Economy-Wide Impact Of A Mineral Project In A Developing Country: A Graphic Illustration

The issue of evaluating the economic impact of large mineral projects in developing countries was studied by the use of econometric models. The evaluating system is demonstrated by its application to an example from Namibia. Three-dimensional graphics are used to illustrate the procedures leading to an assessment of the economic effects of the mineral development. The analysis allows the assessment of the overall economic consequences of mineral developments where there is a need to incorporate in the evaluation issues that are broader in scope than the pure financial objectives. Sets of technical coefficients are exploited for the development of input-output models of the productive structure of an economy. The models are refined to incorporate country-specific behaviours. The increased flexibility of the enhanced semi-input-output model permits a more confident investigation of the economy wide effects associated with a new project in the mineral sector of a developing country. Synthetic measures of profitability at market and shadow prices are introduced, and the cost/benefit ratio is used to rank mineral projects according to their economic profitability. The cost is the capital mobilized for the development of the project and for increasing the productive capacity of the related satellite industries. The benefits are identified with the economy-wide increase in value added induced by the project. 80th costs and benefits are initially valued at market prices. Their ratio is likely to be an index of economic profitability superior to measures that concentrate exclusively on the benefit side of projects. To allow for market distortions, the concept of shadow prices is introduced, and accordingly project-related costs and benefits are re-evaluated. A new cost/benefit ratio at shadow prices is recalculated, which is more meaningful to the policy-maker than decision-making based on socio-economic issues.