Book reviews

factor (I+r). Now, by the same token, valuation of the asset at time (t+l) is

P,+,R,+, =P,+29r+zlD+Pr+39,+3 /D2 + . . .

If we multiply the last equation by I/D, the reader can easily verify that we can write the first equation as

PA = Pr+1(4,+, + R,+,)lD.

Next, noticing that R,,, = R, - q,+, we

get

PP, =p,+,R,lD, o~P,+,~P,= l+r.

This can be simplified to give the Hotelling expression as it was written above, orA pip = r.

The last chapter of this book, on UNCTAD, was very brief but very informative. I was surprised though not to see, at some point in the book, references to the work of some of the primary commodity economists who

are in the forefront of today’s debate. I am referring of course to such individuals as John Cuddy, Juergen Donges, Joseph Finger, Marian Radetzki, and others mentioned in Banks.’ But even so I would like to congratulate Paul Hallwood on a book that is both informative and filled with valuable hints for future research.

F. E. Banks, University of Uppsala,

Sweden

and Centre for Policy Studies,

Melbourne, Australia

‘See F.E. Banks, Scarcity, Energy, and Economic Progress, D.C. Heath and Co, Lexington Books, Lexington, MA, USA and Toronto, Canada, 1977; and F.E. Banks, Bauxite and Aluminum: An Introduction to the Economics of Non- Fuel Minerals, D.C. Heath and Co, Lexington Books, Lexington, MA, USA and Toronto, Canada, 1979.

Mining finance for the Third World

FINANCING MINING PROJECTS IN

DEVELOPING COUNTRIES

A United Nations Survey

by Marian Radetzki and Stephen Zorn

Mining Journal Books, London, 19 79,

7 89 pp, El 0.00 hardback, f 7.50

paperback.

This is a general review of the mechanisms used, on a large or small scale, for funding non-fuel mining projects in developing countries. It starts by assessing global and Third World needs for mining finance up to around 1990 (put at around $12 billion

(IO? and $4 billion per annum respectively, in 1977) and argues that capital markets could meet this demand if the conditions are right. The following chapters then briefly assess the possible contributions (and ways of extracting them) from Third World mining countries’ own capital resources, from private international sources, and from public international agencies. The last

chapter looks at relatively novel ways of raising money. There are three appendixes, one reporting on a meeting of a UN Panel on International Mining Finance, one giving some financial statistics for many LDC mining enterprises, and one briefly covering production and capacities for major metals, by country.

Sources of funding

A host of issues is covered, and many specific cases are cited. For instance, there are brief reviews of how state- owned mining enterprises have fared, financially and otherwise; of the role of Third World mining banks; of the successful private copper sector in the Philippines; of the growth of ‘project financing’ and the constraints now being imposed on it - and an outline of how Guinea’s Boke bauxite mine and Bougainville’s copper mine were financed, bringing in equity, export credits, commercial bank loans, fixed rate notes and bonds, and so on. General and specific questions of Third World debt and credit ratings are

discussed, as are the effects of inflation. Public agencies like the World Bank (IBRD) are described as not having put much money into mining although, it is pointed out, this may have been sensible given the other claims on them; when they have invested, the sums are claimed to belittle their true value. Novel sources of funding include oil money (from oil countries or companies), insurance companies, mineral merchants, and equipment leasing.

Gloomy future

No review of any area can ever be perfect, and there are points in this book that some people may question. Did small-scale mining have to be totally ignored? What are its financing problems, and how might they be eased? Is the IBRD a truly useful source of technical expertise for mining projects? That several recent ventures have run into problems because metal prices have been lower than initially anticipated is beyond doubt, but can some concrete lessons be drawn out to help improve future project appraisals? Can the multiplier effects from mining investment be increased, and what repercussions may this have on financing? Again, much of the book points to a gloomy future; for instance, many multinationals are said to be keeping well clear of the Third World (curi dnt investments excluded), while those who are staying in are finding some new constraints being imposed on their usual financing strategies, and which may not be fully offset by, say, more realistic foreign investment guarantees; and if the country itself aims at incorporating much local technology, then export credits become inapplicable - taking away another important source of finance. Perhaps the lack of an overall assessment of ‘the state of the crisis’ is the major unexplained gap in this review.

Otherwise, the book is a masterful survey of the field. As an almost random example, take the treatment of inflation. Inflation, it is pointed out, affects depreciation allowances (which rarely allow for it), shifts debt service obligations as a whole forward in time, and adds to uncertainties; this is then backed up by citing the Zaire Tenke-

336 RESOURCES POLICY December 1980

Fungurume and Peruvian Cuajone copper projects, with two tables relating

to Cuajone. (Excluding appendixes,

there are 47 tables -that’s nice).

Consequently, this book can be recommended for novices or

professionals, for observers and

analysts as well as miners. The only

difference may be that some people will

skim more sections than others.

William Page

Science Policy Research Unit

University of Sussex, UK

Multinationals

EUROPE + LATIN AMERICA +

THE MULTINATIONALS

A Positive Sum Game for the

Exchange of Raw Materials and

Technology in the 1980s

by 8. Lietaer

Saxon House for the European Centre

for Study and information on

Multinational Corporations (ECSIM),

Farnborough, UK, 1979, 273 pp,

f9.50

This book deals with the future of the economic relationships between the developed countries of the North and the less developed countries (LDCs) of the South. These relationships are already clearly strained. During the 1960s differing North-South interests became obvious but were predominantly contained in the relatively orderly debate of the newly formed UN Conference on Trade and Development (UNCTAD). In the 1970s the energy crisis and the problems over other basic resource supply made the conflict of North-South interests in these areas publicly obvious. Professor Lietaer builds these existing tensions, and the familiar analyses of them, into what he terms the ‘normal’, ie most commonly propounded, scenario for North-South relationships in the 1980s. In addition to continuing resource- based stresses the developed and developing countries are seen to realize a new area of confrontation over the

now critical debt position faced by many LDCs. Professor Lietaer documents carefully his argument that, operating as a coordinated unit, the developing countries will have the economic power to default on their debts to the developed countries without viable retaliation. In practice, and through its effect on the monetary system and inflation, this represents a redistribtuion of wealth from the rich North to the poor South, but in a disorderly and disruptive fashion. For this type of reason the normal scenario is characterized as a negative sum

game, ie a series of redistributive mechanisms in which the gains of the gainers (the South) are less than the losses of the losers (the North).

Within this scenario Professor Lietaer analyses in greatest depth the position of three actors, Europe in the North, Latin America (LA) in the South, and European multinational corporations (MNCs) as a leading agent in the North-South relationship. All face major problems in the 1980s in any scenario. European MNCs face stagnant home markets and will be in the cross-fire of North-South dissent as propounded in the normal scenario. Europe faces problems of structural unemployment and vulnerability in external trade to which there are no obvious solutions in the normal scenario. LA needs to find a new basis for economic development as the growth potential of the already faltering import substitution policies fade completely, and with the growing realization that measurable growth in gross national product (GNP) often does not mean true development.

Massive transfer

The second part of the book elaborates some ideas which could help generate a positive sum game for North-South relations; one in which the total of world output grows so that the gains of the South can exceed the losses of the North.

Such a desirable, ‘normative’, scenario, Lietaer argues, must involve a massive, orderly redistribution of resources from the North to the South. It is suggested that the North will realize the desirability of such redistribution, not so much on (valid) humanitarian or

RESOURCES POLICY December 1980

Book reviews

political grounds, but because it will result in a considerable boost to their export markets and help alleviate their unemployment problems (the Marshall Plan is cited as a worthy precedent).

Professor Lietaer proposes an interesting mechanism, the World

Development Exchange (WDE), to effect this redistribution. In the briefest of summaries the WDE is proposed to work as follows. A LDC proposes a development project requiring a determined amount of imports. An authority, eg the World Bank (IBRD), vets the project, and if it approves arranges with WDE that it can be paid for by the export of a determined amount of ‘any raw material, semi- manufactured product or manufactured product which can be standardised and which is not likely to change significantly over the medium term’. The WDE itself provides a future market in the good in question at an administered price which may be artificially high to include a specific ‘aid’ content. The good is, however, still traded at a (probably lower) free market spot price with the spread (covered by a WDE Fund financed mainly by the North) representing the redistributive subsidy by the North to the South. This isolates the LDC from the dangers of planning in a situation where its foreign exchange earnings may be subject to either unpredictable fluctuations or a steady downward trend in price of its staple exports. The proposal is apt because much of the empirical work on the subject does not demonstrate that higher levels of export earnings instability lead to lower growth, yet case studies illustrate many cases where important projects need to be truncated, delayed or abandoned because of unexpected shortfalls in foreign exchange. Thus a mechanism that guarantees individual projects without interfering in commodity markets may be appropriate. The preservation of free spot markets would be welcomed by the North. The concept is also similar to the South’s demand for indexation of their export prices, which in turn would help avoid worsening of LDC debt problems, somewhat alleviating that source of tension.

The other main strand in Professor Lietaer’s ‘normative’ scenario is the elaboration of a new ‘geographical

337