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Is Mining A Curse?
Rini Novrianti Sutardjo Tui, ST, MBA, MT
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Measurement of Mineral Dependence
It is linked (or not linked) to domestic economic activities.
Itd be appropriate to examine the size of mineral sector relative
to the overall economy.
Affects the national economy. Itd be appropriate to investigate
mineral export relative to total export.
How government collects and uses mineral revenue. Itd be
appropriate to look at government revenues from mineral
production.
International Trade
Result of mining
Governmental
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Poor Performance External Forces
Long-term trends in commodity prices Relatively to the prices of
manufactured goods. It argues that relative commodity prices are
falling over the longer term.
Short-term volatility of commodity prices The argument is that
commodity prices are more volatile than prices of other goods and
services.
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Poor Performance Internal Stresses
1
A booming commodity sector, which exports to a world market. The
expansion or boom in exports may be caused by several factors.
2
A traditional export sector, which is not experiencing a boom.
In many cases, this is manufacturing or agriculture.
3
A non-traded sector, which produces goods or services that are
not imported or exported because of prohibitively high costs of
transport. Many services are non-traded.
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The Dutch Disease
To the extent that there are stresses associated with
adjusting to change
If governments respond to political pressure and intervene to
protect
the industries hurt by the structural change
If the boom in mineral exports is temporary, and it is difficult
to restart the traditional export
industries that shrank
Dutch Disease
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Poor Performance Political Economy
Government protects sectors affected by the mineral boom
Governments respond to expanding mineral production and prospect of
contracting production of other exports by protecting these
shrinking sectors through tariffs, quotas, or other trade
restrictions.
Effect of on the strength and quality of government institutions
Mineral wealth--with a considerable degree of determinism--leads to
weak, inefficient, and sometimes corrupt institutions, which in
turn lead to poor economic performance.
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Economic Effects Regional Perspective
Direct effects are measured by minings contribution to gross
domestic product and hourly earnings of mining sector.
Region as a whole Emphasizes the economic
contribution of mining to the regional economy
Linkages and multipliers consist of forward linkage, backward
linkage, final demand linkage, fiscal linkage. Multiplier is the
size of linkage.
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Multipliers
A region's industry structure
A region's location
The total effect of an economic divided by the
initial direct effect
Multiplier
A region's size
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Economic Effects Project Perspective
External effects
Presence of market distortions due to
government
Time and risk preferences
Ex ante
When considering whether to
undertake an investment opportunity
Ex post
When reviewing the performance
of previous investments
Whose benefits and costs count
Which benefits and costs count
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Economic Rents
Ricardian or differential rent is a concept that observed
higher-quality mineral deposits will fetch higher prices per unit
of mineral than low-quality deposits therefore deserve higher
rental rates.
Hotelling rent is that portion of the value of a mineral deposit
attributable to the limited physical availability of the resource;
it is that portion of the price at which a mineral deposit is sold
in the market place that is due to physical scarcity.
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Challenges in Managing Wealth
Creation Distribution Political Investment
Mineral wealth be created in the first place, consistent with
social preferences for environmental quality and other social and
cultural values
Mineral wealth be shared equitably--more specifically sharing of
the surpluses or economics rents from mineral production
Broader economic and political effects of mineral development,
and their potential problems, be understood and managed
Economic benefits of mining be sustained--even as a mine
inevitably is depleted
