Estimation of resource depreciation and scarcity using the hotelling rent concept: Application to two base metal resources in Zimbabwe

Convergence of views on the importance of natural resource accounting has not readily translated into agreement and clarity on how this is to be done in practice. There are at least five methods of estimating natural resource depreciation and these have yielded significantly different results. Lack of agreement also characterizes measurement and interpretation of resource scarcity and dynamics. This paper briefly outlines and critiques the five depreciation methods and argues for and applies the total Hotelling rent (THR) method to chromite and copper resources in Zimbabwe over the period 1990–2001. It is noted especially that while the THR method does not consider discovery, the dearth of exploration of the two base metals in Zimbabwe means that such discovery was insignificant over the period. A simple scarcity measure is also developed and estimated for the two metals. Results show that depletion and scarcity measures for the two minerals were negligible. While this outcome is consistent with intergenerational equity, severely limited development and production capacities had negative implications on intragenerational equity. Scarcity indices indicate that official royalty rates over the period were exorbitant. The paper recommends the stepping up of exploration and production and downward review of royalties in order to reflect objective scarcity levels.