World Bank calls on mineral dependent nations to diversify economies
Lusaka- Countries including Zambia Bolivia, Kazakhstan, and Mongolia that are heavily reliance on non-renewable natural resources should as a matter of urgency consider diversifying their economies from commodity dependence to alternative sectors and avoid being held at ransom, the World Bank has warned.
The economies of the three countries are heavily reliant on copper, and other extractive precious metals, and the World Bank warned of the possible risks facing those economies if they don’t diversify into other viable’ sectors. The reason that metal prices will continue plummeting on the short and medium term as demand continues to slow down globally.
Copper has been the mainstay of the Zambian economy since the early 1930s. Other sectors of economy including agriculture, manufacturing, and tourism were neglected.
Through its Independent Evaluation Group (IEG), the World Bank highlighted that the affected countries should urgently realise the importance of prudent resource management and sound economic fundamentals to foster economic growth than put all their energies in mineral resource, given the poor performance of commodities like copper and other metals for the past years.
The IEG evaluation report, cites Bolivia, Kazakhstan, Mongolia, and Zambia as four countries that have for long depended on non-renewable natural resources while overlooking the overriding possibilities of the commodities failing to perform to expectations internationally as is the case now where copper price, in particular have slumped to a US$4,500/lb and is headed for a further downturn of US$2/lb as demand from major consumers, China slows down, affecting their growth margins.
The report explores what these countries can do and learn from each other in order to better weather the cyclical nature of commodities markets.
The report also explored ways on how the Bretton Woods institution can partner with the affected countries through engaging more effectively with their resource-rich country clients.
Speaking at the report’s launch in Zambia, World Bank country manager for Zambia, Malawi and Zimbabwe, Ina-Marlene Ruthenberg notes that diversification into other viable economic sectors was more than urgent than ever before “as prices of the commodities on the international metal market fail to contend the price shocks faced globally”.
The bank has warned that Zambia’s economy is likely to slow down to three percent from an average four percent this year, but may probably pick up in the subsequent years as demand for commodities improves.
“This I believe will help Zambia with some coping mechanism each time the copper prices fall. We have come to learn about the cyclical nature of the copper prices and each time it falls, it brings about economic hardship particularly to the poor,” Ruthenberg has warned.
She however, reiterated the bank’s commitment to assist Zambia, and other commodity dependent countries to devise mechanisms that will reduce effect on people, many of them already wallowing abject poverty.
“The bank stands by Zambia and will help the country to prepare for potential copper price volatility by jointly exploring alternative scenarios and appropriate arrangements for sound fiscal management and monitoring over the medium-term as well as for developing contingency plans,” said the bank official.
The report titled “Zambia Economic Brief (December 2015)”projected that Zambia’s growth will fall below 4 percent in 2015 after years of 6.4 percent of average growth between 2010 and 2014.
Nick York, IEG’s Director for Human Development & Economic Management said diversification was the best option not only for Zambia but other resource dependent countries, including Bolivia, who has not yet initiated beneficiation from their wealth at the expense of their people.
York urged Zambia and other affected resource dependent countries to devise viable blueprints that will spur economic growth potential, one being diversification from mineral; dependence to other sectors.
He noted that: “The challenge for many countries is to design and implement the right human and social development investments. Beyond balancing fiscal prudence and diversification, continued social investment in sectors like health and education must remain a priority”. Zambia’s Vice-President Inonge Wina has admitted that the country needed to “develop a culture of monitoring and evaluating our development to plan smart”.
Wina noted the ministry of planning is consulting with various stakeholders in the country to ensure that the Seventh National Development Plan (NDP) is developed in a more coordinated and consultative manner.
The idea is that the NDP 7 is made to deliver outcomes that will practically contribute to achieving the country’s aspirations in the Vision 2030, of becoming “a prosperous middle-income nation by 2030”.
The IEG identifies three inter-related areas that resource-rich developing countries consistently grapple with.
These are the prudent management of revenues; economic diversification through finding growth and employment in the non-extractive sectors; and ensuring that the benefits of economic growth and revenues are widely shared within the society, contributing to human development, poverty reduction, and environmental sustainability.
The new IEG report comes on the back of another World Bank report, released last year, which painted a gloomy picture of many counties, chiefly in the Sub Saharan Africa that have failed to maximize on their mineral and natural wealth to develop their economies and fight poverty.
According to the Central Statistics Office of Zambia, poverty in rural areas is estimated around 83 percent with a paltry three percent having access to electricity, and surviving on less than US$1 per day. Poverty level in urban areas is estimated at 17 percent.