In a wide-reaching and much-anticipated new report, due to be released on 27 May 2022 by Premier Consult, renowned economist Prof. Oliver Saasa has joined forces with economic statistician Mr. Shebo Nalishebo to delve into an under-researched subject of national importance: What tangible effects do investments in the mining sector actually have on ordinary Zambians?
The report, entitled Evaluation of Economic Impact of Planned First Quantum Minerals Investments in Zambia, takes a wide-angled view to examine the macro-economic effects of two of First Quantum Minerals’ (FQM’s) newly-announced investments: a $1.25 billion investment into the expansion of Kansanshi mine’s operations, and a $100 million investment to bring the miner’s $250 million Enterprise nickel project online in Kalumbila.
Using a combination of original research and public domain data, the report – commissioned by FQM – is unprecedented in its aim to track “how far each dollar of investment into the mining sector goes,” as Prof. Saasa put it, so that potential impacts may be better understood and fully taken advantage of in future.
Mining For Zambia sat down with Prof. Saasa and Mr. Nalishebo, the report’s co-authors, to get a sneak preview.
Mr. Nalishebo, you’re an economic statistician who has collaborated with Prof. Saasa on several Premier Consult projects. Tell us about the experience that led to you working on a report about the measurable effects of mining investments.
Mr. Nalishebo: I’ve got 20 years of experience in statistics, socioeconomic policy analysis, and related research. I call myself an “economic statistician” because of my background at the Zambia Statistics Agency, where I spent 12 years crunching numbers. I computed GDP and the Index of Industrial Production, and also led Zambia’s first-ever economic census, which was used to benchmark and rebase the country’s GDP from 1994 to 2010. The input-output analysis [a branch of quantitative economics] that we used to evaluate the economy-wide effects of the mining sector basically stems from that experience.
I also spent a few years at the Zambia Institute For Policy Analysis and Research (ZIPAR), one of the top think tanks in the country, where I used to do public finance research.
Premier Consult’s forthcoming report measures the future economic impact of the investments announced by FQM. Why are forecasts about economic impacts – and evaluations of existing investments – so important?
Prof. Saasa: If we want to maximise the impact of mining for the benefit of the ordinary Zambian, the first step is understanding the impact of mining. You see, the value of mining is not just determined by the quantity of taxes acquired from the mining sector. The sector accounts for over 70% of foreign exchange receipts. You are talking about a sector that is so strategic, it’s like oxygen to the country – and more so in Zambia in particular, because of the nature of our economy, where approximately 75% of businesses are in the informal sector.
The effects of direct employment as a result of investment in a mine extend far beyond the employees or contractors who are hired. This is one example of what we call economic multiplier effects, which we have attempted to quantify in our report.
“If we want to maximise the impact of mining for the benefit of the ordinary Zambian, the first step is understanding the impact of mining.”
Could you explain in simple terms how economic multipliers are calculated?
Prof. Saasa: It helps to understand that, fundamentally, there are two broad groups into which multiplier effects can be categorised. First, there are multiplier effects that stem from interdependencies between productive sectors of the economy. These inter-industry (or “Input-Output”) effects arise out of extra demand for domestically-produced goods or services from, for instance, the Enterprise Nickel Project. This then leads to an increase in demand for raw materials, or other goods and services. Growing demand for goods or services then triggers increased production by suppliers. Multiplier effects due to production linkages like these are considered “indirect multiplier effects”.
The second group of multiplier effect relates to increases in incomes paid to employees and contractors, which extend to communities or households. As an example, one salary from a job in a mine generates income that may be enjoyed by multiple family members. With the surplus income, one family member might start a small business in the informal sector with as little as a cash injection of ZMK 2000. This example falls under the category of “induced multiplier effects”.
The family member who started the business will then be liable to pay tax on their earnings and, as their business grows, they may employ people who in turn contribute to the Treasury via the taxes they pay. And then there are the businesses that supply goods to that original small business I mentioned. Those suppliers may hire employees too, whose jobs were created because there is demand for what they supply. The effects ripple outwards. Without a mine like FQM creating that new job and employing that first person, no one further down the chain would benefit. So, we are looking at a much, much broader picture than the average person imagines. Mining’s contribution to the economy extends far beyond taxes and mineral royalties.
It’s a bit technical, but I would refer readers to Appendix 10, where there are details on how we arrived at the input-output multipliers that we calculated.
“As an example, one salary from a job in a mine generates income that may be enjoyed by multiple family members. The effects ripple outwards.”
Prof. Saasa has been talking about the importance of recognising economic multiplier effects for several years. Have the multiplier effects within Zambia’s mining industry been quantified before?
Mr. Nalishebo: As far as I know, it’s just Premier Consult that has done this kind of quantitative research on Zambia’s mining sector. Within Zambia there are a limited number of people who understand input-output analysis and are able to quantify it. The Zambia Statistics Agency has referred the Ministry of Finance to me in the past, when they needed someone to employ input-output analysis.
Taking the time to find out ex ante – ahead of time – what the impact of new Government policies or measures will be is really important because, all too often, the resulting impacts come as a surprise to policymakers. This is why we have spent considerable time looking at what these new investments will entail, and what the likely impacts will be. It also comes down to the fact that in Zambia there always tends to be criticism about the mining sector not contributing enough to the economy, regardless of the contributions that have actually been made – particularly outside the Copperbelt and North-Western Province where the positive effects are self-evident to the thousands of beneficiaries.
Prof. Saasa: Indeed. Understanding that the contribution of the country’s most strategic sector does not stop at the Treasury is what we really hope to demonstrate in our forthcoming report.
Look out for the highlights of Premier Consult’s report this Friday on our social media platforms, and our exclusive follow-up interview with Prof. Saasa and Mr. Nalishebo in the next couple of weeks. Or simply send your address to firstname.lastname@example.org to receive an email the minute it’s published.