9.3 Investment

9.3.1.  'Investing in Investing'

Too rapid an increase in public spending of resource wealth, as Chapter 8 has suggested, poses severe risks of deterioration in the quality of spending, in addition to possible macroeconomic risks. The case for placing resource revenues in a savings fund rests in good part on recognition of these risks. However, savings funds, a least in part, may be best regarded as simply buying time until the requisite capacity to spend effectively has been acquired. It is generally accepted that when that capacity has been acquired, revenues should be used disproportionately to fund investment rather than recurrent expenditure. With this in mind, good practice would recommend that earlier allocations of resource revenues be directed at ‘investments in investing’. Two areas meriting special attention under this heading are: policies and investments that facilitate and leverage private sector investment; and actions which increase the efficiency and effectiveness of public spending.

9.3.2.  Facilitating Private Sector Investment

Resource-rich developing countries can be expected to have big governments and corresponding expenditure programs based on substantial resource revenues. Private sector investment, however, is likely to remain of overwhelming importance in terms of potential for generating long-term sustainable growth and welfare. Policies that, while protecting the public interest, accommodate reasonable private sector interests and concerns are critical to ensuring its participation. Those interests and concerns are addressed in preceding chapters of this Source Book and include: clear, public elucidation of policies, and strategies for the resource sector; clear definition of roles and responsibilities among sector ministries and agencies; and legal, regulatory, contractual, and fiscal regimes consistent with good international practice. They also include (Chapter 6) credible, competent administrative capacity, developed internally, and/or complemented by professional technical assistance.

9.3.3.  Investment Priorities

As appropriate public sector capacity builds up and public sector investments grow in importance, consideration must be given to the identification of investment priorities. If the importance of private sector investment is accepted, governments would be best advised to avoid duplication and direct their investments towards areas which complement or act as a catalyst to private investment. Further, in the interests of safeguarding economic diversity, public investment should ideally concentrate on the non-resource sectors.  General purpose investments in social (i.e., education, health) and physical (i.e., roads, telecommunications) infrastructure investments are particularly suitable in both respects as they tend to raise the productivity of the whole economy. Public-private partnerships can provide attractive opportunities to leverage private sector investment in the provision of infrastructure to petroleum and mining operations, e.g., transport and/or port facilities. (It should be noted that a detailed paper on public infrastructure from the CSMI is available). Public support for the provision of domestic natural gas infrastructure (pipelines or processing facilities) may be particularly appropriate in that, while it represents an investment in the resource sector, it promotes economic diversity and employment through the supply of gas to power stations and local industry.  Without investing directly in core EI activities, many countries are now seeking to exploit linkages of the sectors to supply and service industries as a means to encourage development of domestic capacity and the domestic economy. The political appeal of direct investment in the EI sectors can prove very strong. Any significant equity investment in these sectors should be carefully considered, however, given the risks to public funds involved, the often urgent alternative uses for those funds, and the availability of private sector alternatives.

 


Within This Chapter

Mining Specifics

Oil & Gas Specifics

Africa

Latin America

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