GDP, currently employs 150 people and will generate 4,500 jobs once in full operation (projected). In one of the interviews I did during my summer in Mozambique, a researcher from Cemo (Center for Mozambican and International Studies) told me their estimate for formal employment in the country was about only 20%.

Obviously there is little development possible when there are no jobs and no income generation activities for the larger population. As we can see from the report, even when there are regulations that require extractive companies to hire most workers from the domestic labor force, their sheer number is not enough to impact even the regional employment rate. Also, the World Bank mentions a tension “between jobs for productivity and jobs for social cohesion”, which “may be even more difficult to avoid in developing countries due to the lack of institutional strength and implementation capacity.” Not to mention a rise in inequality, since there is no doubt a few are profiting from the projects.

I would add that in Mozambique and other resource-rich developing countries, megaprojects are many times set via secret contracts and tax relief policies to international corporations, which contribute to the little redistribution of revenue to the population at large.

What would be the impact on democracy? First, there could be a growing social tension caused by the imbalance created by these industries. Regardless of the growth rates, development is not a given, but conditional on very good policies implemented to deal with the revenues. Besides, countless studies link resource richness with challenges to democracies and democratization. I am far from a resource-curse determinist, but some things are easily noticed. To keep using the example of Mozambique: there was a soft version of Thomas Carothers’ “dominant power systems” present before the extractive boom, but afterwards the opportunities to replicate the “rentier state” effect* grew exponentially. Oil industries in general (gas and coal, in the case of Mozambique) fit well in this pattern due to their little use of labor force and concentration of revenues in the hands of states. And the lack of accountability is problematic.

The World Bank concludes the section affirming that “the main challenge facing resource-rich countries is to spread the wealth in ways that do not undermine productivity growth and social cohesion spillovers.” It is worth taking a further look.

*in very simplistic terms: governments use low taxes and patronage to relieve pressures for accountability while limiting group-formation that might lead to more democratic demands