Both countries have a chance to turn mining boomtowns into diversified cities
Global demand for clean energy is kicking off another commodity boom in Central Africa. The Democratic Republic of the Congo (DRC) and Zambia possess more than 70% of the world’s cobalt and 11% of its copper supply — minerals integral to the production of solar panels, wind turbines, electric vehicle batteries and other green technologies. If the DRC and Zambia hope to leverage their bounty of “green gold” into sustainable, inclusive, and long-term industrialisation, effective urban development is crucial.
When resource-rich economies rely too heavily on exporting commodities, they shift labour and capital away from more productive industries, such as manufacturing and agriculture, to low-growth resource extraction. Elite landowners, their foreign concessionaires and well-connected politicians capture most of the benefits, while the public only receives a short-lived income and employment boost. Once the raw resources are exhausted, exporting countries are left with a less productive economy with fewer options for newly unemployed low-skilled workers and an inflated exchange rate that makes it difficult to export other goods. Economists call this phenomenon the ‘Dutch disease’, and there are already concerns that the new mining boom is leading Zambia and the DRC down the same path.
Recognising these dangers, African policymakers are trying to leverage commodity booms to spur broader development. New agreements and partnerships aim to integrate the economies of mining countries into global value chains, in which African firms can participate as producers and manufacturers instead of just as raw input suppliers. However, while joining value chains has industrial benefits, value-add manufacturers are still reliant on the raw commodity. When the copper and cobalt bubbles inevitably burst, these firms will collapse along with them.
To truly inoculate themselves, Zambia and the DRC need to reinvest their mining profits into industrial and economic diversification. At the national level, this means keeping macroeconomic discipline, reducing corruption and improving state capacity for long-term economic planning. This is easier said than done in a region plagued by weak institutions and a controversial, often violent, mining track record. An alternative approach may lie closer to the ground: urban development.
The regions around copper and cobalt mines are experiencing an explosion in population growth as workers rush to fill growing labor demand. This demographic shift will lead to the rapid transformation of villages and towns into fully fledged cities. If left unaddressed, these new cities will grow unevenly and informally, giving rise to unproductive slums and unchecked environmental harm. More dismally, these new cities will become overdependent on the mining boom-and-busts, and once the copper and cobalt panic is over, they will fall into economic obsolescence. To counter this trajectory, Zambia and the DRC should use growing mineral wealth and the mining-induced urban transformation to build effective diversified cities.
City-led economic diversification is not without precedence. In the Gulf, oil-reliant states are using oil revenue to ambitiously build special economic zones and new cities that create attractive environments for new industries. The most famous of these cities is modern-day Dubai. After the discovery of oil in 1966, sheikh Rashid used commodity revenue to rapidly transform what was then a fledgling town into a global metropolis with a diversified economy spanning technology, finance, and legal services. The East Asian giants have likewise relied on new cities to accelerate their economies. South Korea is spending more than $30bn to build Songdo, a city outside of Seoul intended to help move Korea away from export-oriented manufacturing towards green industries. Globally, there are more than 160 new cities aiming to accommodate over 100,000 residents announced in this century.
Zambia and the DRC do not need to be as ambitious to benefit from the transformative power of effective new cities. The key characteristics of these new cities are improved infrastructure, dense planning, and an enabling business environment. As copper and cobalt draw in migrant labor to previously underpopulated mining regions, both countries should proactively prepare existing settlements for their inevitable urban expansion. In practice, this means using mineral revenue to improve urban infrastructure and planning.
It also means enacting laws that streamline business regulations and improves local government. These changes will draw in innovative entrepreneurs and channel mining wealth to diversified uses. In the case of Zambia, there is already a regulatory framework that can be used to reform mining urbanisation. The multi-facility economic zones law allows the national government to endow local municipalities with special policies to incentivise economic diversification and entrepreneurship, and the government has already shown a willingness to expand the framework.
Economists have been looking for an antidote against the Dutch disease for years. Urban development should ultimately feature as a main ingredient in any solution.
Source: FDI Intelligence
