Preventing Conflict in Resource-Rich Countries? Start with the Value Chain

Extractive industries projects can have a transformational potential for a country’s development path, particularly if those resources are managed and invested effectively. Given the magnitude of many of these hydrocarbon or mining projects (think billions rather than millions), it is also expected that almost any extractive project will generate some level of conflict.

Conflict per se, however, is not necessarily negative. Conflict, when managed properly, can incentivize a country’s government (central and local), as well as companies and communities, to be more open and responsive to citizens’ needs; to their demands for improved wealth sharing and social services; and for more effective environmental and social safeguards.

The real challenge then is when those conflicts escalate in a destructive and violent manner, with resulting loss in lives, economic growth, potential investments, as well as lost infrastructure and services, therefore jeopardizing poverty reduction efforts.

One way to gain greater understanding regarding these conflicts’ underlying issues and dynamics is to “conflict-sensitize” the Extractive Industries Value Chain used by the World Bank and other partners. In a recent discussion paper, Preventing Conflict in Resource-Rich Countries, jointly produced with the UN, we explore the value chain’s potential as a framework for conflict prevention. The objective is to help policymakers and practitioners identify, preempt, and, if necessary, re-direct policy choices that tend to cause or exacerbate EI-related conflicts, as well as identify practical preventive actions in a more structured and systematic way.

Through literature review, interviews, preliminary observations and analysis from four countries (Chile, Peru, Zambia and the Democratic Republic of Congo), the paper illustrates the potential benefits and challenges of working along a conflict-sensitive value chain, pointing to ways a conflict prevention framework can help identify potential conflict risks and mitigation activities along the five links of the EI Value Chain. (See figure 1)

The preliminary insights gained through this analysis shed light on how a conflict-sensitive value chain could look like under various extractive industries contexts with diverse state capacity, legitimacy, and economic development (i.e. Chile and DRC).

In general terms, it also shows that working along an EI Value Chain that is not conflict-sensitive may actually exacerbate conflict, particularly in fragile environments, if its implementation does not take into account the potential conflict risks and mitigation actions. That is why it is critical to understand that a range of political choices -not just economic ones- weigh heavily on how extractive resources are managed, and are perhaps a decisive factor in whether or not there will be extractive-related violent conflict. In situations where the government (and companies/communities) are committed to avoiding EI conflict, a prevention framework through a conflict-sensitive value chain may offer a clear road map for achieving such a goal.

While there are no silver bullets that can be applied in every resource-rich country or extractive project, the report identifies some emerging themes, including:

Emerging themes

The first theme is that of the five links of the EI Value Chain, Link 1 (award of contracts and licenses) seems to be the one that most often determines the risk of conflict throughout the whole EI project. Much gets determined during a contract negotiation: revenue generation, project location and scale, site-specific environmental regulations, potential benefits for communities such as development agreements, local content policies, etc. That’s why it is critical for governments to negotiate contracts that will benefit communities close to the project site.

A second theme is that effective revenue management and allocation/sharing (Link 4) and the implementation of sustainable development policies/projects (Link 5) seem to be most instrumental in keeping and/or securing the peace dividends in the long term. Successful, visible and responsive benefit-sharing, as well as economic diversification policies, seem to help countries to create new employment opportunities and safety nets that help them weather volatile changes in the commodities market.

The third theme is that safeguards to prevent and mitigate conflict are often specific to the country (as well as to the project site) and reflect the political, cultural, and socio-economic history and reality of those particular environments and circumstances. Measures to prevent conflict in each link of the value chain must therefore be adapted to the country in question and project site context, as well as the prevailing political economy.

And the fourth theme is that, as a framework for conflict prevention, the value chain of the extractive sector should consider important steps even before the actual awards of contracts, such as the national strategic framework; the extractive sector legislation and regulations; and how the sector is organized and institutionalized. The value chain also needs to be in a position to capture potential conflict risks concerning the process of regulating and executing exploration and discovery, the approval process for construction, the construction phase itself, and site closure.

Other themes in the report include the communities’ lack of trust in government and companies as a major roadblock for project development/implementation and the need for confidence-building measures; the lack of governmental capacity, particularly at the sub-national level, for effective monitoring of EI projects; and the importance for all relevant parties to pursue earlier and more effective grassroots engagement with communities because local populations often feel overlooked, ignored or disrespected.

Conflict-sensitize

Increasingly, new extractive resources are being discovered in fragile or conflict-affected countries. As governments seek to develop such resources, they need to be mindful of the heightened risk of violent conflict that these resources may generate, and of the opportunities to mitigate these risks.

This report makes the case for using a “conflict-sensitive” EI Value Chain to offset, and proactively respond to risks that can be foreseen or prevented. Only by effectively preventing violent conflict will resource-rich countries be able to truly harness the transformational potential of their natural resources for the benefit of all.

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