Šoškić on lithium mining: Leaving the mineral treasure to a foreign company

If it is allowed a foreign company exploits our mineral resources, then it becomes their owner, and it pays our state only mineral rent, which is among the lowest in Europe, the professor of the Faculty of Economics and former governor of the National Bank of Serbia pointed out in the author's text for FoNet Dejan Soskic and supported the negative opinion of experts at the SANU meeting about the Jadar project.

The integral version of Professor Šoškić's author's text reads:

"For every economic project, the so-called net economic effects and the so-called negative externalities (mainly environmental effects) are important." First, about the economic consequences. Net economic effects give an answer to the question of how many benefits from a given project minus the so-called opportunity cost, i.e. to the extent that by the possible implementation of the given project we miss the realization of some other economic activities and the benefits that arise from them.

How many new jobs are created, and how many "old jobs" are lost? How much new budget revenue is generated, and how much "old" budget revenue is lost? Finally, how much new GDP is generated, how much "old GDP" is lost?

Who becomes the owner of mined mineral treasure?

Hence, attention in assessing the effects of a project must be focused on the net economic consequences. In order to assess the net economic effects of an investment project in the exploitation of natural resources owned by a country, the key question is who becomes the owner of the mined mineral treasure?

If a foreign company is allowed to exploit our mineral resources, then it becomes their owner, while paying our state only mineral rent (which is in the range of a few percent of mined values, and in Serbia, mineral rent is among the lowest in Europe).

In such a scenario, by far the largest part of the new value remains with the foreign company, which does not even have to pay profit tax to our country if it "moves" the profit to its other legal entities abroad where the tax conditions are more favorable (which multinational companies often do).

If that happens, ie. if the profit is "moved" abroad, then the positive impact of such an investment on GDP will be smaller (potentially none), because, let's remember, the GDP of a country is the sum of gross added value plus taxes and minus subsidies in a country.

Therefore, if a multinational company "moves" the newly created value abroad, there is no direct positive effect on the country's GDP.

What after?

When talking about large investments brought by a foreign company that needs to exploit the natural wealth of our country, it should be borne in mind that the largest part of these investments, as a rule, is intended for technology that is predominantly imported from abroad. A part of these investments will be received as short-term additional income by domestic construction operations (and its consumption of domestic cement, sand, etc. will have a short-term positive effect on domestic economic activity) until the necessary facilities are built, and a part will be received by sellers as one-time income land. The key question is: what next?

There can hardly be any guarantee of the construction of factories for batteries, cars and something else, because a mining company, as a rule, cannot influence the business policy of companies that build cars or batteries (unless they are part of the same conglomerate, which in our example is not case).

Elon Musk didn't need a mine to build a car or battery factory in California. Anyone who wants to build a car or battery factory can do it now in Serbia and without lithium mining in our country, but that is not planned.

On the other hand, if a domestic state-owned company were to exploit the natural wealth of our country, then the situation could be different. Then the total value of mined raw materials (not only the negligible mining rent) would remain with our state. And then the state, as the owner of significant mineral resources, could attract foreign companies to open battery and car factories, with more favorable access to the necessary mineral resources.

Therefore, it is not surprising that rich Norway made a smart decision a long time ago to entrust the exploitation of its mineral wealth (oil and gas in the North Sea) to a state company that invests its profits in the long term for the benefit of the Norwegian pension fund and partially transfers it to the budget for the benefit of all citizens of Norway.

How much is lost from agriculture and tourism with a project like this

In Serbia, however, this is not proposed. It is proposed to entrust the mineral treasures of our country to a foreign company, and to a company with a very controversial business history.

Second, and a very important question for evaluating the net economic effects of this project, is how much is lost with such a project from agriculture and tourism that are currently taking place in that area and that could take place in that area much longer than the time of active exploitation of mineral treasures?

Perhaps with additional investments and incentives in that area, more could be obtained than is currently obtained from agriculture and tourism. And that is a factor that should also be taken into account.

Finally, environmental consequences (negative externalities). After the publication of the proceedings of the meeting of the Serbian Academy of Sciences and Arts two years ago under the title "Jadar Project - what is known?" and the conclusions of this meeting of the most eminent experts of our country who dominantly expressed a negative attitude towards the realization of this project, for me this question closed.

Only a new independent scientific group or independent scientific works on this topic or a concrete positive ecological example of realized exploitation with the same technology and the same mineral wealth in another location in the world, could reopen this topic.

Until then, I think it is wisest to stick to the advice of our wisest people in this field, published by the Serbian Academy of Sciences and Arts," says Professor Šoškić at the end of the author's text for FoNet.

Source: Phonet