# **I. Introduction**

The surge in commodity prices over the past decade has played a pivotal role in spurring faster growth in low-income countries (LICs). As industry exploration and investment spending climbed to record highs, a spate of commodity discoveries—notably “giant” oil and gas discoveries in East and West Africa—has transformed the long-term growth outlook in several countries (World Bank 2015a and b).<sup>2</sup> Mining has expanded rapidly in many LICs in Sub-Saharan Africa over the past decade. For example, the number of active industrial gold mines reached historic highs by 2011 across Sub-Saharan Africa after half a decade of soaring gold prices (Tolonen 2015).

However, with the post-2011 slide in commodity prices, industry spending on investment has dropped sharply.<sup>3</sup> In Africa, the number of oil rigs for on-land drilling has fallen by 40 percent from their peak in Q1 2014 (Figure 1) and mining production has been disrupted in Sierra Leone and Democratic Republic of Congo (DRC). There are risks of delays in major mining and energy projects under development in East African LICs that could affect growth prospects. In Uganda, for instance, slower-than-anticipated infrastructure development has already delayed oil production start dates, from 2016 to as late as 2020. In Tanzania and Mozambique, final investment decisions on major LNG projects have been repeatedly delayed (Bennot 2015).<sup>4</sup> In Afghanistan, investment plans for the development of copper and iron ore mines leased for development in 2008 and 2012 have been significantly scaled back.

Project delays are detrimental for several reasons. They prolong the period of heightened vulnerabilities associated with the pre-production investment and delay the boost to growth that is typically associated with production. Additional concerns arise in hydrocarbon projects where delays may increase the risk of “stranded assets” as global efforts to tackle climate change induce a shift towards less carbon-intensive technologies and greater energy efficiency (Stevens et. al. 2015, Carbon Tracker Initiative 2004, McGlade and Ekins 2015).<sup>5</sup> Such stranded assets pose financial and growth risks to the companies that own or operate them and the governments that back them.

This working paper discusses the evolution of macroeconomic vulnerabilities during the development of major resource discoveries, the impact of slowing commodity prices on development times, and policies to shorten these times. The analysis rests on a data set for gold and copper discoveries worldwide since 1950 (proprietary to MinEx Consulting). Over this period, gold and copper discoveries have accounted for two-thirds of non-ferrous discoveries.

> 2 “Giant” fields are conventional fields with recoverable reserves of 500 million barrels of oil equivalent or more. Despite the increasing importance of unconventional shale oil and gas fields, current and future oil and gas supply is dominated by conventional giant fields (Bai and Xu 2014). 3 The drop in industry investment has partly reflected growing concerns about misallocation of capital expenditures into exploration over the past decade (McIntosh 2015).

> 4 Coal projects in Mozambique are reportedly losing money, because of the slump in coal prices, and inadequate infrastructure (Almeida Santos, Roffarello, and Filipe 2015).

> 5 “Stranded assets” refer to resource capacity, specifically for hydrocarbons (coal, oil, gas), that remains unused as the world reduces its hydrocarbon consumption in order to reduce risks arising from climate change (Carbon Tracker Initiative, 2004, McGlade and Ekins 2015).

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