A resource management model for mineral expoting countries: the case of Zambia

Abstract

The desirable rate of depleting exhaustible resources has, for a long time. been the subject of a significant volume of economics literature. The traditional approach to this issue considers the producer as a business agent whose aim is maximizing the expected flow of his profits and discusses the subsequent results under various assumptions regarding the market structure [e.g., Sweeney [I]], extraction cost [e.g., Stiglitz [211, uncertainty [e.g., Deskmukh, et al. [3]]. etc. Although the traditional approach provides significant insights into the behavior of private producers, it has little relevance to the case in which the supplier of an exhaustible resource is the government of a country. In this latter case, the supply policy will be based on the country’s requirements of foreign exchange, and other essentials of development planning, and not necessarily on profit maximization. Of special relevance to the above discussion is the case of Zambia, whose economy is extremely dependent on the export of exhaustible minerals (mainly copper) and whose government is now making “national planning the principal means of promoting economic development.“t The Zambian economy has greatly suffered from fluctuations in the price of copper in the international market. In fact, price fluctuations have provided external shocks to the Zambian economy creating significant structural instabilities. (Figure 1 shows the historical trends of the international (London Metal Exchange) price of copper and the real per capita consumption in Zambia.) Realizing the seriousness of the above problem, the Zambian government is now seeking development policies which reduce the vulnerability of its economy by reducing the destabilizing impacts of copper price fluctuations, and lessening the dependency of the economy on copper exports.