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The extractive industries (EI) sector occupies an outsize space in the economies of many developing countries. Policy makers, economists and public finance professionals working in such countries are frequently confronted with issues that require an in-depth understanding of the sector, its economics, governance, and policy challenges, as well as t...
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The extractive industries (EI) sector occupies an outsize space in the economies of many developing countries. Policy makers, economists, and public finance professionals working in such countries are frequently confronted with issues that require an in-depth understanding of the sector, its economics, governance, and policy challenges, as well as...
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... Although the risks stemming from conflicts make it more likely that MNEs will exercise abandonment options, subsidiaries engaged in natural resourceseeking operations have increased value as switching options. In general, MNEs seeking to engage in natural resource-seeking operations face unique challenges of coping with the local government and various stakeholders in their host countries (Halland et al., 2015;Oh et al., 2020;Shapiro et al., 2018). Accordingly, MNEs seeking natural resources often engage in various activities to build relationships with local government authorities and political parties. ...
... The ability to secure natural resources at a relatively low cost by using a switching option is likely to add greater value to the MNE when the risk is not restricted to the host country (when the magnitude of uncertainty is greater). Although the outbreak of exogenous shocks often leads to disruptions in supply, it may also increase the price of natural resources owing to commodity price fluctuation (Halland et al., 2015;Hitt et al., 2021;Shapiro et al., 2018). For example, during the COVID-19 pandemic, the prices of copper, iron ore, and uranium have risen significantly, ranging from 5 to 32 percent (McKinsey, 2020). ...
... In Model 3, the moderating effect of natural resource-seeking operations on operational exposure is found to be negative and statistically significant (Hazard ratio = 0.7347, p < 0.01). This significant decrease in hazard ratio provides support for Hypothesis 2, suggesting that conducting natural resource-seeking operation increases the subsidiary's value as a switching option within its MNE network (Halland et al., 2015;Shapiro et al., 2018;Skovoroda et al., 2019). The result of the interaction between operational overlap and operational exposure is displayed in Model 4. In line with our prediction, the results show a positive and statistically significant coefficient (β = 1.3076, p < 0.01), supporting Hypothesis 3. ...
This study aims to open the black box of heterogeneous responses to violent conflicts by focusing on subsidiaries’ operational exposure to violent conflict and their decisions to exit host countries. Drawing on real options theory, we propose a viable approach multinational enterprises can take when they encounter violent conflicts in their operating locations. Our analysis of 3,479 foreign subsidiaries operating in 11 countries over 26 years suggests that the exit decision of any given subsidiary located in a conflict-affected country depends on its operational scope. However, this effect depends on the characteristics of the operations the subsidiary undertakes, specifically, whether the subsidiary conducts natural resource-seeking operations and the degree of operational overlap with the same-parent affiliates.
... The extractive industries play a dominant economic, social, and political role in the lives of nearly 3.5 billion people living in 81 countries across the world. The extractive industries sector accounts for at least 20% of exports and government revenues in twenty low-and middle-income countries (Halland et al., 2015). Hailu & Kipgen's Extractive Dependence Index (EDI) (2017) shows that all countries dependent on extractive resources are developing economies. ...
A B S T R A C T: The extractive industries (oil, gas, and mining) play a dominant economic, social, and political role in the lives of approximately 3.5 billion people living in 81 countries across the world. However, the benefits of extractive industries come at a cost that is no longer limited to the “natural resource curse” but also includes greenhouse gas emissions, pollution, and biodiversity losses. This paper revisits the links between man-made and natural capital in developing countries, focusing on forest cover loss1. Considering a theoretical model of income maximization, we assess through empirical observation the impact of extractive industries on forest cover loss. Based on a panel of 52 resource-rich developing countries over the period 2001–2017, we adopt a dynamic specification with the two-step Generalized Method of Moments (GMM) system to address the inherent bias. Our main results show a detrimental effect of the total rent from the extractive industries on the forest cover but suggest non-homogenous impacts according to the type of rent. More specifically, mineral and gas rents contribute to accelerating forest cover loss. In contrast, oil rents and resource tax revenues contribute to reducing forest cover loss. Our results can be interpreted as in a “polluter pays” situation, where a fair share of the profits is earmarked obligatorily to compensate for the environmental damage caused by the exploitation of extractive industries. To promote corporate environmental management, stakeholders must overcome regulatory inefficiencies in exploration and exploitation contracts so that environmental compensation is at least equal to the marginal damage caused by the extractive industries.
Keywords: Extractive industries (oil, mineral, and gas), Resource taxation, Deforestation
JEL classification: C33 H23 Q32 Q5 H5
... Second, extractive projects are usually large-scale and capital intensive, with long gestation periods (Halland, Lokanc, & Nair, 2015), often located in developing countries with challenging institutional environments and multiple diverse stakeholders (Cameron & Stanley, 2017;Shapiro et al., 2018), and frequently occupy an "outsize space in the economies of many resource-rich countries" (Halland et al., 2015, p. 1). These characteristics mean there is often plenty of time and motivation for stakeholders to become dissatisfied and act in ways that might threaten legitimacy and the EIM's SLO (Oh et al., 2020). ...
... Not only can they be sited in less visible locations, they are also more easily divided into smaller units and distributed across multiple sites. Moreover, because processing does not generally require such long-term commitment as extraction, the political importance of the project is usually not as salient to host governments as extractive operations (Halland et al., 2015). Third, a smaller range of stakeholders tend to be impacted by processing operations compared with extraction because processing operations usually cause less environmental and social disruption compared with that inherent in extractive operations (Kapelus, 2002;Prno, 2013;Slack, 2012). ...
... We can expect EIMs that diversify internationally by establishing marketing, sales, and distribution activities abroad, meanwhile, to face the least legitimacy and SLO challenges. Compared to extractive and processing subsidiaries, they face lower risks of causing environmental damage or industrial accidents (Halland et al., 2015). Moreover, because very few EIMs market consumer products under their own brand names (exceptions are mostly oil majors such as Exxon, BP, and Shell), the public does not necessarily make the connection between the commodity and the EIM (Casarin et al., 2020). ...
Research Summary
This article examines how different international diversification strategies impact the legitimacy challenges multinationals face and the way they manage their corporate and social responsibilities. Analyzing these questions in a sample of companies in extractive industries, we find that those who pursue resource‐seeking investments that involve locating extraction operations overseas respond with the largest improvement in their corporate‐level social performance (CSP). Those pursuing efficiency‐seeking by establishing processing subsidiaries abroad increase their CSP less, with the smallest increase for those pursuing market‐seeking through marketing and sales operations overseas. For each type of activity established overseas, the increase in CSP becomes greater the more developed the company's home country and the larger its international footprint, but is not dependent on the host country's level of development. These findings suggest that, in today's globalized world, the legitimacy challenges that result from subsidiaries' activities increasingly need to be managed at a global, corporate level.
Managerial Summary
This article investigates the relationships between different international diversification strategies, the different legitimacy challenges they create, and corporate‐level social performance (CSP) responses. For multinationals operating in the extractive industries, we find important legitimacy spillovers from different types of subsidiary activities on the corporation, but these also vary, leading it to respond with differential increases in global CSP. These increases are greatest for resource‐seeking diversification, involving the location of extractive activities abroad, moderate for efficiency‐seeking diversification, involving the location of processing activities and least for market‐seeking diversification, involving the location of marketing and sales activities. For each type of subsidiary activity, we also find that the increases in CSP are larger the more developed the company's home country and the larger its international footprint, but are not dependent on the host country's level of development. We show how these results extend existing theory and draw implications for management practice.
... The capacity of resource nationalism to bring about the promised changes in economic structure have attracted significant criticism (Brand et al., 2016). In particular, the establishment of production linkages around natural resources and the localisation of more knowledge-intensive activities has been limited (Teka, 2012, Tordo and Anouti, 2013, Halland et al., 2015, Venables, 2016 or concentrated in high-income urban centres (CEPAL, 2016, López, 2017, Atienza et al., 2018. Contrary to expectations, rises in commodity prices coupled with higher volumes of production have given rise to the opposite: the share of primary goods in the export portfolio has increased (Ocampo, 2017). ...
This paper analyses the dynamics of the relationship between the state and foreign firms in the context of resource nationalism, focusing specifically on lithium industrialisation policy in Bolivia. The paper examines three particular developments in the context of the country's lithium industrialisation strategy: the pursuit of a radical resource nationalism by the state; the subsequent transition towards a moderate nationalistic approach, more open to collaboration with foreign firms; and the repeal of a joint venture created with a German firm to produce lithium compounds. The analysis underscores the importance of reflecting critically on political processes at the sub-national level, and drawing on this knowledge to inform and guide resource policy. It is concluded from this case study of lithium policy in Bolivia that the evolution of resource nationalism should not only be examined by taking into account financial and technological factors alone. Rather, a multi-scalar frame of analysis which considers the social relations in local territories is needed to appreciate fully the impact of resource nationalism.
... However, the resource bonus seems to be a curse rather than a blessing (Auty, 1994;Sachs and Warner, 1995). Causes often cited to explain resource curse include Dutch disease, insufficient or inefficient investment (including human capital), lack of fiscal discipline, institutional decay, and macroeconomic instability (see Gylfason, 2001;Halland et al., 2015). ...
... Besides, tax competition between countries forces the implementation of incentives to attract capital; this is detrimental to tax revenues from traditional public economics and would require coordination or cooperation in tax matters between States. However, tax coordination is impossible under the assumption of a Nash equilibrium in the presence of tax (Halland et al., 2015). However, the reliance on resource revenue poses challenges to policymakers, and governments must play an essential role in how resource revenues are used. ...
This paper assesses the "treatment effect" of the Extractive Industries Transparency Initiative (EITI) membership on tax revenues through two main channels. The first (direct) works through an equitable and transparent resource tax regime. The second is the indirect effect EITI has on non-resource revenue once transparency enhances accountability and resource allocation to productive expenditures. Based on a sample of 83 resource-rich developing countries (44 EITI and 39 non-EITI) for the period from 1995 to 2017, we use propensity score matching (PSM) methods developed in the treatment effect literature to address the self-selection bias associated with EITI membership (the dates of countries' commitment, candidacy, and compliance). Results show that EITI commitment and/or candidates have significant and positive effects on tax revenue collection, compared to non-EITI (on average 1.06 to 1.20 percentage points), and the EITI compliance generates a considerable surplus of tax revenues (on average 1.09 to 1.13 percentage points of GDP), compared to non-compliant (commitment and candidate). Besides, the magnitudes of the effects are greater and more significant if we include governance indicators. The results are robust, with a more significant increase in non-resource tax revenues and income tax. The paper reveals that EITI members have higher levels of tax revenue than non-members and that tax revenue is higher when countries are compliant with the initiative, even higher with quality of governance, and heterogeneous due to structural factors.
Keywords: Natural resources; Extractive Industries; Governance; Transparency; Evaluation; Domestic revenue mobilization.
JEL Classification: C33; E62; O19; H2; Q32
... En términos generales, los resultados obtenidos no han colmado las expectativas que tenían los programas en relación con la creación de capacidades y eslabonamientos locales. Ello se debe, en muchos casos, a la falta de capacidad de los actores locales para llevar adelante tareas complejas o a gran escala (Teka, 2012;Tordo and Anouti, 2013;Halland et al., 2015;Venables, 2016) o a la asimetría que existe entre éstos y las grandes empresas operadoras (Bridge, 2008;Pietrobelli et al., 2018). Asimismo, los resultados positivos se concentraron en mayor medida en centros urbanos, muchas veces alejados de las áreas mineras, es decir, aquellos que ya concentraban los mayores recursos de conocimiento (CEPAL, 2016;López, 2017;Atienza et al., 2018). ...
Durante más de una década, desde comienzos de los 2000, los países exportadores de materias primas se vieron beneficiados por un aumento en sus términos de intercambio. La bonanza motivó una serie de estrategias para promover la diversificación del tejido económico, a partir de la creación de eslabonamientos productivos vinculados a los recursos naturales. El litio ofrece un caso crucial para analizar estas estrategias. En primer término, se trata de un elemento crítico en la actual transición global hacia una economía menos dependiente de combustibles fósiles. En segundo lugar, los países
del así llamado triángulo del litio —Argentina, Bolivia y Chile— dan cuenta del 58% de los recursos mundiales de litio, y tienen también un papel de moderada importancia en la producción. Por último, estos países vieron en el recurso un insumo estratégico con potencial para desempeñar un rol importante en el desarrollo económico de cada país a partir del papel de la ciencia y la tecnología. El documento analiza las estrategias tecnoproductivas adoptadas en cada caso para alcanzar este último objetivo. Los instrumentos de política utilizados para la implementación de estas estrategias
han estado fuertemente condicionados por el marco normativo que configura el régimen de propiedad, las modalidades de acceso y de explotación, y la disponibilidad final del recurso para su realización en el mercado. Del análisis resulta que Chile y, sobre todo, Bolivia, implementaron estrategias tendientes a mejorar la captación de renta por parte del Estado y a localizar actividades productivas relacionadas con el procesamiento del litio. En el caso de Chile es el sector privado el que asume la función productiva, mientras que en Bolivia es el Estado el que lidera este proceso a través de una empresa pública.
El caso de la Argentina ofrece un panorama distinto, con la conjunción de tres elementos significativos: un marco normativo poco favorable al desarrollo de políticas productivas, visiones encontradas sobre la estrategia correcta, y falta de coordinación entre provincias y niveles de gobierno. Todo ello ha resultado en que las políticas implementadas en nuestro país persigan objetivos fragmentados. Adicionalmente, las políticas para promover eslabonamientos productivos y el desarrollo de capacidades tecnológicas fueron comparativamente más débiles y contaron con menores recursos. El trabajo presenta algunas ideas sobre el proceso necesario para la construcción de una agenda
estratégica en relación con el litio en la Argentina. Para avanzar en esa dirección resulta imprescindible superar las tensiones entre las visiones extractivista e industrialista sobre el recurso, de modo de construir una alternativa que aspire, al mismo tiempo, a aumentar el volumen de producción y a promover el desarrollo de capacidades tecnológicas y productivas. El proceso de construcción de esa agenda debe ser abierto, incorporando en su definición a los actores productivos, al sistema de ciencia y técnica, a las comunidades que habitan en las zonas aledañas al recurso y a organizaciones de la sociedad civil que trabajen sobre aspectos ambientales. La implementación de esta agenda requiere también diseñar una cartera de proyectos orientados a la construcción de capacidades tecnológicas y productivas. Su inspiración debe estar en las políticas de innovación orientadas por la idea de misión, políticas que aspiren a la factibilidad económica y cuyo diseño resulte de un proceso colaborativo entre gobierno y sociedad civil, y entre distintos niveles de gobierno.
... The key in successful experiences of resource-based development has been the ability to involve a large number of actors in creating, adopting and diffusing new knowledge across the economic structure, based on resource-related innovation activities (Wright and Czelusta 2004;Morris et al., 2012;Halland et al., 2015;Venables 2016;López 2017;Katz and Pietrobelli 2018). The literature also highlights the importance of institutions favouring the diffusion of such knowledge by promoting collaboration among firms, universities and research institutes around innovation and capacity-building activities (Ville and Wicken 2012). ...
... The literature also highlights the importance of institutions favouring the diffusion of such knowledge by promoting collaboration among firms, universities and research institutes around innovation and capacity-building activities (Ville and Wicken 2012). The policy toolbox included publicly funded R&D projects, training programs for domestic suppliers, local content provisions, and rules allowing local firms to compete on an equal footing in mining firms' tenders (Sasson and Blomgren, 2011;Urzúa 2012;Ville and Wicken 2012;Tordo and Anouti 2013;Hunter 2014;Halland et al., 2015;CEPAL 2016). ...
... In practice, the outcomes of these policy strategies felt short of expectations. The creation of linkages was limited and most domestic firms proved unable to get involved in technologically complex tasks, where they faced the competition of well-established international suppliers (Teka 2012;Tordo and Anouti 2013;Halland et al., 2015;Venables 2016). In the case of Chile, for instance, some selected projects were successful in addressing the technological challenges. ...
This paper contributes to the literature on resource-based development by analysing the opportunities and obstacles faced by linkage-development initiatives adopted in Argentina around lithium. A case study research has been designed that analyses two dimensions of the lithium-ion battery (LIB) global production network (GPN). Firstly, the dynamics of the lithium-ion battery GPN within which lithium is produced and consumed. Secondly, the multi-level governance scheme, shaped by a system of norms put in place by the federal and provincial governments, that regulates the access, exploitation and use of lithium in Argentina. The article finds that the development of forward linkages faces significant hurdles. The obstacles mainly arise from the lack of capabilities to produce LIBs in a competitive manner, since both the technology and markets are dominated by firms operating in a few Asian countries. Moreover, the normative frame in Argentina is not conductive for firms to localize lithium-processing activities in the country. The development of production backward linkages, although not unproblematic, is benefitted by pressures to raise the productivity levels of lithium exploitations and to improve the quality of lithium products; by the availability of location-specific capabilities; and by social and environmental domestic concerns which may create incentives for some technological solutions to be developed locally. The paper concludes that the effective development of resource based linkages would highly benefit from an aligned strategic vision among the relevant stakeholders of the system, including the federal and provincial governments, local and foreign firms, and the scientific community.
... New oil and gas discoveries are being made in Mozambique, South Sudan and Ethiopia; the Ogaden Basin alone contains 8 trillion cubic feet of natural gas reserves -worth a potential $7 billion a year once at full capacity. Between 2000 and 2012, expansion of the mineral extractive sector increased foreign direct investment into Africa from $10 billion to $50 billion (Halland et al., 2015). ...
... For Malawi, the exhaustible, non-renewable character of resources requires thorough consideration of extraction rates, fiscal regimes, and allocation of revenues between investment, consumption and foreign savings with questions of intergenerational equity coming into play. Ensuring frameworks that promote linkages and protect the rights of residents in mining communities and the environment are also essential (Halland et al. 2015). ...
... Yet many countries abundant with resources are said to be under the "resource curse" (Auty 1994) when the relationship between economic growth and the extractive export share of gross domestic product is negative (Sachs and Warner 1995). A number of other elements of this 'curse', extending beyond slow economic growth, have been explored: violent conflict (Collier and Hoeffler 2005, corrupt and ineffective governance, authoritarian and undemocratic rule (Ross 2001;Acemoglu and Robinson 2006), capital flight and increased inequality (Halland et al. 2015). The so-called curse is not inevitable, and the theory has been contested for sub-Saharan Africa in that the rise of resource rents in the 1990s was accompanied by economic growth, democracy taking root and reducing violent political conflict (Alence 2015). ...
In comparison to its neighbours, especially Zambia, Malawi’s geological potential remained largely untapped during the Federation of the Rhodesias and Nyasaland. In Kamuzu’s thirty-year rule, he was famed for saying that “We have no minerals. The soil is our gold mine”. In the 1990s, small-scale mining was targeted for “pro-poor growth” and later, during the upturn in commodity prices, Malawi’s growth and development strategies introduced mining as a key priority area for economic growth. The 2000s saw a global move to invest in minerals;
exploration in Malawi increased and the first large-scale mine began production, making significant contributions to GDP at the time. This article examines the positioning and repositioning of Malawi’s potential, explored and produced minerals in the country’s socio-economic development narrative. The more recent touted potential by some investors, government officials, politicians, and civil society and contestations between these and other stakeholders are also explored
with a view to suggest possible trajectories and tensions in Malawi’s extractives sector in the future. A discussion of how Malawi’s mineral wealth might contribute to socio-economic development and sustainable growth is framed by the African Union’s Africa Mining Vision (2009) that has been informed by regional efforts, such as the Southern African Development Community Protocol on Mining (1997), both of which Malawi has endorsed.
... Royalties -Royalty collection as indicated by Otto et al. (2006) is a payment to the owner of the mineral resource in return for the removal of the minerals from the land. Royalties are relatively simple to administer from an accounting perspective but require significant and highly specialized capacity for physical audit, including specialized skills in mineralogy to determine ore grades, volumes, and value (Halland et al., 2015). In Zambia, royalty is a share of the government and not related to the project affected people/communities. ...
Cut-off grade optimisation is an important step in any production planning setting. Being cognizant of this fact, it is imperative that this parameter be optimised. One of the earliest applied method of determining the optimal cut-off grade is the Lane algorithm. In this paper the Lane algorithm has been modified to encompass ad valorem mineral royalty. This is done with the objective of exhuming the relationship between the rate of ad valorem mineral royalty and optimal cut-off grade using the profit function. Results show that encompassing mineral royalty in the Lane algorithm increases the cut-off grade and reduces the total achievable profit of a mining project. Additionally, results show that there is a positive linear relationship between the ad valorem mineral royalty rate and optimal cut-off grade.
