We have a unique opportunity to safeguard our mineral wealth, for all future generations.
We appeal to global civil society to come together to demand governments treat natural resources, including minerals, as a shared inheritance. The state is merely a trustee for the people and especially future generations. Mining is simply the sale of our family jewels, with royalty as the consideration received in exchange.
We've noticed what seems to be an obvious error in how governments treat royalty and other receipts from minerals. Right now, they are treated as "revenue", "income", "earnings", or "tax". We see mining as essentially the sale of the minerals with royalty (& other amounts) as the consideration. A capital receipt, not revenue.
We argue that this error impacts a number of things in the real world, leading to many of the resource curse symptoms. A principal channel is political discourse. Currently, politicians argue for mining based partly on government revenue (= lower taxes, patronage). Framed as the sale of inherited wealth, different questions come up. A related channel is the accounting itself. At present, if minerals worth 100 are sold for 70, government revenues increases by 70. More mining = more revenue = good. However, the true transaction is a loss of 30. More mining = more losses.
We also draw an analogy to selling inherited family jewels to purchase land, as land generates income. We derive three essential principles - zero loss when mining, save all mineral receipts in a Permanent Fund, and distribute only the real income only as a citizen's dividend. This has wide acceptability, is simple to communicate, and relatively easy to implement and sustain. It deals with many resource curse issues, and offers pathways to resolving extreme poverty, inequality, climate change and achieving the SDGs. And we show how resource rich countries during the China boom miserably failed to achieve the results this "passive benchmark" would achieve.
The global standards that need to be changed are (a) the accounting standards of the IPSASB (International Public Sector Accounting Standards Board), (b) IMF's Government Finance Statistics Manual (GFS) 2014, and (c) UN's System of National Accounts (SNA) 2008.
At present, natural resources is on the research agenda of the GFS as well as the SNA, but no working groups have been set up. IPSASB doesn't have a standard for natural resources.
IPSASB has set its draft work plan for public comments by June 30 (originally June 15). Their top priority is new standards for Natural Resources and Discount Rate.
Since both IPSASB and the IMF try to converge their standards with each other and the UN SNA, it may be possible to get the IMF as well as the UN to set up working groups. This would be a good starting point for getting sensible accounting for minerals and all natural resources.
CIVIL SOCIETY REPRESENTATIONS
A number of entities have already submitted responses to IPSASB. These include
David Leiser, President, IAAF - Economic Psychology Division
Bob Traa, Economist, ex-IMF
This fits into a larger body of work addressing the resource curse. Do read our overview article.