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Metals and the Wealth of Nations

Metals and
the Wealth of Nations
nternational agencies such as the World Bank and Asian Development Bank have often presented mining
I to poor countries as a key to development. Mining, in this view, can attract substantial foreign investment.
Mining can drive economic growth. And indeed, there are some national mining sectors that would appear
to support this idea in one way or another. Mali, for example, shifted its main export from cotton to gold
after undergoing World Bank-supported mining reforms. In Chile, copper production has been an impor-
tant driver of economic growth; in Botswana, diamonds have played a similar role.56

But this apparent success can come at considerable cost. In colossal environmental and social deficit, and its gargantu-
Chile, as elsewhere, mining areas have suffered extensive an appetite for energy (which claims, as noted earlier, up to
environmental degradation. Success can also be very diffi- 10 percent of the world’s energy supply), metals mining
cult to reproduce. Botswana’s diamond production is close- accounts for only a very small share of world economic
ly linked to the DeBeers cartel, which keeps diamond prices output—less than 1 percent.58
artificially high. Very few if any other mined products have
And when it comes to particular deals, the tax breaks and
a similar history of high, stable prices.
other incentives awarded to large corporations for establish-
When you look at the industry’s general economic record, ing mines are often so large that the industry is practically
the picture is actually quite exempted from contributing
grim. For the most part, to national coffers. In the
mineral-rich developing Mineral Dependence and Poverty United States, for example,
countries have some of the mining companies extracted
slowest growth rates in the
Rates: Selected Countries, 1990s 55
$11 billion worth of gold, sil-
world, and the highest ver, and other minerals from
poverty rates—a phenome- Share of Total Population federal lands between 1993
non economists call “the Export Value Below and 2001, but paid the gov-
resource curse.” (See the from Non-Fuel National ernment only a tiny fraction
table for examples pertain- Country Minerals (%) Poverty Line (%) of that in fees. In developing
ing specifically to mining.) Guinea 71 40 countries, it is often impossi-
Harvard economists Jeffrey ble to know how much rev-
Sachs and Andrew Warner Niger 67 63 enue a mine is actually gen-
studied 95 developing Zambia 66 86 erating. In a recent study, the
countries that had high International Monetary
ratios of natural resource Jamaica 53 34 Fund dryly noted “signifi-
exports relative to gross Chile 43 21 cant gaps” in the Malian
domestic product (GDP) government’s accounting of
for the period 1970 to 1990. Peru 40 49 gold exports.59
They found that the higher Democratic Of course, mineral exports
the dependence on natural Republic of 40 na can generate some foreign
resource exports, the slower Congo exchange, but they do not
the per capita growth. 57

Mauritania 40 57 usually do so in a very reli-

There are several reasons able way, because interna-
why mining is a poor bet Papua tional metals prices fluctu-
for economic growth. In New Guinea 35 na ate greatly. In many coun-
the first place, despite its Togo 30 32 tries, these unstable trading

na: not available

Dirty Metals

Close-Up: Your Cell Phone

T he latest cell phones boast

glowing screens, a multitude
of ring tones, and face plates to
lead, nickel, palladium, silver,
zinc, and tantalum.
1,500 tons of
coltan stocks.
They forced
Tantalum production is a very
match just about every shirt in Congolese farm-
troubled business. The electron-
your closet. But it’s the materials ers off coltan-
ics industry depends on this
behind the face plate that deter- rich lands and
highly heat-resistant metal to
mine the phone’s environmental arranged for
make capacitors, tiny compo-
impact. Among those materials Rwandan pris-
nents that regulate the flow of
are many different metals. The oners to mine
current on circuit boards.
batteries, for example, contain coltan in
Tantalum comes from coltan,
cobalt, nickel, zinc, and copper. exchange for
short for columbite-tantalite, an
(There’s more copper in the bat- reduced sen-
ore that is mined in Australia,
tery charger—that lode of cop- tences. But
Canada, Brazil, and the mineral-
per is likely to be the largest coltan is hardly
rich Democratic Republic of
mass of metal in the product.) the only “conflict
Congo. Coltan mining in
But the biggest variety of metals mineral.” Armies
Congo’s Okapi Reserve is
is in the circuit board. About in the Congo and
destroying the habitat of the

Sketch: Chris Engnoth

one-third of the circuit board is elsewhere have
endangered lowland gorilla. It’s
likely to be metal; another third fought over lands
also fueling regional conflict.
is ceramic and glass; the remain- rich in gold, cop-
During 1998 and 1999, Rwandan
ing third is plastic. Among the per, cobalt, dia-
troops and their rebel Congolese
metals on the circuit board are monds and other
allies took control of 1,000 to
copper, gold, arsenic, cadmium, gemstones.63

prices have contributed to a deepening of the national a wide range of serious social problems, such as
debt. When prices are high, governments can find it hard high levels of poverty, low levels of education, and
to resist pressure to borrow against the export revenue; poor health care. Nearly half of the world’s poorest coun-
when prices fall, as they inevitably do, it may become diffi- tries show this dependency: mining is their biggest export
cult to pay interest on the new debt. sector. And over the past couple of decades, the poverty in
these mining-dependent countries appears to have deep-
Yet another shortcoming of the sector is its employment
ened: according to the UN Commission on Trade and
record. Metals mining is no longer a strong generator of
Development, the proportion of people living on less than
jobs. The formal sector employs just 2.75 million people—
$1 a day in poor mineral-exporting countries rose from 61
just 0.09 percent of the global workforce—and that num-
percent in 1981–1983 to 82 percent in 1997–1999.61
ber is in rapid decline. According to the ILO, one-third of
all mine workers in 25 major mineral–producing countries And finally there is the link with corruption and violence.
lost their jobs between 1995 and 2000. (The downsizing is A study by the International Monetary Fund found a
due primarily to increasing mechanization.)60 strong connection between heavy dependence on mining
and government corruption. That finding correlates with
Nor is the industry very effective at stimulating production
the “Annual Corruption Index” of the UK-based organiza-
in other economic sectors. Almost all of the metal extracted
tion Transparency International: the index rated 26 of 32
in poor countries is exported as the ore itself. But most of
mineral-dependent countries as corrupt or highly corrupt.
that ore’s economic value is realized in subsequent stages of
And a recent World Bank study found that countries with a
processing and, of course, in manufacturing. These activi-
high degree of dependence on primary commodities like
ties rarely take place in poor mining countries.
minerals have a risk of civil war that is 40 times greater
Heavy dependence on mining also correlates strongly with than countries with no primary commodity exports.62 ■

Metals and the Wealth of Nations

Paying for the Clean-Up: No Guarantees

T he aftermath of a large-scale
mining operation is generally
a landscape of devastation: thou-
inated places. Mining companies
in the United States, for instance,
have thus far underestimated the
mine in Romania, when a tailings
dam failed, releasing more than
100,000 tons of wastewater laden
sands of hectares of poisoned, costs of closing their operations by with cyanide and heavy metals
rubble-strewn land drained by as much as $12 billion, according into the Tisza river. The toxic
acidified streams that will likely to a 2003 estimate. plume made its way into the
remain too polluted to support Danube, killing 1,240 tons of fish
And when the deposit runs out,
their full complement of life for and contaminating the drinking
the taxpayers have to step in to
thousands of years to come. water of 2.5 million people. Faced
pick up the tab. That’s what hap-
with skyrocketing cleanup costs
In many developing countries, the pened in Colorado in 1992 at the
and only partially covered by its
companies that have enriched Summitville gold mine, when the
insurance, Esmeralda Exploration,
themselves through this destruc- Canadian owner, Galactic
the Australian company that held
tion are under no binding obliga- Resources, declared bankruptcy
the principal interest in the mine,
tion to attempt to mitigate it. The and walked away, sticking US tax-
went into a form of bankruptcy to
Meridian proposal for Esquel, payers with a $200 million recla-
protect its shareholders. Unfor-
mentioned on page 11, is typical: mation bill. The 3,300-hectare
tunately, the citizens of the coun-
Argentinean regulations have not mine had been leaking cyanide
tries affected received no such pro-
required the firm to plan for the into the Alamosa River since its
mine’s closure or to deposit any first week of operation; by the
cash to cover the eventual clean-up. time it closed, it had destroyed 25 Taxpayer-funded reclamation is an
kilometers of the river. Galactic enormous, hidden subsidy of the
Wealthier countries like the United
had mined $130 million worth of mining industry. “Subsidy” may
States usually attempt to avoid this
metals at Summitville—a sum so not be the official term for such
end game by requiring (at least in
small it wouldn’t even cover the liability, but that’s how it is treat-
theory) that the mining company
mess it left behind. ed, even in the mining regulations
set aside a certain amount of
themselves. Despite decades of
money up front to cover expenses Or consider what happened in
experience with reclamation cost
necessary to meet environmental January 2000, at the Baia Mare
overruns, current regulations in
standards—money for water treat-
the United States allow mining
ment, tailings pond liners, and so
companies to underestimate those
on. But these funds have fallen far
costs as a matter of routine. And
short of the actual costs of even
in many other countries, compa-
basic reclamation work around
nies aren’t required to put up even
defunct mines, some of which are
a single peso or a rupiah.64
among the world’s most contam-
Photo: Tibor Kocsis

Fish kill from Baia

Mare mine, Romania