10 Dec 2012

When Aid Is Good For Business

By Claire Parfitt
Who should aid benefit? A new report scrutinises business influence in aid programs such as AusAID's Mining for Development initiative, writes Claire Parfitt
The biennial Reality of Aid report was launched around the world this week, incorporating two chapters written by Australia's AID/WATCH. The focus of the new report is the role of the private sector in aid provision and its impact on the effectiveness of aid in reducing poverty and inequality. Since the 2011 OECD meeting on aid effectiveness, the private sector has been acknowledged as an "equal partner" in aid, with development agencies around the world increasingly teaming up with corporations in aid delivery.

The timing could not be better for a conversation about private influence in Australian aid. Cardno, one of AusAID's largest private contractual partners, is about to host a conference to explore how aid agencies and the mining industry can work together. The conference will include participants from the Australian Government, the World Bank, and the mining and extractive industries.

The Gillard Government commissioned an independent review of its aid effectiveness in 2011, resulting in a new policy framework outlining spending priorities for the next five years. Some positive changes were made following the recommendations of this review but a number of problems remain, including the link between the aid program and the promotion of Australia's national interest.

AusAID understands the "national interest" in terms of Australia's economic and security interests. It links poverty with political instability, radicalisation and the potential for Australia's neighbours to be "influenced" by other non-friendly countries. Australian aid is also described as "good for Australian business" because it opens markets in recipient countries for Australian exports, currently worth $90 billion annually.

AID/WATCH was founded 20 years ago on the principle that overseas development assistance provided by the Australian government should support an improved quality of life for the people it claims to assist. Though AID/WATCH campaigns have led to many improvements, we are still faced with an aid program that promotes the interests of Australian business over those of the people in the developing countries AusAID targets. The current $127 million Mining for Development initiative (AMDI), based on the dubious concept of "sustainable mining", is a typical example.

The AMDI is based on the idea that mining can reduce poverty by increasing economic growth, as long as the mining sector is well-managed and the government enforces strong regulation to ensure that the benefits of mining are shared and environmental impacts are minimised. Whether these potential benefits can be delivered is questionable.

Mining projects have long been associated with what is referred to as the "resource curse" (pdf). This curse refers to the dispossession of indigenous peoples and other communities from their land, irreversible environmental destruction, increasing economic and social inequality, government corruption, corporate rent-seeking and violent conflicts. Economically, over-dependence on mining as a source of activity can mean that other sources of industrial development are crowded-out.

Politically, high resource rents related to mining increase the possibility of corruption. Ecologically, mining causes local environmental damage and contributes to global problems like climate change and has inter-generational impacts through the exhaustion of non-renewable natural resources. These impacts are felt not only in the Global South, but also in countries such as Australia and Canada (pdf), which presumably have the "well-managed" mining sectors and suitable government regulation of industry that advocates of sustainable mining extol.

In Australia, the social and economic benefits of mining have been over-stated.  The mining boom has resulted in an increased concentration of economic wealth and political power, while exacerbating conflicts with Indigenous people over land rights, reducing the viability and competitiveness of other export industries and increasing the cost of living, particularly with respect to housing. Despite this awkward reality, AusAID argues that, as a "global leader in extractive industries", the Australian Government and mining industry can share their expertise and ensure that economic growth from mineral wealth translates to human development in the Global South.

In reality, the negative effects of a mining boom are likely to be amplified in less developed countries, as they have been in recent years. For example, in the 15 years following the discovery of oil in Equatorial Guinea in 1990, rapid economic growth rates of up to 10 per cent corresponded with a worsening of infant and under-five mortality rates by around 20 per cent. This is a story that has been repeated in resource-rich countries throughout the Global South.

Many of the developing countries which were already subject to AusAID's aid program rely heavily on mining including Papua New Guinea (PNG), where mining represents 81 per cent of exports, East Timor (97 per cent of exports), and Mongolia (59 per cent of exports). In addition, the AMDI ushers in a new focus for AusAID on resource-rich African nations such as Liberia, Ghana and Mozambique. The centrepiece of the AMDI is the International Mining for Development Centre, which is partnered with the Universities of Queensland and Western Australia. In March 2012, the centre hosted a forum that brought together African government ministers and mining executives with Australian and multinational corporations Rio Tinto, Woodside and Chevron.

AID / WATCH's contribution to the Reality of Aid report details two case studies from the AMDI, being the liquefied natural gas (LNG) project in PNG and the Australia Africa Partnerships Facility. In PNG, the Australian Government's Export Finance and Insurance Corporation (EFIC) is providing a US$350 million loan for the LNG project, while AusAID provides funding to support construction and management. Australian involvement is justified on the basis that Australian companies are likely to be awarded over AUS$1 billion worth of contracts.

The impacts of the "resource curse" are already being felt on the LNG project, including inequitable distribution of economic benefits, fraud and conflicts between customary landholders. ExxonMobil has engaged its own private security force to counter local resistance. This is aggravating tensions between local people, creating fears that the project may become the next Bougainville.

The Australia Africa Partnerships Facility (AAPF) will spend tens of millions of aid dollars on "helping African countries develop their mining sector and encouraging greater investment" and on building the profile of Australian mining companies in Africa, rather than food security, water and sanitation and health, as recommended by the recent independent review of Australia's aid effectiveness.

These examples demonstrate that while the government's sustainable mining agenda is playing an effective role in promoting Australian mining interests, it will not seriously address environmental and human rights abuses caused by the industry. These conclusions are supported by comments from organisations such as ActionAid, Jubilee Australia and Mining Action Philippines who have pointed to the poor social and ecological record of mining in Australia and in developing countries to illustrate that the AMDI is unlikely to bring the kinds of benefits it claims.

Australia's Mining for Development aid program is best characterised as an expensive exercise in corporate welfare, delivering direct financial and regulatory support to mining companies and indirect support through greenwashing these companies and rebranding their image as sustainable, with few prospects for alleviating poverty and inequality.

The author co-wrote a chapter of the Reality of Aid Report.

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This user is a New Matilda supporter. ErikH
Posted Tuesday, December 11, 2012 - 11:19

Yet another case of Government subsidising industry.

LukeMR
Posted Wednesday, December 12, 2012 - 01:44

This really gets me annoyed.

In almost any recent criticism of the mining activities of companies like Rio, BHP, AAMC, etc, the authors neglect to draw a comparison with the ramifications of alternative entities exploiting the minerals. Think:

- private (i.e. very opaque) companies,
- state owned companies
- artisanal mining,
- "junior" (i.e. inexperienced) miners etc,

These countries are not going to leave this wealth in the ground, they'll just let someone else do it. It could be an opaque state owned company with little in the way of policies and systems for e.g. environmental management etc, or it could be artisans. And "artisans" are often children, or people working as virtual slaves for warlords.

Australia has an extremely important role to play in fostering the most "sustainable" mining possible in developing nations. I invert commas on "sustainably" because obviously this is a loaded, multi-dimensional term. But it still has meaning nonetheless.

Mining "sustainably" is hard, especially in fragile contexts. But someone has to do it, or WILL do it. And we'd rather it be companies that for AT LEAST the last decade have made substantial investments in their practices, however imperfect. As unaccountable as they may be, they are still SUBSTANTIALLY more accountable than the alternative.

With the price of minerals where they are, it's actually less in the interests of a Rio Tinto to make a tough investment in e.g. Africa than ever before. This is reflected in their recent investment decisions. Why take such risks in a poor country when a single large iron ore project in an easy location like WA, somewhere that doesn't have the reputational and financial risks, nets such a large percentage of profits.

State backed companies, with their geo-political goals as well as financial...well, they'll have no such qualms. And they won't be signing any transparency treaties.