Riding the resource wave

With economic and social expectations rising in resource-rich countries, extractive companies must re-think how they do business.

The business of extracting resources could be increasingly lucrative in the years ahead, and it is crucial to the economic prospects of many countries. But it is also likely to become riskier and more complex, requiring extractive companies in both mining and oil and gas to rethink their business models. Specifically, that means shifting from an extraction mind-set to a development one in what we call “frontier regions”—places with unstable business and legal environments. Extractive companies must systematically learn the priorities of host governments and local communities, then forge partnerships to deliver on them. Such an approach can defuse tensions before they arise and make for a less volatile operating environment.

Ever since the wave of nationalizations of oil companies in the 1970s, extractive industries have operated in a relatively secure world. Much of production came from legacy assets in economies that are members of the Organisation for Economic Co-operation and Development, where the rules of the game were established, and the focus was largely on operational improvement. This era was characterized by relatively abundant access to critical inputs such as water. Governments earned stable fiscal flows and, given the fairly low profit margins that were standard, companies attracted less external scrutiny. This environment is changing rapidly.

Further reading: https://www.mckinsey.com/business-functions/sustainability/our-insights/riding-the-resource-wave