BACKGROUND

8. Throughout the concept and design stages, the Panel was emphatic that the project should proceed only when it fully met four overarching principles. These were:

• Principle #1. The project’s design must pass the test of accepted international best practices of economic, social and environmental stewardship, including those specifically pertaining to extractive industries such as the stipulations of the Extractive Industries Transparency Initiative;
• Principle #2. Far from being a stand alone private investment, the project would be integrated into a much larger regional socio-economic development effort, thereby avoiding the enclave traps that have characterized so many extractive industry investments in developing countries;
• Principle #3. A legal framework under enforceable Madagascar law would commit the project to clear and measurable obligations and commitments at local, regional and national levels; and
• Principle #4. Arrangements would be in place for independent monitoring and transparent reporting on all commitments and undertakings.

9. In late 2006, when the project entered its initial construction phase, these principles had been embedded in the structure and explicit commitments of the project. The new port and the mine had been designed as catalysts to the regions development and as part of a much larger and more ambitious Regional Development Plan. This was supported by a World Bank financed Integrated Growth Pole program ( Ple Intégré de Croissance – PIC)for the Anosy region which had been established in part as complement to QMMs investment plans. The mining project had been designed to function as one part of a multi partnership effort involving national, regional and local governments, international development and civil society organizations and the Regional Development Committee (CRD). A legally binding framework agreement had been signed which stipulated QMMs obligations and independent monitoring of all project commitments. The National Environment Office ( Office National de lEnvironnement - ONE) had been mandated to conduct regular and fully independent monitoring, evaluation and reporting on the performance of the project.

10. In sum, the many years of consultations, planning and pre-investment studies had culminated in setting the performance bar for the project at a very high level. Over its

projected operational lifetime of about 40 years, the project was to be held to account for a “Net Positive Impact (NPI)”, economically, socially and environmentally.

11. The construction phase of the project (2006-2009) generated an unprecedented level of economic activity in the Anosy region. Infrastructure construction (a new port, roads, water supply and electrical power) generated approximately 4,500 jobs and up to three times that number of induced jobs. Spin-offs resulted in the rise of new businesses. Plans and commitments for additional publicly-financed infrastructure investments were advanced quickly during this period (e.g. a road that would link the interior to the new port to be financed by the European Union and the African Development Bank).

12. In retrospect, however, the magnitude and intensity of inward investment in the region generated unrealizable expectations. The Panel had warned about this in earlier reports. It was never going to be easy to prevent local and regional expectations from an unrealistic upward spiral. The many years of consultations and planning which involved all parties (i.e. QMM, local authorities, the regional government and civil society organizations) were not enough to prepare local populations for the “boom” of the construction period and for the “bust” that followed it. Even if such efforts had been doubled or trebled, it is not clear that expectations would have been significantly dampened or disappointments avoided. Rapid change inevitably generates degrees of short-term disruption, all the more so in contexts of extreme poverty. Nevertheless, the facts are that the intensity of the construction phase generated a short-term price inflation spike in the local economy. This was especially evident in housing and in food costs that impacted most heavily on the very poor. In addition, the benefits flowing from the high investment levels of the construction period exacerbated regional inequalities and generated resentments.

13. On the other hand, mitigation measures taken during the construction phase prevented the social catastrophes that some had predicted would be caused by extensive in-migration. The overall balance sheet at the beginning of 2009 seemed broadly positive, with the promise of continuing inward investment to the region, some permanent employment and income gains, important spin-off demands for entrepreneurial activity to provide goods and services, continuing improvements to the region’s basic infrastructure and the opening up of agricultural export potential from the interior of Anosy.