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UN study confirms how severely commodities slump impacts fiscal income

UN study confirms how severely commodities slump impacts fiscal income

A study released this week by the United Nations University World Institute for Development Economics Research (UNU-WIDER) found that Namibia, among other low to middle-income countries, are 50% export dependent on minerals with the exception of coal.

The researchers, Alan Roe and Samantha Dodd say in the report that even if they were to focus only on minerals and ignore oil and gas, there are some 35 relatively low-income countries where extractive activity is of great importance to national wealth.

There are also four higher-middle-income countries, again featuring Namibia with Botswana, Suriname and Mongolia, among the 50 countries recording the highest levels of overall mineral export dependence.

The study prepared within the UNU-WIDER project on ‘Extractives for development’, is part of a larger research project on ‘Macro-economic management of 19 countries that are dependent on minerals including coal for over 50% of their exports.

The paper also evaluates how country levels of dependence have changed in the past twenty years, showing that there has been a clear upward trend that is ongoing in many countries despite the persistent drop in the prices of most minerals over the past four years. The study, in part, tries to assess some of the consequences of the price collapse.

Namibia is one of these countries, where despite the cyclical nature of the minerals and declining commodity prices, still about N$25 billion was generated through export earnings and N$1.4 billion in royalties from mineral rights holders, for the benefit of the State Revenue Fund.

The ranking of the Mining Contribution Index (MCI) show that for all 214 countries, among the top 50 countries no fewer than 31 are either low-income or lower-middle-income, as classified by the World Bank. The ranking examines the scale of the current dependence of low- and middle-income economies on extractive resources: metals, oil and gas.

The Ministry of Mines and Energy said in its 2017/2018 financial year budget motivation that similar to 2016, this year’s budget, is again being presented at a time when commodity prices remain largely depressed and in some cases have declined to levels that threaten the viability and sustainability of some prospecting and mining operations.

Whatever growth in export earnings have been realised or is expected, is mainly driven by diamonds and the base metals industry, especially the gold and copper cathode exports.

According to earlier statistics incorporated in the study, Namibia is 53.4 % dependent on the extractive industry, evidence the two researchers say, that underscores just how vital mineral exports are as a source of income for the fiscus.

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