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(DAILY MAIL ZM) Diversifying the economy: Reducing risks from mining

Diversifying the economy: Reducing risks from mining
June 20, 2012 |

MINING MATTERS By CHAMBERS OF MINES ZAMBIA

THE present over-dependence on copper is true to the proverbial saying of ‘putting all eggs in one basket’. It has been apparent, from many stakeholders in the economy, that the mines hold the key to the country’s overall economic growth through increased GDP, tax revenues, spill-over effects to other sectors of the economy and employment.

This line of thought has inevitably led to stakeholders exerting a lot of pressure on the mines to contribute much more than they are doing, often regardless of the world economic environmental factors and the risks against which the sector is operating.

Specifically, there is often little consideration of the costs of production of individual mines because typically, revenues are taken as the yard stick in the performance of the mines.
There is, therefore, a strong case for policy measures to be implemented that facilitate the growth of other sectors in order to reduce this burden on the mines. For instance, the mines are not large job creators due to the capital intensity of their operations, yet agriculture and manufacturing could employ larger numbers of people. Statistics show that the country’s potential in agriculture is not fully exploited. Out of a total of 7.5 million hectares of land, 4.2 million (58 percent) hectares are classified as medium to high potential for agricultural production while 12 percent is suitable for arable production, with only an estimated 14 percent currently cultivated.
These two sectors, agriculture and manufacturing, also have the greatest potential for creating value-addition compared to mining. The tourism sector also holds greater potential to create jobs at various skill levels than mining. Each of these other sectors individually and collectively would substantially add to economic growth; increase the tax base and earn foreign exchange.
Getting other sectors moving, so to say, cushions the economy from externally-induced shocks and internal imbalances from time to time. For instance, the effects on the Zambian economy of reduced demand for copper and the consequential low world prices could be off-set by exports of processed agricultural goods or electricity; ensuring stability of the exchange rate of the Kwacha and keeping inflation low.
There is also a long-term perspective to this. The mines are a wasting asset and sooner or later, the ore will finish. It is also acknowledged in economics that the mines have a technical life and an economic life. The technical life refers to the size of the ore reserves and the extractive period given a specific technology. This can go on for the period of the ore availability. But there is also the economic life; which can be any time soon. This refers to viability of mining operations. This is influenced by many economic factors, including demand, supply and prices; financial markets; developments in technology; changes in fiscal and monetary policies, among others. Each of these has the potential to make mining not viable and mines can close, like some did during the world financial crisis of 2008. Most mineral-dependent countries without a diversified economic base were caught truly napping, budgets were thrown to the wind, jobs were lost, inflation rose, shortages of goods and services were experienced and some governments almost crumbled due to discontents.
There is, therefore, more to the need for the diversification of the economy away from mining to other sectors but should not mean abandoning mining. Info@mines.co.zm

Labels: CHAMBER OF MINES, ECONOMIC DIVERSIFICATION, MINING

posted by MrK @ 6:00 PM