Artisanal and small-scale mining as an extralegal economy: De Soto and the redefinition of “formalization”

This paper addresses the role of formalization in artisanal and small-scale mining (ASM) in sub-Saharan Africa, focusing specifically on Uganda. Most ASM activity occurs outside mainstream legal economies, occupying a hazy world of informal, yet essential, economic activity. There is an emerging consensus that formalization must be part of any strategy to develop the ASM sector. However, the meaning of formalization is not always clear; nor how formalization contributes to economic development. While formalization can be defined in a number of ways, it is argued here that formalizing ASM should be understood in the context of Hernando De Soto's theory of “extralegality”. In this framework, formalization is the means of absorbing existing customary practices—developed informally by miners—into the mainstream of a country's legal and economic affairs. This concept of formalization is applied to the case of Uganda, where, despite official formalization policies on the books, ASM continues to operate outside the formal economy. It is argued that to make formalization work, miners must also be “capitalized” in ways that permit them to move from transient artisanal mining, to more sustainable small- and medium-scale mining. International development organizations can help to facilitate the transition of ASM from an extralegal to a legal economy by creating revolving loan funds, and helping to carry the risk of lending money to miners.