Assessing Non-Extractive Economic Sectors that Could Benefit from Adapted Capabilities

At a Glance
  • Where an assessment of the depth of forward and backward linkages reveals the supply of capabilities, demand can be determined by assessing which non-extractive economic sectors can benefit from the adaptation of capabilities developed in the extractive sector. 
  • Demand sectors are context-specific and require significant research and consultation to understand properly.
  • The Product Space (a tool developed at the Center for International Development at Harvard University to assess which horizontal linkages make the most economic sense) shows how ‘complex’ tradable goods are (characterized by needing many production processes and extended knowledge) and how closely these goods are connected to each other. 
  • Well-connected goods have a high degree of linkages (use similar institutions, infrastructure, physical factors, and technology) and are therefore likely to offer more opportunities for horizontal linkages.
  • Assessing which non-extractive sectors can best make use of these capabilities involves: research on current economic capabilities; consultation with extractive industry projects and operations, their suppliers, and non-extractive sector businesses; and multi-stakeholder dialogues between actors to discuss and verify potential overlaps.

Assessing the depth of forward and backward linkages will provide the “supply” of capabilities. The “demand” can be determined by assessing which non-extractive economic sector can benefit from the adaptation of capabilities developed in the extractive sector. These demand sectors are very context-specific for each country and require significant research and consultation to understand. Assessing this demand will require close coordination between the ministry or ministries responsible for the extractive industries, and the other relevant ministries including labor, education, and industry to create a baseline analysis of the capabilities of the local economy.

The “Product Space” was a tool developed by Hidalgo et al. at the Center for International Development at Harvard University to understand which horizontal linkages make the most economic sense. The Product Space shows how ‘complex’ tradable goods are and how closely these goods are connected to each other. A complex good is characterized by needing many production processes and extended knowledge, examples include machinery, electronics, and medical products. On the opposite end, there are extractive industry resources and unprocessed agricultural commodities.

A well-connected good has many linkages to other goods because it uses similar institutions, infrastructure, physical factors, and technology. These goods will likely offer more opportunities for horizontal linkages. As a practical example, typically a country with the ability to export apples will have most of the conditions suitable to export pears as this country would already have the soil, climate, packing technologies, frigorific trucks, and skilled agronomists, that are necessary to cultivate pears.

Assessing the non-extractive sectors that could utilize the capabilities used in mining and/or the oil and gas sectors is similar to the process of assessing the current situation for backward linkages, as described in Assessing the current situation. However, it deliberately involves the sectors and businesses outside the extractive industry value chains. Assessing the non-extractive sectors that could utilize these capabilities will involve:

  1. Research on current economic capabilities using existing data on the types of industries present in a country.
  2. Consultationswith extractive industry projects and operations, their suppliers, and non-extractive sector businesses to identify potential overlaps in required capabilities between the extractive industry value chain and the non-extractive industry sectors.
  3. Multi-stakeholder dialogues between these actors to discuss and verify potential overlaps.

There are few examples of case studies that demonstrate the assessment of the potential for horizontal linkages. However, several of the case studies from backward linkages offer practical guidance and lessons in terms of ensuring that research, consultation and dialogue processes create the necessary information.

Key Resources

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