Economic Issues in Mineral Based Economies

Economic Issues in Mineral Based Economies Why do Mineral-Based Developing Economies Face Economic Problems? The Case Study of Nigeria and Botswana 1. Introduction. Mineral-based economies have been defined as â€Å"those developing countries which generate at least 8 percent of their GDP and 40 percent of their export earnings from the mineral sector†. (Auty, 1993: p. 3). Two main categories of mineral-based economies have been identified. These include hydrocarbon producers and hard mineral exporters (producers of ores such as copper and tin). (Auty, 1993). Although one may reasonably expect developing mineral-based economies to witness tremendous economic development owing to their rich mineral resources, this has hardly been the case. According to Davis (1995: p. 1766) â€Å"mineral-based economies rather have development problems than development advantages†. In addition, Davis (1998) notes that economists and political scientists have recently proposed that mineral economies’ growth is below par, despite the mineral windfalls (rents) generated from mineral extraction. The mineral sector has even been classified as a ‘loser’ sector in the economic development race. (Shafer, 1994) cited by Davis (1998). Citing from a recent World Bank conference on mining and economic development, Davis (1995: p. 1765) states that several invited experts noted with concern the historical poor per capita economic growth of the mineral-exporting nations. In particular, participants from mineral-based developing economies were justly anxious about their fate. (Davis, 1995: p. 1765). In addition to fears of the â€Å"Dutch disease† and the â€Å"resource curse thesis† (explanations of these terms follow in subsequent sections), delegates were also concern about the appropriate policy response measures to these issues. (Davis, 1995). This paper aims at explaining why mineral-based developing economies rather face economic problems rather than economic development as one would expect. In meeting with this objective, the paper makes use of two case studies of mineral-based developing economies which include Nigeria (A hydrocarbon exporter) and Botswana (a hard mineral exporter). The rest of the paper is organized as follows: section two presents a literature review on why mineral-based economies rather face economic problems rather than economic development with particular emphasis on the Dutch Disease and the resource curse thesis; section 3 presents a discussion of the case studies making reference to their GDP growth, export revenue from mineral resources and per capita GDP; and section 4 presents some conclusions and recommendations. 2. Literature Review. Much of the literature has attributed underdevelopment of mineral-based developing economies to the Dutch disease. (Roemer, 1985) cited by Davis (1998) The Dutch disease is defined as a situation where an economy highly dependent on natural resources witnesses a decline in economic development as a result of a depletion of the natural resource or a sudden drop in the price of the resource. (Auty, 1993: p. 3). According to Davis (1995: p. 1768), the Dutch disease is a ‘morbid’ term that denotes the coexistence of booming and lagging sectors in an economy due to temporary or sustained increase in earnings. Mineral economies have been identified to generate an ideal environment for the disease given their notable minerals booming sector. (Davis, 1995). Mineral-based economies are characterized by a booming minerals sector at the expense of the manufacturing and agricultural sectors. (Davis, 1995). Ross (2003) suggests that mineral exports may cause economic volatility, inco me inequality, and crowding out of productivity growth in the manufacturing sector, which effects could increase poverty and reduce social welfare. Cordon and Neary (1982) cited in Auty (2001) explain the role of the Dutch disease on the deterioration of mineral-based economies using a three-sector model composed of a resource sector such as oil or other primary product exporting industry, a sector of tradeables, such as the manufacturing and agricultural sectors and non-tradeables. According to the model, a boom in the resource sector has three effects: a spending effect; a relative price effect and a resource movement effect. Looking at the spending effect, Auty (2001) suggests that the increased export revenues increases the demand for both tradables and non-tradables although spending on tradables fails to raise their domestic prices because prices in an open economy are determined in international markets. Consequently, any excess demand is met by imports. (Auty, 2001). Looking at the relative price effect, Auty (2001) suggests that failure to sterilize the increase in foreign exchange will result to an appreciation of the currency, which will in turn reduce the domestic prices of exports as well as those of imports competing with domestic products. In addition, a currency appreciation will lead to a reduction of the rents of the booming sector but may not be sufficient to reduce the sector’s output. (Auty, 2001). Domestic prices of non-tradables will rise with the rise in demand and these prices will neither be affected by the currency appreciation nor competitive imports. This will therefore result to an increase in the prices of non-tradables relative to the prices of tradables, as well as a reduction in exports and an increase in imports. (Auty, 2001). Macroeconomic theory suggests that the national income of a country is positively related to exports and negatively related to imports. The net increase in imports therefore leads to a reduction in the national income of the mineral-based State, which in turn hurts its economic development. Finally, as concerns the resource movement effect, Auty (2001) suggests that the movement of resources between sectors will also affect capital accumulation. Assuming a relatively labour-intensive non-tradable sector and a capital-intensive tradable sector, the movement in favour of the non-tradable sector will tend to raise wages and lower returns to capital thereby reducing capital accumulation. (Auty, 2001). In addition, assuming manufacturing is favourable to growth and that mineral resource booms cause it to decline, the mineral-based economy could experience slower long-term growth than the case would be if it had no mineral resources. (Auty, 2001). To support this view, Auty (2001) cites a number of studies that argue in favour of the fact that mineral resource booms tend to limit the growth of developing mineral based economies. For example, Matsuyama (1993It has also been sugges ted that mineral windfall facilitate irresponsible fiscal and trade policies. (e.g., Gelb, 1988; Ranis, 1991; Ranis and Mahmood, 1992) cited by Davis (1988). The issue as to why mineral-based economies remain underdeveloped is somehow controversial. (Auty, 2001). On the one hand, Mainstream economists have argued that primary commodity exports are the only way that countries in the early stages of development can generate the foreign exchange necessary to pay for essential imports and to service foreign debt. (Auty, 2001). On the other hand, Structurist economists (e.g., Presbish, 1950) cited by Auty (2001) argued that a long-run decline in prices for primary exports is an inevitable result of the increasing use of synthetics, shrinking raw material content of finished products and low elasticity of demand for raw materials. In addition Auty (2001) argues that oligopolistic markets in developed countries indicated that productivities increases there were captured in the form of higher income by workers and owners, while in the developing countries productivity gains were passed on to (northern) consumers in the form of lower prices. What the structurists economists are saying in effect is that mineral-rich developing countries because they lack the capacity to transform their raw materials into finished products often supply these products to developed or industrialized countries at very low prices. Industrialised countries in turn transform these raw materials into finished products and sell them to developing countries at very high prices, which do not match the prices for which they supplied their raw materials. By so doing mineral-rich developing countries continue to face declining levels of economic developing at the expense of developed countries. This idea is consistent with dependency theory[1]. For example, Presbish (1950) cited by Auty (2001) projected a downward trend in the terms of trade for primary products in relation to manufactured goods imported by developing countries from developed countries. In addition, Abubakar (1989: p. 19) describes Africa as a continent locked in an unequal exchange with t he developed world. Being perhaps the richest continent in the world, Africa has been transformed into undeniably the poorest continent. The following is a quote from Julius Nyerere, a prominent leader in Africa: â€Å"Every morning I listen to the B.B.C. to learn the price of the cotton and coffee with which Tanzania earns its foreign exchange. The prices of tractors and other goods we need to buy are not announced; they are fixed by the manufacturers in the Developed World, and we learn what they are when we go to buy†. (Abubakar, 1989: p. 19) quoting Julius Nyerere. 3. Case Studies of Nigeria and Botswana 3.1 Nigeria Nigeria falls in the first category of mineral-based economies identified by Auty (1993) as hydrocarbon producers. Minerals constitute 62.3% of the country’s merchandise exports and 9.6% of GDP and its mineral dependence index is 36 (the mineral dependence index is defined as the mean percentage contribution of minerals to GDP, merchandise exports, and government revenues). (Davis, 1995) citing Kuburshi (1984); United Nations (1974, 1976, 1987, 1993a, 1993c); World Bank (1993). Nigeria’s mineral dependence index of 36 indicates that it is highly dependent on minerals. This is following from Auty (1993) who considers a mineral dependence index of 20% or more to indicate mineral dependence. Nigeria was ranked 19th among developing countries that depended on minerals in 1970. This was based on the ranking of countries according to mineral dependence index in 1970. Based on 1991 rankings, Nigeria still maintained the 19th position and its minerals as a percentage of merchan dise exports had increased to 86.0 percent, minerals as a percentage of GDP stood at 7.6 percent and its mineral dependence index was 46.8 percent. (Davis, 1995). According to Eifert et al. (2002) oil represents an estimated 37 percent of GDP in Nigeria, and 63 percent of consolidated government revenues. The political economy of Nigeria has had an important role to play on how oil resources are managed in Nigeria. The public sector is the principal controller of these resources, which has fuelled the functioning of an extensive machinery of rent seeking a political patronage. (Eifert et al., 2002). Nigeria is characterised by a fragile ‘political coalition’ of diverse ethnic and religious groups with diverse interests. Eifert et al. (2002) asserts that public expenditures in Nigeria are always ratcheted out of control during oil booms, leading to macroeconomic instability owing to the diverse number of ethnic and religious interests that characterise the country. For e xample Eifert et al. (2002) suggest that an estimated amount of $300billion constituting oil revenues has enriched a small group politically and socially influential elite during the last 2 to 3 decades at the expense of the majority of Nigerians who have become impoverished. This indicates that Nigeria has failed to benefit from a general economic welfare from its oil boom because of the selfish desires of a small political influential minority. This situation is consistent with Gelb (1988); Ranis (1991); Ranis and Mahmood (1992) cited by Davis (1998) who attribute poor economic development of mineral-based developing economies to mineral windfalls’ facilitation of irresponsible fiscal and trade policies. Nigeria’s case is also consistent with Karl (1997); Mahon (1992); and Shafer (1994) cited by Davis (1998) who attribute mineral-based economies’ failure to achieve substantial economic development to the entrenched socio-political rigidity and rent-seeking ass ociated with an extended period of mineral extraction. According to Eifert et al. (2002) Nigeria’s economic growth has been stagnant and it is estimated that its per capita income has fallen from approximately $800 in the early 1980s to approximately $300 as at 2002. Nigeria’s failure to grow can be attributed to its government structure. Throughout the military regime described by Eifert et al. (2002) as a period of military dictatorship, the manner in which the oil cycle was managed was solely determined by the federal executive. Government spending was so high that in 1976 it accounted for more than the entire increase in oil revenue. (Eifert et al., 2002). Nigeria therefore faced rising fiscal and current account deficits following a failure of the 1975 oil price rise to bring the budget back into a surplus. By 1981, Nigeria had accumulated huge amounts of external debt, accompanied by capital flight. (Eifert et al., 2002). Increase government spending therefore fa iled to accelerate growth and there was little evidence of an increase in overall welfare that would have been expected during the sharp real appreciation that followed the spending binge. (Eifert et al., 2002). Eifert et al. (2002) attribute Nigeria’s failure to develop to the fact that its potential gains were rather absorbed in the sharply growing inefficiency of a corrupt and progressively more wasteful and distorted economy. Nigeria has made some efforts to adopt a democratic State but Eifert et al. (2002) conclude that the outcomes in the management of Nigeria’s oil cycle in the new democracy are thus so far not very different from the past pattern. This indicates that Political institutions in Nigeria are therefore shaped by a longer history than the current political regime. There is still an excessive an unsustainable increase in public expenditure, with considerable macroeconomic instability, and little to show in the growth and economic development. (Eifert, 2002). 3.2 Botswana. Botswana was ranked 35th in the mineral dependence index for developing countries in 1970. It had 0 percent for minerals as a percentage of merchandise exports, 19.6 percent for minerals as a percentage of GDP and 9.8 for mineral dependence index. (Davis, 1995). Following the ranking based on the minerals dependence index for developing economies in 1991, Botswana was ranked 8th with an 83.0 percent of minerals as a percentage of merchandise exports. Its minerals as a percentage of GDP had also increased to 41 percent and its mineral dependence index was 62.0. (Davis, 1995). Unlike Nigeria, Botswana falls in the second category of mineral-based economies with diamond, copper, nickel and coal constituting the principal hard minerals that it exported. (Curry, 1985). According to Curry (1985), Botswana, unlike other mineral-based economies in Africa that suffer from economic stagnation and political turmoil, Botswana has recorded an economic growth and political stability as a result of its fortuitous endowment of mineral wealth and sound macroeconomic management. Despite this development, Curry (1985) suggests that this growth strategy has produced underdevelopment and economic stagnation in rural agriculture, as well as increasing economic dependency on the republic of South Africa. Increases in mineral revenue has enriched the elite who have joined white farming families as the country’s large scale cattle owners, purchasing land and cattle from savings of relatively high salaries in the mining and public sectors. This situation has created two factions in Botswana. One rich and the other poor and there is an emerging clash between the rich and the poor that could destabilise and threaten an African success story as described by Curry (1985). In effect, mineral revenue in Botswana while it has helped to fuel economic development is threatening the growth of the agricultural sector and has also helped to widen the gap between the rich and the poor. Botswa na’s case is consistent with the Dutch disease which is consistent with the idea that a boom in one sector threatens a recession of other important sectors of the economy. The boom in the mineral sector has helped to fuel a recession in the agricultural sector in Botswana. 4. Conclusions and Recommendations This paper aimed at studying why mineral-based developing economies have witnessed more of economic problems than economic development. Nigeria’s case indicates that the country has suffered from autocratic and fractional democracies that have resulted to a poor management of the revenues from oil booms. As a consequence, mineral revenue has been spent without any fiscal discipline. This has led to the satisfaction of the desires of an influential minority at the expense of the welfare of the greater majority. Nigeria has basically not witnessed any economic development throughout boom in its oil sector. On its part, Botswana has witnessed growth and development as a result of its mineral resources. However, the boom in the mineral sector is hurting the agricultural sector and the situation has only benefited the rich who are using the mineral revenue to take over all land in Botswana for cattle rearing. Like Nigeria, Botswana’s mineral revenue has to some extent benefi t an influential minority. Based on the above, this paper recommends a more democratic regimes in mineral-based economies as well as an emphasis of the importance of all sectors in the economy. Governments in developing countries need to understand the importance of the manufacturing industry. Nigeria for example should be more concern about building its own oil refineries so as to boost its manufacturing industries. In Botswana, the government should implement high taxes on the rich elite so as to help redistribute the mineral income to the poor. Subsidies should be provided to the poor farmers. By so doing, there can be an equitable distribution of land, which will in turn boost the agricultural sector. Bibliography Abubakar A. (1989). Africa and the Challenge of Development: Acquiescence and Dependency Versus Freedom and Development. Praeger Publishers. New York. Auty R. M. (2001). Sustaining Development in Mineral Economies: The Resource Curse Thesis. Routledge. Auty R. M. (2001). The Underperformance of resource-abundant economies. Resource Abundance and Economic Development. Edited by R.M Auty. UNU/WIDER studies in Development Economics. Oxford. Curry R. L (1985). Mineral-based growth and development-generated socioeconomic problems in Botswana: Rural Inequality, Water scarcity, food insecurity, and foreign dependence challenge governing class. American Journal of Economics and Sociology, vol. 44, No. 3, pp. 319-336. Davis G. A. (1998). The minerals sector, sectoral analysis, and economic development. Resource Policy, vol. 24, No. 4, pp 217-228. Davis G. A. (1995). Learning to Love the Dutch Disease: Evidence from the Mineral Economies. World Development, vol. 23, No. 10, pp. 1765-1779. Eifert B., Gelb A., Tallroth N. B. (2002). The Political Economy of Fiscal Policy and Economic Management in Oil-Exporting Countries. Policy Research Working Paper, No. 2899. The World Bank, Africa Regional Office. Lievesley G. (2003).DependencyThe Concise Oxford Dictionary of Politics. Ed. Iain McLean and Alistair McMillan. Oxford University Press, Oxford Reference Online. Tà ©treaul M. A., Abel C. F. (1986). Dependency Theory And The Return Of High Politics. Greenwood Press. New York. Footnotes [1] Dependency theory built upon the United Nations Economic Commission for Latin America (ECLA) which characterized the world as divided into centre (the developed, inudstrialised North) and periphery (the underdeveloped agricultural South). (Tà ©treaul and Abel, 1986; Lievesley, 2003). Dependency theory tries to explain the external mechanisms of control exerted by the centre on the periphery. The centre maintained the periphery in a state of underdevelopment for purposes of super exploitation. (Tà ©treaul and Abel, 1986; Lievesley, 2003). Dependency theory therefore indicates that underdevelopment was not an original or inherent condition, it could rather be explained by the historical relationship between the developed and developing world.

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Censorship should be enforced because it is needed into today’s society. Censorship needs to be used in media, hate speech, and obscene material. nbsp;nbsp;nbsp;nbsp;nbsp;To begin with, the media has very negative effect on society as a whole. â€Å"The mass media—movies, television, and recordings—needRead MoreCensorship Essay1325 Words   |  6 PagesCensorship â€Å"Congress shall make no law†¦prohibiting the free exercise thereof; or abridging the freedom of speech or of the press, or the right to petition the government for a redress of government.†(Ravitch, 118) As stated in the First Amendment of the United States Constitution, the people of this nation have the right to exercise their beliefs out loud, or in writing. With this in mind, does the government have the right to undermine the foundation of our nation, and censor what we readRead MoreThe Debate of Censorship766 Words   |  4 PagesRights guarantees its citizens the freedom of expression, but how far does that freedom extend? 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Censoring mate rial is the responsibility of the individual, not the institution itself, andRead More The Censorship Debate795 Words   |  4 Pages The Censorship Debate nbsp; nbsp;nbsp;nbsp;nbsp; Do words such as nigger, bitch, or ass offend you?nbsp; The answer may seem clear cut, but our nation has been struggling with the issue of censorship almost since its conception.nbsp; To many, the aforementioned words are a part of their everyday vocabulary; to others, they are vulgar and unacceptable.nbsp; The issue of censorship is much more than just words.nbsp; There have been huge controversies over the negative ideas andRead MoreCensorship in the Media1115 Words   |  5 PagesIs Censorship necessary? â€Å"Once a government is committed to the principle of silencing the voice of opposition, it has only one way to go, and that is down the path of increasingly repressive measures, until it becomes a source of terror to all its citizens and creates a country where everyone lives in fear. -- Harry S Truman Thesis: Although some people believe that censorship is adequate to select what things does the society will be good and can live around it while others believe that there

Why Germany Lost the First World War Free Essays

Why Germany lost the First World War The First World War ended with the triple entente as victorious (with help from the Americans). Some reasons to why the allies won the war were because of; Germany had to fight a war on two fronts, the unstable political situation in Germany, the allied naval blockade, German economy, failure of the schlieffen plan, interception of the Zimmerman telegram, the German naval blockade on Britain (sinking of American ships), development of the tank and anti-submarine weapons, the advancement of new technology that required new tactics. The Naval blockade The British blockade was a key factor in the defeat of Germany. We will write a custom essay sample on Why Germany Lost the First World War or any similar topic only for you Order Now Starved of supplies, the German army was weakened and the German people lost some of their will to support the war. The war at sea was one of the main factors that contributed to Germany’s defeat. To help the British navy survive against the German submarines the British used several different techniques to stop their boats from being destroyed. The British used mines and depth charges. Also to reduce the allied shipping losses all merchant ships travelled with a military convoy which provided protection to the merchant ships. When the convoy formation was applied the allied shipping losses decreased by 20%. Another technique used was Q ships. Q ships were merchant ships with disguised heavy guns. Q ships were the reason that German submarines stopped warning the enemy ship that it was about to attack. The effect of the British blockade of Germany was that there were 300,000 deaths that were related to malnutrition and starvation during 1914-1918 among civilians. The blockade also cut supply chain of nitrate that was used to make explosives and also used in fertilizers. Weaponry The tank was a British invention. It was first used at the battle of the Somme. The tanks advanced in front of the infantry, crushing barbed wire fences and spraying the enemy with machine-gun fire. Yet the tank was very unreliable since half of them broke down before reaching the German trenches, also the tanks were not very agile they moved at first only at a walking pace and the tanks were not very maneuverable. Also the Germans used poison gas (first used in Spain) to fight the enemy this weapon was very effective in the war, yet this weapon was unreliable due to its dependence on the direction of the wind. Since if there was a sudden change of direction in the wind the poison that was just released could be swept back against the Germans. Due to the circumstances of the war as it changed from a quick and rapid war to a static war with the use of trench warfare and competition of modern weaponry. Failure of the Schlieffen plan The German plan was to sweep towards France thinking that Russia would be very slow in mobilizing its troops. The plan was to sweep in through Belgium (Germany thought that there was not going to meet any resistance from Belgium and also not it did not think that it would be violating the treaty of London), then sweep in towards Paris and invade France. After France had been invaded they would direct their forces towards Russia whom they thought would be very slow mobilizing its troops. The Germans were wrong about the Belgians, the Russians and the English. The Belgians put up great resistance there by slowing the advance of the German troops. The Russian army was a lot quicker to mobilize than expected so now Germany was ending up doing what they wanted to do the least fight a war on two fronts. The Belgians slowed down the German troops long enough for the entente troops to arrive to meet the German troops. Due to the equality in strength this led to a race to water in effort to bypass the other army. This led to trench warfare. The Germans were not prepared to do this type of war, they did not have the resources to do this due to the british naval blockade. Concerning the Schleiffen plan there were a few severe miscalculations that led to gargantuan problems, the Germans had miscalculated the amount of soldiers, supplies and communication that required to be transported across the country from east to west and back. This miscalculation was not expected due to Germany thinking that Russia would be slow to mobilize and thereby give Germany time to first beat the French then later turn all their forces towards the east to face Russia. Weak Allies Germany had chosen her allies badly, they had allied themselves to the decaying Austrian Empire, Ottoman Empire and Italy. Germany had chosen badly when relying on Italy to help out in the war since as soon as war was declared Italy pulled out of the alliance. Also Germany had to constantly assist the Austrian Empire in protecting their own territory. This led to problems as this exhausted troops that would and should have been sent to fight the war in the trenches. Germany also sent supplies that should have been sent to the soldiers fighting on the front line. If Germany had stronger and more reliable allies then the outcome of the war would have been different. Political Unrest As the war went on and millions died Germany’s censored propaganda released only tales of glorious combat and victory. As this propaganda continued the nation was starting to suffer from the naval blockade. As thousands were dying the nation was releasing posters saying how well the war was going. The false propaganda started unrest inside the German nation, the unrest came from both outside the government yet also from inside. The socialists wanted to seize the power and take control of the nation, whilst this was happening inside the country soldiers were starting some unrest as arguments and some minor protests came up, these protests led to mutiny on the seas. The involvement of USA The Germans also tried to make a naval blockade of their own on Britain. They also included a policy of â€Å"unrestricted submarine warfare against all ships that they suspected were carrying supplies to britain†. This was very effective since the British were suffering from the shortages of supplies. Yet the germans also sank a great amount of American ships which helped bring the Americans into the war. When the Americans discovered the Zimmerman telegram about how Germany hoped to ally itself with mexico against them the final song had been sung. USA declared war on Germany on April 1st 1917. The war devastated Europe, it changed the geography of countries for a very long time, it destroyed empire such as; the Austrian Empire, The Russian Empire, the German Empire and later the Ottoman Empire. How to cite Why Germany Lost the First World War, Papers

Evolution of the Finance Function - Click To Get Solution

Question: How the finance function has evolved over time from playing a traditional role to a more advanced role? Answer: In this era of 21st century, where internet has become part and parcel of our life. Globalization, new forms of competition, and higher investor expectations has expanded the roles of finance function. The growing range of business and organization opportunities has contributed to the need to reassess what finance staff does. It is highly needed as to what finance staff should do and how they can add value to the business. Nowadays CFOs are required to create more proactive and forward looking agenda so that business can survive in this competitive world. It is highly required by accountants to move their roles from score keepers to a more proactive score maker role. Traditionally, in many businesses, the role of finance function has been in the background keeping track of the money. They used to do functions like payroll, payables, receivables. They used to handle matters like controlling costs and budgets and reporting on all of this. But top management is demanding more and better data production faster with more consistency. This led to the development of bigger and better ERP systems led by the finance function. Still, the problems were not solved as because top management wants the finance function to focus on greater and greater details. More and more data does not give valid information for better business decisions. Finance function should provide data which will provide judgment on performance of the whole system. They should provide information on profit centers and cost centers and also on make and buy alternatives. Hence the role of finance functions has become very wide. There is lot of challenges in the finance sector but with the upcoming of globalization that has affected the finance sector a lot. During the past two decades, financial markets around the world have become interconnected. It has brought lot of benefits to the investors and savers. But on the other hand lots of challenges and risks has emerged in the economy. In todays world of globalization lot of financial options are there. Three decades ago, borrowing of loan from domestic bank was restricted but today we have many more option to choose from. We can shop around the world for loan with lower interest. There are lot of forces which is driving globalization of finance. Today there is also globalization of national economies. In this competitive world for eg. if someone is manufacturing television sets then also there are lot of competition like manufacturing can be done at one place and distribution at other place. So this has led to the increase in the demand of cross-border finan ce. There are lot of changes in the capital market also. The finance function is trying hard to adapt to the challenges in order to serve management in the better way. Managing global organizations has been a business challenge for centuries. Leaders of todays finance functions continue to work hard so that they can boost their relevance. They are also trying hard to add value to the business. They have also started working on strengths, weaknesses and critical capabilities across core finance process areas. Finance function is working on proactive basis like what will be the changes in the finance operating models, control and systems in the coming years. It has become the role of finance to examine how much amount it is going to invest in future with efficiency and effectiveness. Finance function is also trying hard to shift its focus from basic transaction processing and financial reporting and control activities to strategic and forward looking performance. They are also learning from senior finance executives so that their knowledge c an lead to greater success. Being global brings clear strategic benefits. It has brought ability to access new customer markets, new suppliers and new partners. There is lot of scale and scope benefits also. Finance function is also trying hard risk can be diversified and loss can be avoided. Finance leaders are trying to do lots of research and development work so that proper investment can be made by them which can yield greater returns. Large companies enjoy economic leverage. They are trying to achieve economies of scale. After lot of research works The International Monetary Fund confirms that the ten fastest growing economies during the years ahead will be in the emerging markets. Working capital can be calculated by subtracting Companys current liabilities from liquid assets. Calculation of working capital is easiest of all as because it gives the true picture of any company. It gives the investors lot of information about the company. Current Assets Current Liabilities = Working Capital. It helps the finance managers to for see any financial difficulties that may arise. Poor working capital leads to the financial pressure on the company. Working capital is a also a common measure of a companys liquidity. It also tells us about the efficiency and overall health. Positive working capital means that company is able to pay off its short term liabilities immediately. But negative working capital indicates that company is unable to do so. Inventory is a major component of working capital. There are lot of companies who try to avoid this situation by investing so that shortages of working capital can be avoided. Working capital shortages can lead to the closure of business. There are two kinds of working capital: Gross working Capital and Net Working capital. Management of working capital is considered to be one of the most important area of day to day management of a firm. It is concerned with adequacy of current assets. Current ratio and acid test ratio is the best indicator of working capital situations. There is also a working capital cycle. There are various components of operating cycle. Raw Material Storage period, Work in progress etc. There are lot of factors which the management considers at the time of determining the working capital like production policies, Nature f Business and credit policy. There is balance sheet information about TCS for 2013: Total Current Assets = 31576 crores Total Current Liabilities = 11842 crores Therefore, Working Capital = 19734 crores There are lot of other factors which also which affects the working capital like Marketing conditions, conditions of supply, Growth and expansion, level of taxes, dividend policies, price level changes, operating efficiency and inventory policies. The need of working capital varies according to the production policies and it provides support system to the management. The calculation of the working capital provides the management about the need of as to how much working capital is required and when. The working capital is very useful in the company. It depicts the financial performance of the company. There is a lot of holistic approach to managing the end to end processes that influence working capital performance. No business can run without adequate investment in working capital. It provide support system to the management. It is basically refers to the amount of fund required to finance current assets. So in this way it can support to the finance function. So, the role of finance function has extended a lot and if calculation of working capital is done properly then it provides greater support to the management. There is lot of possible roles for the finance function in a corporation. The role of finance is basically to focus on reporting and compliance but financial accounting management is also important. Finance serve as the integral part of the management team. Hence working capital management is very important part of finance function. References https://www.researchgate.net/publication/242620337_Working_capital_management_efficiency__A_study_on_the_Indian_cement_industryhttps://www.ijept.org/index.php/ijept/article/view/Evaluating_the_Impact_of_Working_Capital_Management_Components_on_Corporate_Profitabilityhttps://gbr.sagepub.com/content/12/1/159.abstracthttps://astonjournals.com/manuscripts/Vol2012/BEJ-60_Vol2012.pdf