The governments of countries blessed with mineral resources should strategise to ensure that mineral endowment is always a blessing and never a curse.
The way to do so is to assume that the prices of the metals and minerals that play such an important economic role will be lower than the year before.
Should higher prices eventuate, these should be treated as a bonus that can be spent on better national education, health and technology.
That was the sage advice given to governments by economics and finance superstar Jim O’Neill, who oversaw the investment of $800- billion as the former Goldman Sachs Asset Management chairperson and who coined the acronym Brics, which is a focus on the economies of Brazil, Russia, India, China and South Africa.
O’Neill offered his advice immediately after South Africa’s Mineral Resources Minister Ngoako Ramatlhodi told the 7 000 mining professionals attending last week’s Mining Indaba in Cape Town of South Africa’s need to use its minerals blessing to rid the country of the curse of poverty, inequality and unemployment.
O’Neill, who is now the chairperson of the Cities Growth Commission, made the point that it was crucial for commodity producing countries – including now hard-hit oil-producing countries – not to assume beforehand that rises in commodity prices were inevitable and instead to base budgets on an assumed lower price.
While conceding that it was probably something most governments were not inclined to do, he advocated a strategy of assuming that rising commodity prices were a bonus rather than a fait accompli, and then, from a policy applying perspective, assuming that commodity prices would be lower the following year than they were in the year in question.
If that could be done, it would allow governments to use any additional revenues accruing to them from rising commodity prices for education, health and technology, which he described as the critical things that truly sustain national economies for the long haul.
It was also important for emerging countries with commodities to look to the world’s successful commodity-producing countries.
Interestingly, he placed Norway in the “perhaps none better” category of examples for resource-rich countries to emulate, which is significant because it is also a country that South Africa’s labour unions, notably the National Union of Mineworkers, has held up for years as a country that South Africa should emulate when it comes to benefiting optimally from a minerals endowment.
O’Neill remarked that among other things that Norway had done so well was to launch “a true sovereign wealth fund”, which that was genuinely focused on long-term returns for its citizens and society without being fixated on short-term movements in commodity prices.
Surely this is a consensus opportunity for South Africa to seize upon – capital and labour both holding up the same model of tackling the triple evils of poverty, inequality and unemployment.