GDP AND MINING CONTRIBUTION IN ZAMBIA Following my posting on the new 2010 GDP which showed mining sectors contribution to GDP was more than previously estimated, several people have maintained that for Zambia, being a mining giant the contribution should be more than the estimated 12.9% after trading and wholesale at 19.9%. I gave the following simplified explanation: Not really. The calculation of the GDP (aggregate output or production) is based on value-added system. Value added means the additional or marginal value a process makes to the original. typically manufacturing has the highest value added, which explains why countries like Japan have a higher GDP than the whole Middle East which only produce oil. Diamonds have higher value-added because for the most part, you can make lots of final goods from diamonds within the country, thus adding value. Pretty much like making jewellery out of our emeralds; they would create more value-addition than mining per se. But you see, even though copper is used in many industries from aircraft to construction and cars, it is less useful on its own; it is used mostly as an intermediate input, while diamonds and emeralds can lead to a finished product. You cannot make a car out of copper! The second most important consideration is that investments do not necessarily equate to GDP; investments are expenditures and yes maybe captured in GDP using the expenditure method of calculating GDP, but go for less using the value-added method. GDP is about production Gross Domestic PRODUCT. Therefore, the large investments in mining do not translate into greater contribution of the sector to value added. For instance, the Kalumbila US$2 billion investment has not yet started contributing significantly to GDP. Of course it is more complex than I am putting it but this is the best in simple laymans terms I can go. In the computation of GDP are many considerations, assumptions and calculations only economists know. But you are right of course, mining would have a large contribution to GDP due to its interaction with other sectors. Your observation is smart.
Posted on: Wed, 05 Mar 2014 07:20:06 +0000
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