World Bank Reprint Series: Number Forty-six Kenji Takeuchi, Gerhard E. Thiebach, and Joseph Hilmy Investment Requirements in the Non-fuel Mineral Sector in the Developing Countries Reprinted from Natural Resources Forum 1 (April 1977) The most recent editions of Catalog of Publications, describing the full range of W1orld Bank publications, and World Bank Research Program, describing each of the continuing research programs of the Bank, are available without charge from: The World Bank, Publications Unit, 1818 H Street, N.W., Washington, D.C. 20433 U.S.A. WORLD BANK BOOKS ABOUT DEVELOPMENT Research Publications International Comparisons of Real Product and Purchasing Pozwer by Irving B. Kravis, Alan Heston, and Robert Summers, published by The Johns Hopkins University Press, 1978 Experiments in Family Planning: Lessons from the Developing World by Roberto Cuca and Catherine S. Pierce, published by The Johns Hopkins University Press, 1978 Income Distribution Policy in the Developing Countries: A Case Study of Korea by Irma AdeJman and Sherman Robinson, published by Stanford University Press (in the Commonwealth, Oxford University Press), 1978 Interdependence in Planning: Muiltilevel Programming Studies of the Ivory Coastby Louis M. Goreux, published by The Johns Hopkins University Press, 1977 The Minitng Industry and the Developing Countries by Rex Bosson and Bension Varon, published by Oxford University Press, 1977 Patterns in Household Demand and Saving by Constantino Lluch, Alan Powell, and Ross Williams, published by Oxford University Press, 1977 Unskilled Labor for Development: Its Economic Cost by Orville McDiarmid, published by The Johns Hopkins University Press, 1977 Electricity Economics: Essays and Case Studies by Ralph Turvey and Dennis Anderson, published by The Johns Hopkins University Press, 1977 Housing for Low Income Urban Families: Economics and Policy in the Developing World by Orville F. Grimes, Jr., published by The Johns Hopkins University Press, 1976 Village Water Supply: Economics and Policy in the Developing World by Robert Saunders and Jeremy Warford, published by The Johns Hopkins University Press, 1976 Economic A nalysis of Projects by Lyn Squire and Herman G. van der Tak, published by The Johns Hopkins University Press, 1975 The Design of Rural Development: Lessons from Africa by Uma Lele, published by The Johns Hopkins University Press, 1975 Econ2omy-Wide Models and Development Planning edited by Charles R. Blitzer, Peter B. Clark, and Lance Taylor, published by Oxford University Press, 1975 Patterns of Development, 1950-1970 by Hollis Chenery and Moises Syrquin with Hazel Elkington, published by Oxford University Press, 1975 A System of International Comparisotns of Gross Product and Purchasinig Power by Irving B. Kravis, Zoltan Kenessey, Alan Heston, and Robert Summers, published by The Johns Hopkins University Press, 1975 Country Economic Reports Commonwealth Caribbean: The Integration Experience by Sidney E. Chernick and others, published by The Johns Hopkin s University Press, 1978 Ivory Coast: The Challenge of Succe5s by Bastiaan den Tuinder and others, published by The Johns Hopkins University Press, 1978 Kenya: Into the Second Decade by John Burrows and others, published by The Johns Hopkins University Press, 1975 (continued on inside back cover) INVESTMENT REQUIREMIENTS IN THE NON-FUEL NIINERAL SECTOR IN THE DEVELOPING COUNTRIES KENJI TAKEUCHI, GERHARD E. THIEBACH, and JOSEPH H1ILM1Y Concern over the financial requirements for the long-term expansion of the world non-fuel minerals industry has led to growing interest in estimates of the magnitude of the reequirements. The au-hors focus on the require- ments in the developing countries for nine major minerals and deal with the most important among these, copper, in an appendix. 1. Introduction A number of developed countries depend on imports for their requiroments of a variety of fuel and non-fuel minerals. This is especially true of Japan, several Western European countries and also, to a lesser extent, the United States. A substantial portion of their mineral imports originate in the developing countries, although imports from such high- inccme countries as Canada, Australia and the Republic of South Africa are also signifi- cant. A number of developing countries, in turn, depend heavily on minerals as a major source of export earnings. Expanding mineral production and exports in developing countries depends on, among other things, expanding the flow of new investment, a large portion of which has tradi- tionally come from the developed countries. The level of such investment, or of commit- ments for mineral exploitation projects, has been relatively low in recent years. This may be attributed to the low prices which have prevailed for most minerals and to the uncer- tainty of the market outlook for many of them. At the same time, the fear that the availability of financing for mineral development is drying up has been voiced in various quarters. Ferguson and Haclin summarize the concern as follows: First, difficulties arise from the fact that mining companies and groups will be competing for massive volumes of scarce capital in an increasingly capital-hungry world. Second, the rise in the physical scale and cost of individual projects has outstripped the growth rate of the coinpanies which intend to mine the ores. Third, technical and operating risks have risen sharply. Fourth, the floating of major cur- rencies has introduced a new dimension intc calculations of prospective returns in terms of the companies' home currencies. Fifth, and most serious of all, the perceiyetl riskl of political action in the host country, to renegotiate contracts or even expropriate the mtining company's assets in that coun- try, has grown.' This paper presents the results of a preliminary attempt we have made to estimate (a) the order of magnitude of the capital investment requirements of the developing market- Messrs. Takeuchi, Thiebach and Hilmy are economists with the Commodities and Expcrt Projections Division of the Economic Analysis and Projections Department of the World Bank. The arricle is based on their personal views and does not necessarily reflect the views of the Management or Executive Directors of the Bank. The authors gratefully acknowledge the contribution of Mr. Boum J. Chou and Miss Rangaswami Vedavalli, and the guidance given by Mrs. Helen Hughes and Mr. Shamsher Singh. Natural Resources Forum 1(1977) 263-275. AllRights Reserved. Copyright 1977 by Unzited Nation1s, N. Y.. U4S4A. 264 Kenji Takeuchi et al. economy countries in the non-fuel mineral sector between 1976 and 1985; and (b) how much of this investment is likely to be financed from foreign sources. In view of the broad coverage attempted, the estimates are based, inevitably, on a set of common and therefore general assumptions and on a relatively simple approach, as explained in Sec- tions 2 and 3 below, with the aid of tables. The findings are summarized in Section 4. Ihe paper is accompanied by an appendix on copper, giving the projections of invest- ment requirements for this commodity in greater detail. Copper is the second largest export earner of the developing countries after petroleum. The copper industry is in a process of structural changes; in traditional copper exporting developing countries state ownership - part or whole - has become the rule while in high income countries the traditional practice of self-financing of mining projects by mining companies is giving way to new financing arrangements. It is in this con tcxt that even a rough estimate of future investment needs is of interest, and that a some; Nwhat more detailed treatment of copper is justified. 2. Coverage and Approach The investigation excluded energy minerals and concentrated on the major non-fuel min- erals exported by the developing countries. These are: bauxite (as well as alumina und aluminum), copper, iron ore, lead, manganese ore, nickel, phosphate rock, tin, and zinc. In 1973 and 1974, exports of these commodities from the developing countries grossed close to 7.5 and 11.6 billion dollars, respectively (Table I). accounting for some 80% of total non-fuel mineral exports of these countries. I'ABLE, I Export earnings of developing countries fromii major minerals and metals, 1960, 19'/O, 1973 and 1974 (in million U.S. dollars) Commodity SITC 1960 1970 1973 1974 Bauxite 283.3 ill 206 249 351 Alumina 57 244 296 574 Aluminum 684 22 109 168 247 Copper 283.1/682.1 960 2887 3749 5411 Iron ore 281 475 1053 1250 1666 Lead 283.4/685.1 92 133 169 216 Manganese 283.7 121 99 127 194 Nickel 283.2/683,1 20 149 150 (293) PIlospliate rock 271.3 138 216 339 1063 Tin 283.6/687.1 445 617 754 1265 Zinc 283,5/686.1 79 174 199 284 Total: Non-fuel minerals 2520 5887 7450 11565 Petroleum 331/332 7128 15863 42009 129858 Source: IBRD, CommzuodirY Trade anid Price Tre'nds (1976 edition), Report No. FC-166/76, except for nickel; data for nickel estimated from OFCD, Trade bv C(ommoditY for 1970 and 1973. and U.S. Bureau of Mines, unpublished estimates for 1974. Investment Requirements in the Developing Countries 265 Capital investment requirements were estimated commodity by commodity, following the approach described below, with some variations for individual commodities, as ap- propriate. The first step was to project c -.umption, production and prices for each commodity, assuming that the market will f in some sort of medium-term equilibrium' in the mid-80's. After allowing for net trade with the centrally planned economy countries (CPEs) and scrap utilization, these projections led to estimates of production in the bench-mark years of 1980 and 1985, as well as of production capacity on the assumption that capacity would be just large enough to provide the projected production at normal capacity utilization rates. The degree to which increases in metallurgical processing capac- ity (smelting and/or refining), as distinct from mining capacity, were taken into account varied from commodity to commodity as follows: Bauxite - mining, alumina refining and aluminum smel- ting; Copper - mining, smelting and refining; Iron ore - mining and pelletization; Lead - mining and refining; Manganese ore - mining; Nickel, tin and zinc mining and smelting Phosphate rock - mining including beneficiation. The second step was to estimate the capital investment required per annual ton of capacity, for mining and metallurgical processing, as appropriate. Where capital invest- ment per annual ton of capacity varied between new capacity and replacement of old capacity, these were treated separately. The estimates of capital investment allowed for investment in infrastructure in most cases. All estimates were made in constant 1975 U.S. dollars. The third step was to estimate total capital requirements for projected capacity in- creases during the projection period by multiplying the tonnage increases by the esti- mated capital cost per ton of capacity. This was done with varying degrees of precision for different countries and stages of processing and for different commodities. Capital requirements for maintaining the level of capacity existifng at the beginning of the period were similarly estimated. 3. Major Assumptions For the minerals selected, the most important determinant of demand growth is the growthl of real income in developed countries because a predominalit part of consumption takes place in these countries. There is, in fact, a strong relationship between income growth in developed countries and demand for mineral commodities exported by devel- oping countries, expressed by the income elasticity of demnand, which tends to be relative- ly high for most of the commodities chosen. The real GNP of thlc developed market- economy countries was assumed to grow at a rate of 5.0% per year in 1975-1985, 266 Kenfi Takeuchi et al, TABLE II Non-fuel minerals: production by economic region, 1960, 1975, and projections for 1980 and 1985 Actual Projected Economic Commodity Unit region 1960 1975 1980 1985 Bauxite '000 M.T. World 22 492 68 973 101 000 155 000 Developed 6 425 31 558 42 000 62 000 Developing 16 068 37 415 59 000 93 000 Alumina '000 M.T. World 21 489 32 860 47 000 Developed n.a. 16 533 26 080 35 500 Developing 4 957 6 780 11 500 Aluminum '000 M.T. World 3 618 9 903 15 430 23 000 Developed 3 529 9 060 13 480 19 000 Developing 89 842 1 950 4 000 Copper '000 M.T,a World 3 605 5 674 7 290 9 090 Developed 1 784 2 805 3 520 4 350 Developing 1 821 2 868 3 770 4 740 Iron ore Million M.T. World 340 593 760 990 Developed 261 350 470 620 Developing 79 243 290 370 Lead '000 M.T. World 1 810 2 491 2 955 3 300 Developed 1145 1 845 2 000 2 150 Developing 665 646 955 1 150 Manganese ore '000 M.T. a World 2 793 5 950b 8 200 10 500 Developed 683 2 210b 3 200 4 000 Developing 2 110 3 740b 5 000 6 500 Nickel '000 M.T. a World 269 560 790 1 150 Developed 211 357 510 730 Developing 57 204 280 420 Phosphate rock '000 M.T. World 32 803 76 751 107 019 137 214 Developed 18 401 47 009 58 156 66 935 Developing 14 402 29 742 48 863 65 279 Tin '000 M.T. a World 138 167 220 211 Developedl 7 18 22 21 Developing 130 150 198 190 Zinc '000 M.T.a World 2 562 4 410 5 750 7 400 Developed 1 850 3 318 4 100 5 300 Developing 713 1 092 1 650 2 100 a = metal content b = estimates n.a. = not available (continued on following page) Investment Requirements in the Developing Countries 267 TABLE II (continued) Sources: Data for 1960 and 1975: Bauxite, Alumina, Aluminumn, Copper, Tin and Nickel. Metallgesellschaft, A.G. Metal Statistics 1960-70 and 1965-75. Lead and Zinc: ILZSG (International Lead and Zinc Study Group): Monthly Bulletin (for 1960); ILZSG, Statistical Committee, Twentieth Session Geneva, November 1976 (for 1975) Phosph.e Rock: 1960: ISMA (International Superphosphate and Compound Manufacturers' Association) 1975: The British Sulphur Corporation Ltd., Statistical Supplement, May/June 1976. Iron Ore: 1960: U.N., The World Market for Iron Ore, 1950-1960, 1968. 1975: Eisen und Stahl, 1st Quarter 1976; cited from Japan Steelmakers' Federation, Tekko Tokei Yoran (Steel Statistics Summary) 1976 edition. Manganese Ore: U.N., Statistical Yearbook, 1968. Projections: IBRD, Commodities and Export Projections Division, Economic Analysis and Projections Department. compared to 4.8% per year in 1960-1970, and at 2.7% per year in 1970-1975. ThLe production projections derived from the individual commodity analyses and pro- jections of demand, supply and price are shown in Table II. They indicate that the share of developing countries in world production will increase in six commodities, sharply in nickel, and moderately in bauxite, copper, iron ore, lead, and phosphate, but will not change significantly in the remaining three commodities - manganese, tin and zinc, The assumptions with respect to the representative cost of capital per unit of annual capacity for each commodity by processing stage (mining, smelting, refining, pelletiza- tion, etc.) are summarized in Table III. There are a number of difficulties in estimating the 'average' cost of investment per unit of capacity. For each commodity and activity involved (mining, beneficiation, processing) there are usually alternative technologies, each with varying capital intensities. Similarly, infrastructure costs can vary enormously from case to case. Neither the cost of infrastructure nor the cost of maintaining the existing capacity could be included or estimated uniformly. Therefore, the figures in Table III should be considered only as indicative. Finally, the breakdown of investment requirements between foreign and domestic sources was estimated on the basis of an analysis of the financial arrangements for recent projects.3 4. The Findings Table IV summarizes the estimates of investment requirements for the world (excluding CPEs) and the developing countries, by commodity, for 1976-1980 and 1981-1985, separately. World (excluding CPfE` investment requirements for the non-fuel mineral industry amount to some 73 ,illion U.S. dollars in 1976-80, and some 106 billion U.S. dollars in 1981-85. FcS the developing countries the requirements come to some 38.5 billion dollars for the first 5-year period, and 57 billion dollars for the second 5-year period 268 Kenji Takeuchi et al. (1981-1985). Of these totals, well over 80% are for three commodities alone, nanmely, bauxite (including alumina and aluminum), copper, and iron ore. With nickel added, the four commodities account for over 90%. Foreign financing requirements are estimated at about $23 billion, or $4.6 billion a year, for 1976-80 and at about $36 billion, or $7.3 billion a year, for 1981-1985. The estimates of annual investment in the non-fuel mineral sector of the developing countries from foreign sources for the 1976-80 and 1981 -85 periods would be equiva- lent to 11.6 and 18.3% respectively, of total foreign capital flow from developed to developing countries in 1975.4 As total -pital flow from developed to developing coun- tries in the coming years is expected to increase in constant dollar terms, the share of foreign investment in the non-fuel mineral sector in the developing countries in total capital flow should stay well below the above-mentioned percentages. It must be emphasized that what has been estimated in each case is the amount of capital needed to increase capacity from the level existing at the beginning of the period to the level projected for the final year of the period, without presumptions on when the funds would actually be spent. A significant part of the capital needed for the capacity increase projected for the 1976-1980 period has already been spent, and it seems likely that a large part of the investment for the expansion of capacity in 1981-1985 will be spent or committed by 1980. Similarly, it is obvious that a large portion of the capacity increases required after 1985 call for financial commitments dturing 1976--1985. These have not been included in the calculations. Although it would be interesting to estimate the role of private direct foreigni invest- ment in meeting these total requirements, this is not an easy task. In several important mineral-rich developing countries national corporations have taken over the mineral sec- tor. A substantial part of the financing requirements will have to be met out of export earnings, but export earnings are also needed to cover imports of essential capital goods for general development purposes. As it is generally easier to borrow in international capital markets for exploitation of known, Nvell-defined mineral deposits, these countries are likely to continue to use mineral export earnings for general development purposes and to borrow in international capital markets for mineral development. A further dif- ficulty in estimating the share of private direct investment in total foreign borrowing arises from the changing practices of the transnational corporations active in mining. An increasing share of mineral projects is being financed with small equity participation, combined with loans from banks and other lending-institution consortia. The increasing scale of mineral projects is one reason for this trend, but there are other reasons. Conces- sion agreements defining the host country's share of mineral carnings and resource rent taxes are generally on a 'cost plus' basis. While interest rates are a pre-tax cost, returns to equity would be taxable. Developing couintries are ambivalent about the use of intra-cor- porate borrowing as a substitute for equity investnment. Low equity gives a better clhance for sharing control, but increases balance of payment vulnerability and reduces the re- source rent base. Transnational nmining corporations on the other hand now tend to favour loan financing arrangements, which reduce their risk exposure and create a psy- chological climate of modest profitability. Governments of Western European countries and Japan have been helpful to corporations organizing this type of financing, and the Investrment Requirements in the Depelopin- Countries 269 TABLE III Noni-fuel minerals: capital cost per metric ton of annual production capacity (in 1975 US dollars) Commodity-activity Capital cost per ton of capacity Bauxite mining 85 Alumina refining (integrated) 510 Alumina iefining (non-integrated) 750 Aluminum smelting (integrated) 1900 Aluminum smelting (non-integrated) 2800 Copper minlng 3000-5000 Copper smelting-refining 2000 Iron ore mini.ig 65-115 Iron ore pelletizing 20-35 Iron ore mining-pelletizing 75-125 Lead mining-refining 790-1400 Manganese ore mining 235-400 Nickel mining Nickel laterite ore 19 500-31 000 Nickel oxide ore 11 000-22 000 Phosphate rock mining 50 Tin mining (dredging) 15 000 Tin mining (gravel pump) 10 000 Zinc mining-smelting 800-1400 Notes: i Where a range - given it represents variations on capital cost due to location of major projects, differing infrastructure requirements, differences in production methods and whether the project involves the construction of new capacity or the replacement of existing capacity. ii Capital costs for bauxite, copper, phosphate rock and tin do not include investments needed for related infrastructure. iii Capital cost for phosphate rock of $50 per ton of capacity relates to 1975 anrd it is assumed that the cost will increase by 3% annually thereafter. Source: The authors' estimates based on information provided by industry sources. national and international financial markets appear to have been able to handle it so far. It is difficult to discuss the long-run trends in private direct investment. First, the financial transfers of transnational corporations are not always recorded in national bal- ance of payments accounts; thus, the role transnationals are playing tends to be under- estimated. Second, the mining industry seems to be undergoing structural changes; cash- liquid oil companies seem to be diversifying their activities into the non-fuel mineral sector. This is likely to restore the self-financing capability of the industry to some extent. In sum, the present pause in mineral investment plans seems largely to result from low mineral prices. When prices improve, investment, particularly from Western Europe and Japan, is expected to be resumed at levels required to ensure adequate supplies. C, TABLE IV Projected investment in the non-fuel mineral sector in the developing countries, 1976-80 and 1980-85 (in billions of constant 1975 US dollars) 1976-80 1981-85 World Developing countries World Develoving countries (except CPEs) Total Foreign Domestic (except CPEs) Total Foreign Domestic requirements sources financing requirements sourcew financing 1. Copper 13.00 8.70 6.60 2.10 17.00 11.50 8.90 2.60 2. Lead 0.87 0.50 0.27 0.23 0.82 0.52 0.22 0.30 3. Zinc 2.50 1.00 0.53 0.47 3.75 1.09 0.57 0.52 4. Bauxite/alumina and aluminum 13.40 6.67 4.36 2.31 25.40 18.00 12.90 5.10 5. Iron ore 32.60 16.45 8.55 7.90 47.30 18.50 9.50 9.00 6. Phosphate rock 1.55 0.64 0.30 0.34 1.20 0.87 0.41 0.46 7. Tin 0.45 0.42 0.10 0.32 0.11 0.11 0.03 0.08 8. Nickel 7.40a 3.30 1.85 1.45 9.05a 5.35 3.15 2.20 9. Manganese 1.20 0.81 0.60 0.20 1.40 1.00 0.75 0.25 Total 72.97 38.49 23.16 15.32 106.03 56.94 36.43 20.51 a Including CPEs Source: See text. a s: Investment Requirein en ts in the Developing Countries 271 Notes 'Nicholas Ferguson and Graham Haclin: 'Is There Enough Money in Mining? ', The Batnker, Sep- tember 1976, p. 1011. 2 In the short term, a commodity market would always be in equilibrium, in the sense that supply and demand would always match at a price. 3For example, for lead, zinc, iron ore, manganese ore and nickel, the shares of foreign sources (both private and public) in total investment requirements were estimated at 80% of the investment directly related to productive processes and 50% of the investment for infrastructure in the case of new capacity and at 85% of required investment for maintaining existing capacity. For copper, see the Appendix on Copper. 4Total official and private net flow of financial resources to the developing countries from the OECD countries amounted to 39.9 billion U.S. dollars in 1975 (OECD, Development Co-operationi, the 1976 R,-iew, November 1976), Appendix on Copper 1. Capacity Projections Recent projections of future copper consumption, based either on extrapolations of past trends or on projected growth of industrial output with which copper consumption is closely correlated, indicate that primary (newly mined) copper consumption may be on the order of 8.9 million tons in 1985, implying a growth rate of 3.5 to 4.0't per year, depending on the base year. Annual average mine production is usually calculated as 93% of capacity existing at the beginning of each year plus one-third of scheduled new capacity coming into produc- tion during the year. The 7% discount is no more than a rule-of-thumb and is only a rough estimate of 'normal' disruptions. (The 1956-1969 average was 91.5%.) Applying the 93% rule, required copper mine capacity in 1985 can be estimated at about 9.6-9.8 million tons (Figure 1). Smelting and refining capacity are projected partly on the basis of available surveys. Mine and smelter capacities are expected to increase, on the average, at 3.9 and 2,9% per annum respectively during the 1976-1985 period. Table A shows the likely breakdown of capacity increases by country and regions. 2. Capital Requirenzetnts Capital requirements consist of three categories: (a) new capacity to meet new demand; (b) new capacity to replace depleted ore bodies; and (c) replacement of eqtuipinent in existing operations. Since equipment replacements are generally being financed out of cash flow, it has been ignored in this exercise. Investment costs of capacity expansion were estimnated on the basis of data relating to recently completed greenfield mines as well as expansions of existing mines. New mines of 100 000 tons per year with an ore grade of 0,5 to 1.0%7o would cost $3000 to $5000 per annual metric ton of capacity including cost of infrastructure. Approximately $2000 per metric ton is required for smelting and refining facilities excluding infrastructlure. In practice, investment costs for new mines as well as those for expansions of existing mines 272 Kenji Takeuchi et al. t55o 5958 101 155 1970 1978 5595 l9os I R,T t, . pgERCrt= < ; 7 MIN 19011 L" y . 0031 - ,J. . I., |{" xArI jt * .................... z,, ...,t . . , , 94 itolss lieo iMa 1970 tg73 191 [[ YERRS Fig. 1. Copper - mine capacity and mine production, World 1excluding CPEs) (7950-1985). vary widely, depending on location, infrastructure, composition of output (by-products), ore grades, size of capacity, type of mine and process (underground or open pit), etc. Furthermore, published data on capital costs are not always clear on how much is allowed for contingencies and anticipated inflation. In the present exercise, capital requirements per annual ton of capacity have been estimated on a country-by-country basis (Table B). There are several other factors which could affect the level of investment, the cost of investment or the distribution of investment between low and high income areas. Among these are: (a) the cost of pollution control measures which may add some 20-25% to domestic capital costs in the U.S.; (b) the cost of energy which affects underground and open-pit operations differently, as open-pit mnining of low-grade ores is energy intensive and sharp rises in energy costs could drive copper mining underground and raise investment costs; (c) copper price movements which presumably influence investment decisions and, therefore, have a long-term impact on primary production; (d) political risk, which seems to influence investment decisions. In the last two decades political factors rather than copper prices may have been responsible for the timing of investment in several developing countries (Chile, Peru and some African coun- tries, where high world copper prices alone did not provide sufficient incentive). Sharp rises in copper prices might even promote investment in high-income countries. No precise assumptions could be made on the above imponderables. Therefore, it was assumed that no major changes would occur during the period concerned. With regard to the sources of finance, it was assumed that 75% of the total investment TABLE A Copper - projected mine and smelter capacity, 1985 X (in thousand metric tons) Mine capacity Smelter capacity Existing Projected Projected Existing Projected Projected capacity 1975 increase capacity 1985 capacity 1975 increase capacity 1985 Developing countries 3227 2198 5475 2791 1877 4668 Africa 1405 395 1800 1425 300 1725 Zaire 530 270 800 520 225 745 Zambia 770 80 850 807 0 807 Others 105 45 150 98 75 173 Asia/Oceania 592 593 1185 166 577 743 Indonesia 65 0 65 0 0 0 Iran 7 163 170 0 145 145 Papua New Guinea 180 120 300 0 0 0 Philippines 240 210 450 0 214 214 Others 100 100 200 166 218 384 Latin America 1230 1210') 2490 1200 1000 2200 Chile 900 350 1250 855 270 1125 Mexico 90 280 370 123 254 377 Panamna - 140 140 - 136 136 Peru 220 230 500 218 210 2 Others 20 210 230 4 130 134 (Argentina) - (90) (90) (0) (?) (Brazil) - (100) (100) (4) (96) (100) Industrialized countries 3535 925 4460 4909 685 5594 W.Europe 340 170 510 870 215 1085 Australia 250 50 300 206 0 206 Canada 900 300 1200 610 (a) 610 Japan 90 -20 70 1100 0 1110 U.S. 1775 325 2100 1923 440 2363 South Africa 180 100 280 190 30 220 Total 6762 3123 9935 7700 2562 10262 (a) Included under U.S. 274 Kenji Takeuchi et al, TABLE B Copper - estimated investment cost a of capacity expansion 1976-1985 Cumulative 1976-85 UtS dollars per ton of Project location Total Foreign sources annual capacity Billions of constant 1975 US dollars Developing Countries 13.42b 10.03 6400b Africa 2.81 2.08 6800 Zaire 2.03 1.50 7000 Zambia 0.56 0.42 7000 Others 0.22 0.16 5000 Asia/Oceania 3.07b 2.30 5800b Indonesia - Iran b - (3500) Papua New Gutinea 0.60 0,45 5000 Philippines 1.47 1.10 7000 Others 1.00 0.75 5000 Latin America 7,54b 5.65 6000b Chile 2.93 2.20 6500 Mexico 1.96 1,47 7000 Peru 0.37 0.27 6000 Otliersc 2.28 1.71 6500 Developed Countries 6.48 - 7000 World (excl. CPEs) 1g,gob n.a. 6400b a Cost of maintaining existing capacity is not included. b Exclude Iran (Sar Chesmeh - 163 000 t) and Peru (Cuajone - 154 000 t) where projects are al- ready financed. C Mainly Panama, Brazil and Argentina. Source: Estimates by Gerhard Thiebach, based on information provided by industry sources. requirements would be financed from foreign sources. Half of the investment was as- sumed to consist of expenditures on imports, which would be financed entirely from foreign sources. Financing the other half, consisting of local expenditures, would be divided equally between foreign and domestic sources. 3. Fintdings and Caveats Capital requirements for the expansion of world (excluding CPEs) copper capacity are on the order of U.S.$30 billion, excluding the cost of investments in refining capacity and of equipment replacement. Of the U.S.$30 billion about U.S.$20 billion will be invested in developing countries and about 75% or U.S.$15 billion will have to be in the form of foreign investment (Table C). Given the magnitude of the estimated investment requirements and the uncertain short-term prospects of the copper industry, further work is required to refine the esti- mates. It would be helpful if more light could be thrown on the relationship between the Investment Requirements in the Developing Countries 275 TABLE C Copper - projected investment requirements 1976- 1985 (in billions of constant 1975 US dollars) Africa Asia/ Latin Total Developed Total Oceania America LDCs Investment in mine capacity 3.2 3.9 8.3 1 .4 7.5 22.9 To maintain capacity 1.1 0.5 1,2 2.8 2.8 5.6 To expand capacity 2.1 3.4 7.1 12.6 4.7 17.3 Investment in smelter capacity O.8 1,5 2.5 4.8 2.3 7.1 Total of which: 4.0 5.4 10.8 20.2 9.8 30.0 from foreign sources 3.1 4.1 8.3 15.5 15.5 lead time for commitments and the size of project. The complex interrelationship be- tween market developments and investment decisions also requires much more study, for, while it is obvious that there is a certain relationship between copper prices and invest- ment in new capacity, much more needs to be known about this relationship. Finally, it has been assumed here that the financing required for new capacity will be forthcoming, This would hold only if 1985 is viewed not as a target year, but is understood to mean 'the mid-1980's'. Only in this rather general, vague sense can one conduct a meaningful discussion on the prospects for copper, as all apparently solid data lose their solidity at close inspection. l-area: Problems and Issues in a Rapidly Growing Economy by Parvez Hasan, published by The Johns Hopkins University Press, 1976 Lesotho: A Development Chiallenge by Willem Maane, distributed by The Johns Hopkins University Press, 1975 Nigeria: Options for Long-Term Development by Wouter Tims and others, published by The Johns Hopkins University Press, 1974 Papua New Guinea: Its Economic Situation and Prospects for Development by George Baldwin and others, distributed by The Johns Hopkins University Press, 1978 The Philippines: Priorities and Prospects for Development by Russell Cheetham, Edward Hawkins, and others, distributed by The Johns Hopkins University Press, 1976 Turkey: Prospects and Problems of an Expandinbg Economy by Edmond Asfour and others, distributed by The Johns Hopkins University Press, 1975 Yugoslavia: Development with Decentralization by Vinod Dubey and others, published by t'he Johns Hopkins University Press, 1975 World '.ank Staff Occasional Papers A Model for Income Distribution, Employment, and Growth: A Case Study of Indonesia by Syamaprasad Gupta, published by The Johns Hopkins University Press, 1977 Coffee, Tea, and Cocoa: Market Prospects and Development Lending by Shamsher Singh and others, published by The Johns Hopkins University Press, 1977 Malntiitritiotn and Poverty: Magnitude and Policy Options by Shlomo Reutlinger and Marcelo Selowsky, published by The Johns Hopkins University Press, 1976 Economic Evaluation of Vocational Training Programs by Manuel Zymelman, published by The Johns Hopkins University Press, 1976 A Development Model for the Agricultural Sector of Portugal by Alvin C. Egbert and Hyung M. Kim, published by The Johns Hopkins University Press, 1975 Other Publications Agrarian Reform as Unfinished Business: The Selected Papers of Wolf Ladejinsky edited by Louis J. Walinsky, published by Oxford University Press, 1977 Twenty-five Years of Economic Development: 1950-1975 by David Morawetz, distributed by The Johns Hopkins University Press, 1977 World Tables 1976, published by The Johns Hopkins University Press, 1976 The Tropics and Economic Development: A Provocative Inquiry into the Poverhy of Nationsby Andrew Kamarck, published by The Johns Hopkins University Press, 1976 Size Distribution of Income: A Compilation of Data by Shail Jain, distributed by The Johns Hopkins University Press, 1975 Redistribution with Growth by Hollis Chenery, Montek S. Ahluwalia, C. L. G. Bell, John H. Duloy, and Richard Jolly, published by Oxford University Press, 1974 THE WORLD BANK Headquarters 1818 H Street, N.W, Washington, D.C. 20433 U.S.A. Euiropeanz Office 66, avenue d'Iena 75116 Paris, France Tokyo Office Kokusai Building 1-1 Marunouchi 3-chome Chiyoda-ku, Tokyo 100, Japan World Bank reprints No. 30. Bela Balassa and Ardy Stoutjesdijk, "Economic Integration among Developing Countries," Journal of Common Market Studies (also available in Spanish as published in El Trimestre Econ6mico) No. 31. Constantino Lluch and Ross Williams, "Cross Country Demand and Savings Pat- terns: An Application of the Extended Linear Expenditure System," The Review of Economics and Statistics No. 32. Marcelo Selowsky, "A Note on Preschool-Age Investment in Human Capital in Developing Countries," Economic Developinent and Cuttural Change No. 33. Shankar Acharya, "Fiscal Financial Intervention, Factor Prices and Factor Propo- sitions: A Review of Issues," Bangladesh Development Studies No. 34. Shlomo Reutlinger, "A Simulation Model for Evalutating Worldwide Buffer Stocks of Wheat," American Journal of Agricultural Economics No. 35. John Si mmons, "Retention of Cognitive Skills Acquired in Primary School," Com- parative Education Review No. 36. Montek S. Ahluwalia, "Inequality, Poverty, and Development," Jouirnal of Devel- opment Economics No. 37. P. B. R. Hazell and P. L. Scandizzo, "Farmers' Expectations, Risk Aversion, and Markz!t Equilibrium under Risk," American Journal of Agricultural Economnics No. 38. Graham Pyatt, "On the Interpretation and Disaggregation of Gini Coefficients," The Economic Journal No. 39. Shamsher Singh, "The Interrnitional Dialogue on Commodities," Resources Policy No. 40. Gary Kutcher and P. L. Scandizzo, "A Partial Analysis of the Sharetenancy Rela- tionships of Northeast Brazil," Journal of Development Economics No. 41. Bela Balassa, "The Income Distributional Parameter in Project Appraisal," Eco- nomic Progress, Private Values and Public Policy (North-Holland) No. 42. Dipak Mazumdar, "The Rural-Urban Wage Gap, Migration, and the Shadow Wage," Oxford Economic Papers No. 43. Dipak Mazumdar, "The Urban Informal Sector," World Development No, 44. Carmel Ullman Chiswick, "On Estimating Earnings Functions for LDCs," Journal of DevelopFnent Economics No, 45. Clive Bell and Pinhas Zusman, "A Bargaining Theoretic Approach to Cropshar- ing Conttacts," The A merican Economic Review No. 46. Kenji Ta}euchi, Gerhard E, Thiebach, and Joseph Hilmy, "Investmient Require- ments in the Non-fuel Mineral Sector in the Developing Countries," Natural Resources Fortum