Wednesday, August 10, 2022

Mining boom does not pose resource curse threat

A number of growth studies have shown the same pattern relating to the discovery of natural resources. The studies have shown that the discovery of natural resources may in fact be a curse as opposed to a blessing because a majority of resource rich countries have tended to experience diminished economic growth. The worst fear attached to the discovery of natural treasures for economic purposes has been the displacement of growth essential sectors such as manufacturing, which ultimately leads to the Dutch disease (dependency on one commodity). The question now is: with anticipated economic surge from the mining sector in the next few years, will Botswana not be affected by the curse? A number of new mines in the fields of copper, nickel and diamond are lined to start operation in less than two years.

Economic commentators were this week confident that Botswana would escape both the curse and the disease. Instead, they were of the view that the country would benefit a lot from the “big push” theory.

Leutlwetse Tumelo, an investment analyst at a stock ÔÇô broking firm, Capital Securities, was of the view that “anything that is good always has a negative thing to it.” However, he said the value of what would be gained from the mining activity outweighs the negative impact. Already, he asserted that the northern part of the country, which is billed to receive a lot of the mining windfall, is benefiting in many ways. The property market is one such sector that is reported to be doing well as a result of the mining. But will Botswana’s economic base ever be broadened away from mining?

“Although the country might not be diversifying away from mining, the economy is diversifying within the mining through down stream beneficiation in the diamond sector and opening of refineries for copper,” he explained.

He anticipated that other down stream sectors would feel the trickle down effect. The other concern related to the mining boom is that traded goods sectors would be crowded out of the labour market as mining companies tend to have more recruiting power. The competition for scarce skills in technical jobs would be intense and only the highest bidder, in this case, the mining magnate, would be emerge victorious.

“At the end of the day, it would all be about competition for the labour resources, and, frankly, I think there is nothing wrong with it,” he said.
International trade lecturer at the University of Botswana, Dr Oupa Tsheko, echoed the same sentiments. He said analyzing the impact of the anticipated mining boom in the general economy history shows that Botswana has been able to absorb the problems associated with the boom.

“The Government has in the past been able to absorb the Dutch disease problem. Government has partly managed this by investing in the reserves,” he lamented.

He said the critical issue to be tackled would be the currency fluctuations management, particularly appreciation of the domestic unit against major trading currencies. On the diversification programme, he wondered why the matter is always used loosely.

“Diversification cannot be done for the sake of it. We should diversify into key sectors ÔÇô sectors that can yield returns on investment rather than spending on sectors that cannot even compete regionally or internationally,” he said.

He added that mining would be beneficial because it would even reduce trade deficit with neighbouring South Africa “which is a good thing. Manufacturing in the context of the Botswana economy is depended on intermediary inputs, so when we analyze the resource curse and the Dutch disease, we should look at it in the context of the Botswana economy.”

On the labour issue, the UB lecturer said diversification should not be pursued at the expense of household’s income because that would also hurt the general economy.

“Industries that cannot afford labour or those that would lose labour at the hands of mining companies would have to look elsewhere if they cannot source labour from within, we are now living in a global economy,” he explained.

It is not the first time the issue of mining implications would have in the economy. Last year, the International Monetary Fund (IMF) published a working paper on the subject by Atushi Limi. The paper, “Did Botswana escape the resource curse”, was conclusive that since the discovery of diamonds, the country became an exception to the resource curse theory. However, Limi was somewhat inconclusive on the issue of the Dutch disease. He acknowledged the deterioration on the terms of trade but could not effectively link it to the Dutch disease, saying no clear evidence can be found. “Finally, it is debatable whether Botswana has suffered from the typical Dutch disease syndrome,” said Limi.


Read this week's paper