Policy Options

At a Glance
  • Options available to governments seeking to influence downstream processing decisions on the part of private investors can consultwith investors to identify and remedy obstacles to downstream integration, provide economic incentives for downstream investment, or ban the export of unprocessed products.
  • The most commonly employed economic incentive is a tax on the export of unprocessed material.
  • Government measures to enhance downstream production may form part of an agreement in the awarding of mineral rights.
  • Some countries may use mineral development agreements with individual companies that cover downstream processing in combination with other aspects of local content.

Governments seeking to influence downstream processing decisions on the part of private investors utilize one or more of the following options:

  • Consult with potential investors in order to identify and remedy obstacles to downstream integration
  • Provide economic incentives for investments downstream. These economic incentives can be divided into three categories:
    • Export taxes on unprocessed products
    • Favourable tax treatment and investment incentives for downstream processing
    • Provision of cheap inputs to downstream production via subsidies
  • Ban the export of unprocessed products

Government consultation with potential investors such that obstacles are identified, and plans are jointly determined in order to address these obstacles is a common strategy to assess what opportunities for downstream beneficiation are the most realistic. Consultation processes also allow for potential investors to understand the position of government and the resources that government is prepared to commit to establish downstream production.

Economic incentives are frequently employed in order to influence firms to invest downstream. The most commonly employed economic incentive is a tax on the export of unprocessed material. Outright export bans on unprocessed products are not common.

Government measures to enhance downstream production may form part of an agreement in the awarding of mineral rights. In the oil and gas sectors, agreements that define rights and obligations of government and companies are almost universal. However, there is very important distinction between the oil and gas and the mining industry, in that it is far more common for oil and gas companies to be involved in the entire value chain. Shell for example carries out activity all the way from exploration to the actual retail sale of gas to consumers, and this scenario is very rare in the mining industry (De Beers diamond mining and retail is an exception).

Agreements are less common and often more restricted in scope for nonfuel minerals. For nonfuel minerals conditions are instead usually defined in law. Nevertheless, even where conditions are defined in law, some countries may additionally use mineral development agreements with individual companies that cover downstream processing in addition to other aspects of local content.[1]

View footnotes

[1] Olle Ostenson and Anton Loft, Downstream Activities. The Possibilities and the Realities. WIDER Working Paper 2017/113, (Helsinki: UNU-WIDER, 2017), 14-17

Key Resources