Policy Brief – Examining Beneficiation

Literature › Works

Ricardo Hausmann; Bailey Klinger; Robert Lawrence (2008). Policy Brief – Examining Beneficiation. CID South Africa Growth Initiative (Center for International Development, Harvard University). Center for International Development, Harvard University.

Type	report
Scope	Post-1994 South African economy
Method	policy analysis
Period studied	1983–2008
Regions	South Africa, international sample
Themes	manufacturing industrial policy, business and state, comparative theory
Citation key	hausmann2008a

Argument

The brief argues that beneficiation, the policy of moving from exporting raw minerals to downstream processing, is a flawed development paradigm for South Africa. Skills and inputs for processing and marketing finished goods differ from those for mining, and falling transport costs and market integration have weakened the advantage of proximity to raw materials. A large international export sample from the past 25 years shows countries do not in fact move downstream, and this holds even more strongly for raw materials. Beneficiation should therefore not be presumed appropriate; advocates need case-by-case justification, and it should be dropped from South Africa's development strategy because it diverts scarce state capacity and hides 'lateral' opportunities.

Evidence and method

Summary of a larger CID working paper (No. 162) using an international export data sample covering about 25 years. The brief itself presents no tables or statistics, only illustrative examples (aluminium in South Africa, bauxite in Jamaica, Japan, England's midlands).

Findings

• Beneficiation is entrenched in South African policy thinking, partly as a response to colonial-era restrictions on African processing. (p. 2)

  Beneficiation is a pervasive policy paradigm in South Africa.

• Processing and marketing require different skills and inputs from extraction, so downstream processing is not a natural progression. (p. 2)

  The skills and other inputs required to process raw materials and market finished products could be very different from those required to mine or grow them.

• Aluminium illustrates that processing depends on inputs other than local raw materials. (p. 2)

  The key input for producing Aluminium, for example, is cheap energy, not local Bauxite deposits, and that is why South Africa could develop Aluminium exports, even though it had no Bauxite

• The advantage of being near raw materials has diminished over time. (p. 2)

  as transportation costs have declined, and global markets have become more integrated, the advantage of proximity to raw materials production has diminished.

• International evidence shows countries do not move downstream in their exports, especially from raw materials. (p. 2)

  countries do not move downstream in their export development. This is as true for rich countries as for poor countries, and even more true for downstream movements from raw materials

• Beneficiation should not be assumed to be appropriate; each case needs its own justification. (p. 2)

  those advocating such an approach in any given situation, need to provide a case by case justification of their reasoning.

• Opportunity costs: state capacity is limited, and beneficiation may crowd out lateral opportunities such as engineering. (p. 2)

  Capabilities developed in mining may lead more naturally to other types of engineering for example, than to downstream minerals processing.

• Authors' conclusion is that beneficiation should be abandoned. (p. 2)

  beneficiation is a bad policy paradigm and should be dropped from South Africa’s development strategy.