The Material Footprint of Nations and ‘True’ Material Cost of Development

High Density Container Terminal  (Picture credit - Getty Images)

High Density Container Terminal (Picture credit – BBC News/Getty Images)

Thanks to the kind reader who passed me this story. BBC News Environment correspondent, Matt McGrath, reports that current methods of measuring the full material cost of imported goods are highly inaccurate. In a new study, researchers have found that three times as many raw materials are used to process and export traded goods than are used in their manufacture.

Richer countries who believe they have succeeded in developing sustainably are mistaken say the authors. The research has been published  (click hyperlink to access the report) in the Proceedings of the National Academy of Sciences.

Many developed nations believe they are on a path to sustainable development, as their economic growth has risen over the past 20 years but the level of raw materials they are consuming has declined.

According to  Dr Tommy Wiedmann University of New South Wales “We are saying there is something missing, if we only look at the one indicator we get the wrong information”. This new study indicates that these countries are not including the use of raw materials that never leave their country of origin.

The researchers used a new model that looked at metal ores, biomass, fossil fuels and construction materials to produce what they say is a more comprehensive picture of the “material footprint” of 186 countries over a 20 year period.

“The trade figure just looks at the physical amounts of material traded, but it doesn’t take into account the materials that are used to produce these goods that are traded – so for something like fertiliser, you need to mine phosphate rocks, you need machinery, so you need extra materials.”

In this analysis, the Chinese economy had the largest material footprint, twice as large as the US and four times that of Japan and India. The majority comes from construction minerals, reflecting the rapid industrialisation and urbanisation in China over the past 20 years.

The US is by far the largest importer of these primary resources when they are included in trade. Per capita, the picture is different, with the largest exporters of embodied raw materials being Australia and Chile.

According to the model, South Africa was the only country which had increased growth and decreased consumption of materials.

The researchers believe their analysis shows that the pressure on raw materials doesn’t necessarily decline as affluence grows. They argue that humanity is using natural materials at a level never seen before, with far-reaching environmental consequences.

They hope the new material footprint model will inform the sustainable management of resources such as water. The authors believe it could lead to fairer and more effective climate agreements.

“Countries could think about agreements where they help reduce the emissions at that point of material use,” said Dr Wiedmann. “That’s where it is cheapest to do, where it is most efficient, where it makes more sense.” Source: BBC News

India’s Trade Challenges Unique Among the BRICs

In 2013, the prospects for trade for the BRIC economies (Brazil, Russia, India and China) will diverge. While the BRIC economies have been at the forefront of emerging market growth for the past decade, weaker export demand from the developed world since 2012 is impacting the trade balances of each BRIC country, reports Euromonitor International.

The widening trade deficit for India in particular, the only BRIC member in which imports outstrip exports, is threatening the country’s growth prospects for the year. India’s trade deficit widened in 2012 to 10.3% of GDP, as high oil prices further increased the cost of the country’s imports, while export growth slowed, leading the imbalance to worsen. This is compared to 2.9% surplus in China, 9.9% surplus in Russia and a 0.9% surplus in Brazil in 2012.  Both Russia and Brazil’s exports are buoyed significantly by primary resources, such as oil and gas. Euromonitor International expects India’s trade deficit to widen to 12.3% in 2013.

GREENEARTH INDIA 3India’s situation is unique. The country has not posted an annual trade surplus since at least 1977, primarily due to two key factors. First of all the country is highly dependent on imports of energy to maintain the country’s energy consumption. For example, the country imports 75.2% of the crude oil that it consumes, as a result, in 2012, imports of mineral fuels accounted for 33.9% of the country’s import bill. The rising costs of fossil fuels after 2010, as well as the low levels of energy efficiency have exacerbated India’s trade deficit issues;

Secondly, the economy’s external sector remains comparatively small in comparison with the other BRIC economies. The Indian economy has maintained growth through rising domestic spending and a burgeoning services sector, which in 2012 made up 53.4% of the economy. As a result, India’s exports made up just 15.7% of the country’s GDP in 2012, compared to 25.3% in China and 27.2% in Russia, Brazil is the exception with exports making up just 10.8% of GDP in the year;

However, over the majority of the period studied, the trade deficit has been offset by capital accumulation in India from FDI inflows into the country. Since 2006, a rapid acceleration in imports has led to a much larger trade deficit, while the financial crisis of 2007-2008 has meant FDI flows have tightened across the world. The trade deficit is therefore, a growing burden for India, as capital is diverted from India’s economy to fund rising import costs.

Although there are challenges for India’s external sector in 2013, the economy has seen very high trade growth, the fastest of the BRIC economies. Between 2007 and 2012, exports increased by 103.6% in US$ terms, while imports increased by 123.2%. Growth will continue in 2013, with 15.2% increase in exports and a 22.2% increase in imports. The rapid growth is a result of a burgeoning middle class and the development of export industries in the country. The long term prospects for India remain bright as a result, as the growing population and continued economic development offer considerable opportunities for investment. However, the trade deficit will continue to drag on economic growth until investor confidence in India returns. Source: Euromonitor International

Dead Aid

Dead Aid - Dambisa MoyoFollowing my recent post – Want to Help? Shut up and listen! – I thought it appropriate to share a link to the referenced book “Dead Aid” by Zambian born economist Dambisa Moyo.

In Dead Aid, Dambisa Moyo describes the state of postwar development policy in Africa today and unflinchingly confronts one of the greatest myths of our time: that billions of dollars in aid sent from wealthy countries to developing African nations has helped to reduce poverty and increase growth. In the past fifty years, more than $1 trillion in development-related aid has been transferred from rich countries to Africa. Has this assistance improved the lives of Africans? No. In fact, across the continent, the recipients of this aid are not better off as a result of it, but worse—much worse.

In fact, poverty levels continue to escalate and growth rates have steadily declined—and millions continue to suffer. Provocatively drawing a sharp contrast between African countries that have rejected the aid route and prospered and others that have become aid-dependent and seen poverty increase, Moyo illuminates the way in which overreliance on aid has trapped developing nations in a vicious circle of aid dependency, corruption, market distortion, and further poverty, leaving them with nothing but the “need” for more aid.

Debunking the current model of international aid, Moyo offers a bold new road map for financing development of the world’s poorest countries that guarantees economic growth and a significant decline in poverty—without reliance on foreign aid or aid-related assistance. Dead Aid is an unsettling yet optimistic work, a powerful challenge to the assumptions and arguments that support a profoundly misguided development policy in Africa. And it is a clarion call to a new, more hopeful vision of how to address the desperate poverty that plagues millions. Source: www.dambisamoyo.com

Most African countries to be middle income by 2025?

As many as 38 of sub-Saharan Africa’s 48 countries could be regarded as ‘middle income’ by 2025, but World Bank chief economist for Africa Shantayanan Devarajan warned that such an advancement would not necessarily translate into a reduction in poverty. Currently, 21 countries, collectively with 400-million citizens, have middle-income status, which the World Bank defines as countries with yearly per-capita income levels of higher than $1 000.

Speaking following the release of the October edition of the bank’s ‘Africa Pulse’ publication, Devarajan noted that at least ten countries, representing 200-million people, were poised to transition to middle-income status over the coming 13 years on the back of prevailing growth rates. Included in the list are countries such as Zimbabwe and Comoros, which would require both growth and stablisation.

Over the past 15 years, the continent had expanded at a rate of two percentage points better than the average global growth rate, and the bank was still expecting sub-Saharan Africa to expand by 4.8% in 2012 – excluding slow-growing South Africa, the region’s largest economy, average growth for the region was forecast at closer to 6% for the year.

But there was potential for a further seven countries, with 70-million citizens, to be included in the middle-income mix over the period if rates of growth accelerated beyond levels achieved over the past 15 years. Only ten African countries, representing 230-million people, almost certainly will not achieve middle-income status by 2025.

But while Africa’s recent growth spurt had resulted in the first overall reversal in the continent’s poverty rate since the 1970s – from 58% in 1999 to 47.5% in 2008 – the bank cautioned that continued progress would depend on continued macroeconomic prudence and improved governance, particularly in the area of natural resources.

Africa Pulse showed that resource-rich countries had seen a strengthening of economic growth, while poverty rates and inequality levels had not performed as impressively. “Some countries, such as Angola, Republic of Congo and Gabon have actually witnessed an increase in the percent of the population living in extreme poverty.”

“Resource-rich African countries have to make the conscious choice to invest in better health, education, and jobs, and less poverty for their people because it will not happen automatically when countries strike it rich,” Devarajan said. “Gabon, for example, with a per-capita income of $10 000 has one of the lowest child immunisation rates in Africa.”

To ensure that the benefits of rising growth were “pro poor”, more jobs would need to be created. And, in the context of high levels of informal sector employment, efforts would also need to be made to improve access to finance and skills, in the informal sector. Source: Engineeringnews.co.za

 

IDZs to be replaced with SEZs

Department of Trade and Industry (South Africa)Heard this before? In line with the Industrial Policy Action Plan and the New Growth Path, the Department of Trade and Industry (the dti) aims to continue fostering its efforts to create employment and economic growth by establishing a strong industrial base in South Africa. The new initiative aims to improve on the concept of industrial development zones (IDZs) which have enjoyed mixed success since being introduced in December 2000 through the Manufacturing Development Act. 

An IDZ is a purpose-built industrial estate linked to an international airport or seaport which is tailored for the manufacturing and storage of goods. It offers investors certain rights within the zone, in addition to incentives such as customs duty and VAT relief. One important priority of the IDZs is to boost job creation and skills in underdeveloped regions. The IDZ programme led to the establishment of five zones – Mafikeng, OR Tambo International Airport, Richards Bay, East London and Coega. The Richard’s Bay IDZ only commenced its first phase of development in September last year while OR Tambo International Airport is not yet fully operational.  The Industrial Policy Action Plan, issued by the Department of Trade and Industry in February 2011, has also identified, as a key milestone, the establishment of an additional IDZ at Saldanha Bay. 

The Special Economic Zones (SEZs) programme is one of the most critical instruments that can be used to advance government’s strategic objectives of industrialisation, regional development and job creation. Moreover, the programme can assist in improving the attractiveness of South Africa as a destination for foreign direct investment.

In order to ensure that the SEZ programme is an effective instrument for industrial development, the dti has developed the SEZ Policy and Bill. Through the Bill there will be a dedicated legislative framework for special economic zones.

The main objectives of the SEZ Bill are to provide for the designation, development, promotion, operation and management of Special Economic Zones; to provide for the establishment of the Special Economic Zones Board; to regulate the application and issuing of Special Economic Zones operator permits; to provide for the establishment of the Special Economic Zones Fund; and to provide for matters incidental thereto.

Furthermore, the SEZ Bill will enable government to move towards a broader Special Economic Zones Programme, through which a variety of special economic zones can be designated in order to address the economic development challenges of each region and address spatial development inequalities.

Although national laws may be suspended inside industrial zones, government is currently not offering regulatory incentives to derogate from labour rules, a concession which is seen by some as crucial to stimulate investment in special zones. It is however unlikely that a relaxation of labour laws will be considered under the SEZ initiative. Benefits are rather expected to come in the form of enhanced incentives for labour intensive projects and additional tax relief for investors. A further question arises – just how flexible an inventive will the customs and VAT requirements be allowed to be?

The key provisions include the establishment of a Special Economic Zones Board to advise the Minister of Trade and Industry on the policy, strategy and other related matters; establishment of the Special Economic Zones Fund to provide for a more coherent and predictable funding framework that enables long-term planning; strengthening of governance arrangements including clarification of roles and responsibilities of key stakeholders. Source: Department of Trade and Industry.