Past editions of the Role of Mining in National Economies (ROMINE) have drawn attention to the significant contribution of mining and metals to the global economy and to the economies of an increasing number of low- and middle-income countries. This third edition, produced at a time of considerable turbulence in international commodity markets, shows that despite the metals prices downturn a great many low and middle-income economies remain dependent on the mineral sector. A dependence jolted only slightly by the commodity markets downturn.
This reinforces the need for the contribution of mining and metals to national economies to be thought about more strategically as a catalyst for sustainable development: a position contrary to much of the conventional commentary about the industry. The magnitude of its value to the economies of many lower-income countries gives it and its stakeholders a clear responsibility to be ever more conscious of how mining and metals might contribute to sustainable development. The potential for mining to contribute to the Sustainable Development Goals is the subject of a guest contribution from the United Nations Development Programme (UNDP) to this publication (see page 60).
This edition of ROMINE introduces an updated Mining Contribution Index (MCI) that synthesises into a single number the significance of the mining and metals sector’s contribution to over 180 national economies. It also adds a new indicator – mineral rents as a percentage of GDP – to those previously used to construct the MCI. Mineral rents are defined as production values minus ‘normal costs’ so they loosely approximate to the aggregation of tax and profit above ‘normal’ profits from mining. The indicators are each given equal weight in the index.
The MCI scores and rankings provide an indication of the relative importance of mining in the economic life of each of the 183 countries covered. However, whether or not a relatively high position on this Index ultimately translates into broader-based economic and social benefits for a country is a separate yet critically important question.
Overall, the MCI shows that the biggest mineral-producing countries (a list topped by China, Australia, Russia and the United States) are not necessarily those most economically dependent on mineral production. Of the 20 biggest mineral-producing countries, only Australia, the Democratic Republic of the Congo (DRC), Mozambique and Ukraine appear in the top 20 of the MCI.
* The third edition of the MCI incorporates a new indicator: mineral rents as a percentage of GDP. The previous MCI has been recalculated to include this indicator for purposes of showing the change in ranking.
It is predominantly in low- and middle-income countries that national economic life depends most heavily on mining. And this dependence has been increasing over the last two decades. The MCI confirms that many of the most mineral dependent countries continued to become even more dependent on the economic contribution of mining between 2011 and 2014, despite the fall in commodity prices. In light of this, getting the framework that governs mineral resources right will be increasingly important if governments are to insulate their economies from vulnerability to the commodity cycle.
The revised MCI – as a composite of four main quantitative indicators – is a useful starting point for understanding the extent of mining’s contributions to a country’s economy. However, it remains a compromise between what we would ideally like to measure and include and what can in practice be measured across all countries. In particular it does not yet capture some other highly significant contributions and factors that influence how effectively mining contributes to broader development. To begin to bridge this gap we have sought to supplement the MCI data with further analysis on the potential contribution of the mining and metals industry to government revenues and employment, and to reflect on the importance of governance.
Mining’s contribution to government revenues
The responsible stewardship of tax revenues is key to translating mining and metals contributions into long-term development. Available data suggests that mining’s contribution to government revenues in low- and middle-income countries can be significant, but is also highly variable between different economies (contributing anywhere between 2 and 20 per cent of total revenues, with some outliers), and is also often volatile. In the recent past, lower commodity prices have already led to fiscal problems in some national economies, creating the need for several countries to cut spending or increase borrowing.
Mining’s ability to generate jobs
Currently no reliable or comparable data is produced for all countries but what data exists suggests that mining typically contributes only around 1–2 per cent of total employment in a country – but when indirect and induced employment is included, this can jump to 3–15 per cent. The multiplier effect of the industry means that each loss of a mining job caused by the commodity price slump could have the knock-on effect of causing several more workers to lose their jobs.
The quality of governance
A well-governed country is more likely to maximise the contribution of mining by negotiating good terms with mining companies; collecting, managing and spending revenues wisely; and creating an enabling environment to enhance employment. Some indicators of governance exist, although as yet are insufficiently comprehensive to incorporate into the MCI. Evidence from both the World Bank (World Governance Indicators) and the Natural Resources Governance Institute (Natural Resources Governance Index) suggests that of the top 50 MCI-ranked countries, approximately 75 per cent are governed at levels below those considered satisfactory for good governance of natural resources. However, many do relatively well on measures of having in place appropriate institutional and legal settings, safeguards and quality controls. This creates a base on which to build.
Looking towards the future
As more comprehensive data become available, future editions of ROMINE and the MCI will work towards building a more nuanced understanding of the extent to which countries rely on mining – and how well they leverage mining for broader development. This will improve the value of the MCI and ensure that it provides a regular and useful basis for assessing mining’s role in the global economy and in individual mining economies.