Back in 1997 Jeffrey Sachs and Andrew Warner published, through Harvard University, their study Natural Resource Abundance and Economic Growth in which they argued that resource-poor countries find their economies outperform resource-rich countries.
They cited the 17th century when Netherlands outperformed Spain, even though the latter had vast flows of gold and silver from its Latin American conquests; of the present they cited the phenomenal growth of South Korea, Hong Kong and Taiwan. By contrast, they argued, resource-rich states were actually held back by exploitative activities.
The paper led to the widely accepted concept of the “resource curse” – that is, that developing countries were actually discouraged from nurturing a diverse and growing economy by the easy riches of allowing foreign companies to dig and ship all the mineral wealth.
The new study, The Contribution of the Mining Sector to Socioeconomic and Human Development, found that mineral wealth need not be a curse, in fact it demonstrated that a country’s well-being can be improved faster where mining fuels growth.
Although, it added the all-important caveat that appropriate structures must be in place to manage the large revenue inflows in a responsible and transparent manner (easier said than done in many parts of the developing world).
In the newest World Bank report, authors Gary McMahon and Susana Moreira have found that many, indeed most, of the world’s fastest growing economies since 2000 had been resource-rich, that they grew by 1% faster on average than similar non-mining countries.
I would add that this may be more than a little due to the commodity boom – whether mining had the same effect in the 1990s would be an interesting study. Still, the point is that mining can spur economic growth in developing countries.
In Chile, for example, the mining goods and services sector in 2011 employed 720,000 people, about 10% of the country’s workforce.
Just how dependent some companies are on mining is shown by the following list, showing mining exports as a percentage of total exports: Congo (De Rep), 90.6%; Mongolia, 87%; Zambia, 77.8%; Mali, 76%; Mozambique, 74.4%; Burkina Faso, 67.5$; and Mauritania, 66.1%.
The authors singled out Mongolia for attention. In 2011, the country’s exports of copper and iron ore reached a record $US1.4 billion, with the estimate for 2014 being between $6-7 billion. While a sizable share of the profits from mining would be repatriated, the government in Ulan Bator argued the mining boom would help Mongolia’s GDP to triple over the course of the present decade, important in a country where a third of the population still lived in poverty.
They also cited historical cases: namely, that in earlier times the US, Sweden, Canada and Australia all leveraged their mineral wealth for sustained and substantive development. However, the authors do state they were not out to prove or disprove the “resource curse” idea.
To add one point to this statement, none of the developing countries listed above has exactly used their resource income to do much to materially improve the living standards of their people – they are all still pretty much basket cases.
But, undeniably, there has been growth. In the 2001-2010 period, the following annual growth rates in GDP were achieved: Liberia, 11%; Ghana, 8.3%; Mongolia, 8.3%; Laos, 7.9%; Rwanda, 7.3%; and Mozambique, 6.9%.
And, even more money is going to pour into some of these countries. The forecast mining investment 2012-2017 includes (in US$): Guinea, up to $20 billion; Congo, up to $14 billion; and Mozambique, up to $11.6 billion.
There is no question that mining does provide a financial tool for governments to do some significant things for their people (if they choose to do so, rather than salting the cash away in Swiss bank accounts).
In Peru, 17.5% of government revenue from 2007-2011 came from mining royalties and the report said that 95% of the money was allocated to the mining regions, through various regional and local government organisations.
The study detailed the way mining had helped. In terms of annual GDP growth rates over the decade to 2010, mining lifted Ghana’s by 5.8% annually and Peru’s by 5.7%. The industry contributed post-2007, 19% of Ghana’s government revenue and 12% of Chile’s.
I don’t think we can say with any conviction that mining has been an unalloyed blessing, but then it seems to have been better than the alternative. And, this may be because it is driven by foreign companies operating in the private sector and hence profit-driven.
Many other parts of these countries’ economies are influenced either by domestic government policies or international agencies and foreign aid – after all the trillions of dollars involved in that since the 1960s, how much is there to show for that?
Perhaps the report’s real (if unintended) message is that the other parts of these economies should also be opened up to foreign companies, not just the miners.
If it hadn’t been for all those gains listed above from mining, those countries would be a good deal worse off than they are today.
