Natural resources can be a major contributor to development. For many developing countries the oil, gas and mining sector is a key economic factor. The production of raw materials accounts for more than 20% of GDP in more than 20 developing countries. Natural resources thus offer great opportunities for economic development.
The benefits developing countries derive from their natural resource wealth are largely determined by complex commercial investment agreements between the host country and (foreign) investors. These agreements regulate the allocation of costs, risks, profits and benefits. They can last for decades and have significant fiscal, economic, environmental and social impacts. Well-conceived and negotiated contracts for foreign investment can generate revenues, boost development and protect the interests of the host country and foreign investors.
However, many low-income countries lack the capacity to successfully conduct complex contract negotiations as well as to properly enforce and monitor the concluded contracts. As a result, poorly negotiated and implemented contracts often fail to maximize the potential benefits and instead may lead to loss of public revenues, corruption, resource and environmental degradation and depletion, safety hazards and social unrest.
Although a number of options for the support of developing countries in negotiating and implementing investment contracts in the extractives sector exist, there is room for improvement. Notable gaps include non-legal (fiscal, economic, social) and industry-specific expertise (geological, mining, environmental), sufficiently rapid support, strategic support that links natural resource investments to development strategies and a lack of mutual trust.
Against this background, the CONNEX Initiative was launched in 2014 by the G7 leaders with the objective to strengthen advisory support to low-income country governments in their negotiation of complex commercial contracts – to make the support that is available more comprehensive and more responsive to government’s needs and to contribute to fairer, more sustainable investment deals. This includes not only the provision of information and capacity building, but also the improvement of advisory services involved directly in contract negotiations.
In line with this objective, the CONNEX Initiative is built upon three pillars which complement each other to achieve the CONNEX Initiative’s goals.