EXPERT OPINION
The economy’s dependence on
commodities vs. value of the
extractive industries
Lee Kuan Yew: “I thought then that wealth depended mainly on the possession of territory and natural
resources, or valuable minerals, or oil and gas. It was only after I had been in office for some years that
I recognized that the decisive factors were the people, their natural abilities, education and training.” 1
Victor Kovalenko
Senior Manager, Head
of Climate Change and
Sustainability Services
in Kazakhstan, Ukraine
and Belarus, EY
Ilyas Kadyrov
Expert, Climate Change
and Sustainability
Services, EY
52
world monitor
Every year, countries with developed market
economies consume more natural resources
than they produce. The main suppliers
of raw materials for those countries are
emerging markets, which in turn creates a
significant dependence of their population’s
living standards on natural resources.
Local people, the authorities and other
stakeholders present on the territory of the
mining companies often criticize and fail to
see the full picture of the socio-economic
and environmental contribution.
This situation prompts the mining
companies to think about the role their
business actually plays in the development
of the countries they operate in. After all,
mining industry players, especially large
ones, not only earn money, but also make
an important contribution to economic
development by building networks and
relationships through purchasing goods and
services and interacting with local suppliers.
To make the right decisions and achieve
the set goals, it is necessary not only
to evaluate and measure an industry’s
performance, but also to understand and
explain to all the stakeholders, especially to
the local population and experts, the true
value the industry brings.
Due to its employees’ purchases and
consumer spending, each company,
regardless of its size and profile,
significantly affects other areas and sectors
of the domestic economy and ensures
additional jobs in contracting companies,
which allows the latter to generate
income and salaries to their employees,
as well as additional tax revenues to the
country’s budget. To completely appreciate
the importance of an industry for the
economy and evaluate its impact on the
country’s socio-economic development, it is
necessary to take into account not only its
direct contribution, but also the indirect and
induced impacts.
What is the ‘total’ contribution?
The total socio-economic contribution
comprises three components (impacts):
• Direct. A contribution created by the
industry itself: the number of employees
in the companies, taxes they pay and their
salaries.
• Indirect. A contribution created in other
sectors of the country’s economy due to
local content (purchases of goods and
services).
• Induced. A contribution created in the
economy due to consumer spending by their
own employees a s well as indirect workers.
The economic substance of each impact
is illustrated below.
KZT 100 of the product created by the
industry (for example, sold ore/concentrate)
comprises (hypothetically) the following:
purchases of raw materials and supplies
(food, fuel and clothes) – for example, KZT
40;