top of page
  • vsvijay103

Role of a Strong Mining Industry in GDP Growth

A strong mining industry guarantees a healthy GDP growth of its country. In 2015, the mining industry of Canada earned a staggering 60.3 billion dollars, making up 3.3% of the total GDP of the country.

The mining industry plays an important role in the country’s economy especially when the majority of its exports are minerals. It is mostly the low or middle income countries whose national economic life depends most heavily on mining.

In recent times, a stable mining industry has proven to be the success-engine of many developing countries that have efficiently used their mineral resources and harvested its true potential.

The mining industry makes the country strong by generating high fiscal revenues, producing employment opportunities for millions of the locals, helping other industries to flourish and most importantly by making the country self-sufficient in producing energy.

· Mining industry and fiscal revenues

When minerals or metals are monetized, the revenue is shared between four main stakeholders: suppliers, employees, government and investors…In terms of socioeconomic development, the shares received by government, employees and suppliers are the most important…”

If managed according to the book, the mining industry can produce extensive revenue via taxes that will support the growth of a country.

An appropriate fiscal term creates a balance between the organization that is investing and the interest of the country. Fiscal terms for the mining industry should be penned down, keeping the following factors in mind:

· There might be a possibility that the mineral deposits of a country are limited, so it is important for the governing body to devise such policies, rules and regulations by which the state can potentially make the most of and generate enough to compensate the natural resources of the country being depleted.

· It should be kept in mind by the concerned government officials that before starting a mining project, a huge amount of investment is required.

· The mining projects involve high political and geological risks that can give arise to technical uncertainties and price variations. However, on the brighter side, the extractive revenues generated by exporting the mineral wealth can contribute to a dominant share of the county’s economical growth.

A fiscal regime that fails to fulfill the above mentioned aspects fails the criteria of being a successful one and it is empty of the incentives that can grab attention of a potential investor. Thus, resulting in unachievable goals set by the government and falls short of compensating the country for its depleting natural resources, this can give a rise to civilian discontent and national instability.

· Mining industry and employment opportunities

According to a rough estimate, the mining industry provides direct and indirect employment to around 25 million people worldwide. Despite of such a huge number of employments, this industry is not considered as a significant contributor towards global employment.

The mining industry not only creates just mining related jobs but also produces other indirect jobs by creating a demand of goods and services. A single mining project can spend millions of dollars on the machinery, equipment, daily maintenance, food items and other services. This creates a small industry in itself because providing daily goods for a large number of people and other aspects, a large workforce would also be required.

This outcome is called as multipliers effect which every industry generates, but the spillover effect caused by the needs of the mining industry is significantly greater as compared to the other industrial sectors.

It is observed that the number of indirect employments paved by the mining industry is notably more than direct jobs. If we take the example of the mining project carried out in the Yanacocha mine in Peru, it was observed that for every 1 direct employment there were 14 people who were employed indirectly.

· Export of the minerals

The GDP of countries depend on the export of their natural resources. Mineral resources represent a vast percentage of wealth in some countries. There are situations where exports of such products dwarf the export of all other resources.

Some countries also restrict their mineral to a certain point for increasing the value of their natural resources and creating jobs in the downstream processing industries. This helps the local industries because they get raw material on lower prices and this policy also has the tendency to create more job opportunities on a domestic level.

On the other side, governing bodies also use the export restriction policy for generating revenues by restricting export of illegally mined minerals and also for enhancing environmental protection.

Reports published by the Organization for Economic Co-operation and Development (OECD), an intergovernmental economic organization, suggest that export restriction policies not always have the desired effect on the economy. There is a possibility that a government will fail to achieve its desired goals by implementing such restrictions and in some cases it might even damage the mining industry and country’s economical growth.

A study was conducted to find out the effects of the restrictions imposed by the 5 African states on the export of different metals and minerals. The goal of the restriction was to encourage the downstream processing of the local industries, but the desired results were not achieved in any of the 5 states.

· Effect on other local industries

Every major industry uses minerals and raw metals every day. The roads that are built and the concrete which enables these skyscrapers to stand tall, all are made by using different kinds of mined raw materials.

Almost all the products manufactured contain some percentage of materials extracted by the mining sector. If we take an example of a normal Smartphone, the production of which needs at least 50 kinds of different minerals and metals.

Therefore when these mineral resources are utilized properly, they can help lower down the import costs of raw materials which will result in low production cost of various products, ultimately translating to public contentment.

· Conclusion

The importance of the mining industry has always been underestimated. The economic role that this industry plays in the growth of GDP of a country is crucial. The future initiatives will continue to explore ways to improve the scope and content of the MCI to ensure that it provides a regular and useful basis for assessing mining’s role in the global economy and in individual mining economies.

All the above facts highlight the importance of this industry and how it contributes to the wealth of a country. Without this industry every other sector’s progress may hinder, especially industries related to the manufacturing business.

At the end of the day, no raw material means one simple thing: no production.

24 views0 comments


bottom of page