the country is engaged into a transformative process, aimed at developing new industrial sectors and modernizing its agriculture through large investments. As such, the country is particularly keen to insulate the economy from induced mineral commodity price volatility (through the implementation of a number of stabilization mechanisms), as well as from real exchange rate appreciation, through productivity gains in tradable sectors.

The mineral booms will generate additional revenues, but put the onus on authorities to convert resource rents into effective investments to sustain development. New mineral activities will generate revenues for locals, directly through job creation and profits retained in the country, and indirectly through transfers to governments. But these additional revenues will come from depleting non renewable mineral resources, which can be conceived as an action that consumes - and thus reduces – the total wealth of countries. Indeed, wealth economics literature points to the need to include mineral depletion, among others (see Box 1), for proper accounting of the wealth of nations, something traditional national accounting does not do.<sup>3</sup> In turn, the non consideration of mineral depletion could wrongly portray countries’ development trends and lose sight on necessary offsetting measures, all aimed at replacing rents generated from the depletion of resources by another capital (physical, human, social), through effective investments. In Sub-Saharan Africa as a whole, adjusted net savings have been on a downward trend since 1995, and have turned negative since 2004. As liquidating its capital to sustain consumption, the region will eventually leave its citizen poorer and with less capacity to generate income in the years to come unless these trends are being reverted rapidly.

Mineral depletion in Liberia and Sierra Leone is likely to be significant over the period 2012-15, but its magnitude remains very uncertain. In Ghana, mineral depletion rose from 1.9 percent of GDP in 2006 to 9.2 percent in 2011. Cumulatively, the equivalent of US$8.6 billion worth of mineral rents was extracted in these six years (see Table A.1 in Annex). In Liberia, from 1.4 percent in 2010, mineral depletion could rise to an average 4.7 percent of GDP over the period 2012-15 as the three iron mines become fully operational. In Sierra Leone, the acceleration in mineral depletion would be much more pronounced, from 0.6 percent of GDP in 2011 to 14 percent in 2012, and possibly 21.5 percent in 2015 as the iron ore mines enter in their second phase of development. The uncertainty surrounding these prospective numbers is undoubtedly extremely high, as depending on highly volatile commodity prices, which impact rents, the volume of operations and the pace of exploration. Per our calculations, rents from iron ore in Liberia (Sierra Leone) would become negative from 2014 should price drop 20 (50) percent below current projections levels (see Annex, Table A.4). Conversely, actual prices 20 percent above current forecasts would generate rents 143 and 41 percent higher respectively in Liberia and Sierra Leone between 2012 and 2015. Between 2000 and 2011, the standard deviation of international iron ore prices (in US$ terms) was equal to 67 percent of its average – and prices. So countries will not only need to be prepared to absorb large shocks, but also manage the uncertainty related to it, with strong implications for macroeconomic policy and the management of citizens’ expectations.

> 3 In February 2012, the UN Statistical Commission approved, as an international standard, the System of Environmental and Economic Accounting (SEEA), as satellite accounts to the System of National Accounts (SNA), and the SEEA includes the measure of depletion used in this paper. The three countries of interest in this paper are not yet producing such measures, as still struggling with the production of traditional national accounts. In 2010, Ghana revised upwards its GDP estimate for the year 2006 by 60 percent. Liberia’s official national accounts are considered by most observers, including the government, as severely underestimated and new accounts should be validated after the conduction of a new household living standards survey. Sierra Leone is currently re-basing its national accounts, and preliminary estimates suggest that official GDP numbers are underestimated by about a third.

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