Resource-rich countries have a great opportunity to harness their natural wealth for transformative and sustained prosperity. But if mismanaged, resource extraction can impose severe costs on a country. As stewards of their extractive resources, it is typically the responsibility of governments to manage those resources for current and future generations.

Effective and sustainable resource management requires an inclusive and comprehensive national strategy. To achieve this, the government must make a series of key decisions that will affect different groups and set choices extending far into the future. To avoid making decisions in a piecemeal fashion and to build a shared sense of direction, governments should, in dialogue with stakeholders, use a national strategy process to guide extractive resource management decisions.

Consider the long-term

The national strategy should take a long-term approach, recognizing the fact that the transformation from wealth in the ground to wider societal benefits can take many years, and present many challenges and surprises along the way. If citizens are concerned about the welfare of their children and future generations, they should recognize that these future generations have a right to benefit from resource extraction and to be shielded from its inevitable impacts.

Include the public

A national strategy is more likely to be successful if it is the product of inclusive processes that are open and participatory. A plan debated in public will expose policy conflicts and inconsistencies sooner, constrain self-dealing and corruption, and render inevitable course corrections less disruptive. Decision makers should seek to incorporate the inputs of other stakeholders, ranging from government departments, parliament, and citizens directly affected by extraction, to civil society more broadly, as well as the extractive companies and private sector businesses in general. These groups provide the necessary understanding of issues that must be addressed in the planning process.

Because the extraction process can last many generations, decisions made in the present must be robust to the cycles of governments. This calls for building understanding and consensus from a critical mass of informed citizens. Actors outside the executive, including legislators, journalists, and civil society groups are guardians of the strategy, playing a scrutinizing role by holding decision-makers to account.

Ensure strategy is comprehensive

Taking a comprehensive approach provides governments with a framework to understand and better implement initiatives in the extractive sector. This should involve linking upstream and downstream industry decisions, environmental and community issues, the management of government revenues, and wider economic concerns.

Within the government this requires coordination and an authorizing environment across ministries of mines, energy, finance, planning and beyond. Given the intrinsically linked and overlapping challenges, inter-ministerial coordination is necessary. Strategic direction may best come straight from the executive office; alternatively, an overarching body representing each ministry may be useful in coordination and implementation.

Too often the transformation of resource wealth into prosperity fails not because of a lack of the correct economic policies, but because of a weak underlying system of governance. A successful strategy therefore not only requires an understanding of the economics, but also an appreciation for accountability, the structure and capability of government institutions, and the relationship with civil society.

Decide whether to open up areas for exploration

Opening up a country or a specific region within the country to exploration and extraction may not always be the best course of action. Negative impacts may outweigh the overall positive impact on the region home to production and the country more broadly. The potential economic beneifts of extraction however are often very large when viewed at the level of all citizens in the country. Governments can use tools such as strategic environmental assessments to help account for environmental impacts within the wider strategy-making process before irreversible decisions are enacted at project sites. If the costs are too high, it may not be feasible to replace the environmental value that is lost, or adequately compensate those adversely affected. In such cases countries may opt not to extract.

As part of this assessment, the government should consider the structure and capacity of the institutions and sectors that are expected to manage the processes along the decision chain, and may conclude that a country’s economy or governance system is not yet ready to effectively manage large windfalls. Staggering the timing of exploration and extraction may be one option in this case; it allows the staff of government institutions to learn from experience while managing their workload.

Form strategy early cognizant of future uncertainty

The government must make many decisions, such as the pace of licensing, taxation and what legal framework to create, before it signs contracts with companies. In addition, the government will have to make these decisions in an environment of uncertainty. Therefore, countries ought to initiate a strategy process as early as possible; the process should guide decision making yet remain adaptable to changing circumstances.

Translate strategy into a clear and coherent institutional framework

The rules, responsibilities and institutions governing the behavior of actors are central to optimal resource management. The challenge is to translate the guiding policies of a strategy into a clear and coherent framework of rules, along with competent institutions that can design, administer and enforce them. The government should build this framework in response to the specific and changing context of the extractive sector, and operate in a manner appropriate to the country’s economic and institutional context.

Governments ought to establish as much of the legal and regulatory framework as possible before allocating rights to companies. This helps to provide strong governance over decisions made with companies and provides some assurance to companies of the rules under which they will operate. Setting terms in law limits opportunities for discretionary action and increases transparency, but may restrict the ability to change rules in response to changing circumstances as the sector develops. An alternative to both legislation and contracts is to empower government agencies to regulate the extractive sector. Regulators properly capacitated and monitored can provide rules that respond to changing circumstances, filling in necessary details that legislation may lack.

Create competent institutions with a unified objective

For each institution, the government must assign coherent objectives in support of the country’s strategic plan. Further, the government must ensure that the public, the executive and the auditor general can monitor the actions of these institutions. The role of each institution must be well defined to avoid conflict of interest and gaps in responsibilities. Clarity concerning who makes the rules, who administers them, and who enforces them is very important.

Building and retaining capacity in government institutions is vital but challenging, particularly in the extractive sector, since the counterparts to the government are generally technically sophisticated companies. Part of this challenge is delegating roles to institutions in a manner that reflects integrity and transparency, rather than, for example, as a reward or mark of prestige. Ideally, human resource decisions made by government executives and within the institutions themselves should be independent and resistant to political interference in order to develop truly professional capacity. A meritocratic promotion system and a thoughtful human resource policy can instill efficiency and a professional civil service culture.

Finally, one of the major challenges for government institutions is to retain the best and most qualified staff. Employment in the private sector, or even state-owned extractive enterprises, can be particularly attractive for talented staff, whose departure for more attractive opportunities can constitute a continual drain on government institutions. Targeted salary and reward packages, opportunities for former government employees to return at a later date, and the fostering of professional working cultures in government institutions can help in this regard.

For more information about implementing the principles of the Natural Resource Charter precepts, click here.