Latest update April 29th, 2024 3:41 AM
Jan 07, 2012 News
– Oxford Study
Guyana is said to be among 20 countries globally that are becoming increasingly dependent on the exportation of non-fuel minerals, and this may spell trouble for this South American nation, if a recent Oxford Policy Management study is anything to go by.
The study noted that countries that depend on either non-fuel or fuel minerals are also more likely than other countries to suffer from institutional governance problems such as corruption and political instability
Based on the International Monetary Fund’s (IMF) definition of export dependence, a country is termed mineral-dependent if minerals account for 25 percent or more of the value of its merchandise exports.
The study said the more than 20 low- and middle-income countries have become dangerously dependent on the exports of minerals such as metals and hydrocarbons.
It was noted that non-fuel, mineral-dependent countries are more likely to have lower economic development than other countries, including countries dependent on oil and other fuel minerals.
The report analyses the recent evolution of mineral dependence among low- and middle-income countries, including their relative vulnerability to the ‘resource curse.’
In their research, Oxford Policy Management found “a significant negative correlation between overall institutional development and both non-fuel and fuel-dependence.
The number of low- and middle-income countries that depend on minerals for more than 25 percent of their tangible exports – defined as ‘mineral-dependent’ countries – increased by more than 30 percent between 1996 and 2010, from 46 to 61 countries.
Governments, donors, industry and non-government stakeholders all have a strong interest in helping countries avoid the resource-curse trap.
Indeed, there is evidence that the recent boom in mineral dependence is taking place within an environment that recognises previous policy mistakes, based on a better understanding of both benefits and costs of minerals extraction.
For example, a growing number of countries are seeking validation of their compliance with the Extractive Industries Transparency Initiative (EITI).
Elsewhere, the International Finance Corporation has developed Performance Standards for environmental and social safeguards for large-scale extractive industry operators, which have been adopted by project financing banks the Equator Principles which now cover some three-quarters of global project finance.
Large inflows of foreign exchange into a small, developing economy can easily have strong negative macroeconomic impacts.
Appreciation of the local currency is one of the most detrimental of these, and results from the exchange of large, often dollar-denominated, receipts into illiquid local currencies.
Even where exchange rates are fixed, the adverse economic impacts remain: the increased spending puts upward pressure on the so-called real exchange rate (RER) by driving price inflation and higher costs for local producers.
It was further noted that these higher costs undermine the competitiveness of exporting sectors that employ many more people than mining, such as manufacturing and agriculture.
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