Chain of prosperity

How do the linkages work between the overall economic contributation of a major mining group and regional economic development stimulated by its projects? Nicolas Di Boscio examines the challenges and opportunities.

In 2003, the World Bank Extractive Industry Review relaunched its proposition that resource rich countries grow more slowly than resource poor countries. This proposition falls into the domain of macroeconomic governance and there is a clear limit to what companies can do about it.

However, questions of "microeconomic" management, an area in which large companies could make an impact, didn't make it to the top of the agenda, perhaps partially because of the lack of rigorous analyses available.

Bringing the focus back to this other side of the discussion, we come to a whole series of questions: what is the effect of mining projects at the regional and local level? How do local economies cope with the economic stimulus from large mines? And perhaps more importantly, under which circumstances can a large scale mine maximize its potential to promote economic development?

If we look at the year 2003, the total economic contribution from Rio Tinto - its gross turnover - was US$11.7bn. This figure, however, underestimates the overall contribution from the company because it ignores the mutually reinforcing and interdependent nature of economic life.

The actual benefit is much larger once the multiplier effects on the rest of the economy are included, reflecting the indirect activities of suppliers, the economic activity induced by workers spending their wages, or from the circulation of distributed profits and taxes.