Natural Resources Can Play Key Role in Inclusive Growth

Andean countries generating increased exports from extractive industries

Suitable fiscal and regulatory frameworks needed to aid revenue management

Sound management of revenue needed to ensure benefits flow to future generations

The potential pitfalls and opportunities associated with natural resource revenue were the focus of the closing session of a three-day conference in Lima, Peru, where representatives from across the Andean region gathered March 3rd–5th to share insights and discuss best practices on natural resource management.

The countries of the Andean region are important commodity exporters. Extractive industries—mainly mining, petroleum, and natural gas—play a growing role in the economies of the region (see chart). With commodity prices tripling between 2000 and 2013, burgeoning export volumes have been accompanied by large capital inflows into the region, fostering economic growth and helping to boost tax revenue. But this has also posed challenges for governments as they attempt to invest and spend the revenue in ways to help their citizens.

“The countries of the Andean region have been successful in avoiding many of the pitfalls experienced by other natural resource-rich countries,” said IMF First Deputy Managing Director David Lipton. “For instance, their economies have demonstrated a strong ability to expand non-resource sectors of the economy, not least by ensuring adequate supply of skilled labor and capital to be utilized in them.”

Companies doing more

In most instances, the extractive industries in the Andean countries are not large employers. However, they can help generate employment in related activities, including construction and strengthening capacity in local communities.

Local communities in which resource developments are located usually have high expectations in terms of improvements in their living standards—ranging from direct cash transfers, higher employment, or infrastructure development. Sometimes, these communities oppose resource projects on environmental, social, and even economic grounds. Petroleum and mining companies have had to demonstrate their commitment to environmental stewardship, socially responsible practices, and support of local community development in order to allay community concerns.

Government role

For their part, governments need to provide investors with credible fiscal and regulatory regimes within which to explore, develop, and produce. Governments also need to meet...