ABSTRACT
The literature suggests that large capital-intensive mining investments create infl ated expectations of local benefi ts mainly because an unusually high share of the mining revenue fl ows abroad to service foreign capital. In addition, fi scal linkage (taxation) dominates domestic linkages and tends to accrue to the national government, so that local mining communities may be inadequately compensated for the environmental, social and economic costs of production. Inadequate compensation is evident in the Caspian hydrocarbon fi elds. However, mining companies increasingly see enhanced local welfare as a condition for project viability. This chapter identifi es three ways to maximise local welfare and argues that multinational corporations (MNCs) should: (i) establish a stakeholder committee prior to investment to identify realistic expectations for local benefi ts and to coordinate their realization; (ii) promote local business formation to sustain the economy when mineral extraction ceases; and (iii) underpin business formation by strengthening social capital at both the local level and at the national level. The adaptation of PSAs to promote enterprise formation within early reform zones (ERZs) can help large mining projects not only to boost local welfare but also to function as catalysts for national economic reform.
