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sharing in governance of extractive industries

New mining technologies and the fiscal space: ensuring shared value and sustainable development

Addressing the potential loss of benefits from local employment when new mining technologies are introduced: What new arrangements are needed between host governments and mining companies?

The adoption of new technologies in the mining sector presents a fundamental challenge for governments and companies to safeguard their economic interests within the context of the shared value paradigm.

 

There are growing indications of widespread socio-economic disruption due to technological change in the mining sector. Initial estimates from the African Development Bank show that up to 200,000 jobs could be lost over the next decade due to mechanisation in Southern Africa’s mining sector. Many African countries are not fully prepared for such a jobs crisis.

 

But there are several types of fiscal solutions that can help countries and industries to navigate this ‘new deal.’

 

  • Policymakers can reconfigure fiscal regimes and commercial arrangements to allow greater state participation (and risk-bearing) in mining operations. These could resemble the production sharing contracts and joint ventures that are more widely used in the petroleum sector.

 

  • The petroleum sector also provides examples of progressive fiscal regimes that self-adjust according to prices and commodity market dynamics, effectively distributing a fair share of the risks to governments and companies. However, to put such a flexible regime in place demands technical and political capacity, if local players want to redesign the rules without scuppering relations with mining companies.

  • Stakeholders could cooperate on stronger investments in knowledge generation and infrastructure —by focusing on tertiary and STEM education, R&D and innovation, and other technical skills. It's possible to reskill affected mineworkers and build a new labour pool for the mines of the future, but that is a long-term endeavour, while the effects of technological disruption are more immediate. There are regional mechanisms (such as the Africa Continental Free Trade Area, Regional Mineral Value Chains) that can help to close national skill gaps and generate linkages to local industry.

  • Countries can promote the growth of alternative industries (e.g. agriculture, manufacturing) to absorb displaced workers, and create opportunities for more diversified and resilient economies.

 

In sum, the glass may be half full. Governments have the opportunity to address these challenges by crafting fiscal models that allow them to be more nimble. And, recognising the limits of maximising mineral rents as a development strategy, they can invest in high-tech skills, research, and innovation, which will help transform mineral endowments into lasting economic prosperity.

This may be an optimistic view, but it is rooted in real practices with proven value. I am keen to know if others share my optimism, believing that such new fiscal arrangements and investments in "soft infrastructure" can make a difference.

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Comment by Aaron Cosbey on June 4, 2019 at 15:36

David, very good summary.  Hugh, great comments. A couple of thoughts on the latter:

 

  • Strongly agree that we’re not talking about trying to stop technological progress. Not only is that not possible, but the consequences of under-investment have harsh social and economic results in the long run, as you point out.
  • Also of course agree that new mining tech does not all lead to unemployment, or all have negative impacts. In fact, most of the suite of new tech now being rolled out has no significant labour impacts – it’s all about optimizing performance. And there are plenty of benefits that go along with that, including longer viability of existing operations, for example. But the types of tech that do replace workers have some negative impacts, and it’s worth exploring the implications.
  • While it’s true that mining has always been about innovation and adapting to new techniques, the current wave of new tech stands out as transformative on a scale not seen before in this sector. It's not all coming at once, and not in equal measure to all sites, but governments need to start planning for a different model, when it comes to mining sector employment.
Comment by Hugh Thompson on June 4, 2019 at 9:11

Hi All,
again, I'm late to the game. From reading the posts, these are my thoughts;

mining is an industry that is based on latest technology. Always has been. Always will be.

South Africa in early 1970's produced @ 1000 Tonnes of gold per year or @ 80% of the worlds production. In 2018 it produced ~130 Tonnes, for @ 4% of global production.
That change is due to many, many factors, but in part has been a reluctance to invest in modern technology.  The mining world (including local companies) spoke very clearly. 
This does not mean that all mines will always be at the absolute cutting edge, or the same level of technology.  However please don't think that the non-use of modern technology is an option. Can't put genie back in the bottle.

Seeing the implementation of technology as having a mostly negative impact is quite a mis-read - I believe.  A mis-read of how technology change has played out in history, what is actually happening now in mining and what is happening with technology in other industries.

Also

1. It would be valuable to look and understand why mining companies are reluctant to invest in the education systems. Compared to, say, local infrastructure or health projects.
2. new technologies do not always / only mean reduced unemployment.
Look at the stats above regards gold production; global gold production has risen since early 1970's from @ 1250 tonnes to 3300 tonnes. Nearly 3 times as much.  And most of that extra production is due to a two significant step-changes in technology dating from 1980's.  There are now far more operating gold mines in the world now, compared to 40 yrs ago. And far more people employed.

no, not everyone is a winner. But the lives and conditions of the 1970s underground miners is not something to aspire to either.

3. What technology in mining does offer is an opportunity to have advanced technology implemented in rural and remote locations.   Other industries that use similar technologies, and (in theory) provide similar education routes do not need to go to the locations that mining goes to.
That has always been the story with mining, and remains so. I come from a mining town, for 75 years something like 40% of university students from our town attended via company scholarships. I did.

4. Legislative efforts by governments to constrict or prescribe activities by the private sector rarely work.  Need to look at ways to reward desirable outcomes.
Thus, Develop the correct lead indicators for their success, and develop a systems which rewards on their measurement.  Why? because as Vanessa and others indicate, education is the basis - but it is a long term project.  Indicators such as completion of Yr 7 at school, female attendance at high school , apprenticeship numbers are all lead indicators. 

5.  Other examples of this include looking at the types and conditions attached to visas for foreign workers.   Both PNG and Botswana have good ideas in these areas, although the implementation is not even.   

Comment by David Noko on June 3, 2019 at 21:11

Hi Everyone
“New Tech, New Deal seeks expert and community-level input to help generate pragmatic proposals for how mining can make the fullest contribution to sustainable development”.
The past weeks conversations have been quite enriching and very informative too. I have read, participated and analysed the discussions with the view to synthesise and summarise the points as discussed.
My focus area is contained in the Topic as given above:
• New Tech, New Deal…
• To generate proposals for how mining can make the fullest contribution to sustainable (societal) development….
The content of the conversations covered quite a range of topics and a broad area. All in all, there appeared to be good convergence by the participants.
The following is a summary of the themes that emerges:
1. Participants generally agree that new technologies, in all forms, do impact employment, the livelihoods of communities and the revenues of host government, largely so, in resources dependent countries. Unless managed proactively, the impacts could be mostly adverse.
2. Technologies are already embedded in the industry with most mining companies already depended largely on high tech over the years. The concern raised, is the high speed at which these technologies is being introduced which directly affect the nature and types of current jobs where workers are replaced by technologies. Robots are likely going to be introduced soon.
3. This phenomenon and its potentially negative impacts must be mitigated.
4. Areas of probable solutions require a collective/partnership approach by mining companies and their OEM’s (Original Equipment Manufacturers), host governments and communities. These collaborations require a departure from the tradition “profit taking” approach that has historically been adopted by mining companies.
5. These collaborators must adopt a sense of “a sharing of benefits consciousness” and commit to new ways of pursuing development-based business approaches that is Inclusive, Productive, Safe and Innovative.
In the conversations also emerged possible and practical solutions.
Participant agree that for locals to benefit, there must be speed of response to the challenge of Tech. There must be reforms in many ways namely;
• Governments role must be to introduce regulations and reforms to ensure that jobs are not “exported” and to ensure that there are no erosions of revenues to the host governments. In this case other forms of taxations need to be introduced to mitigate losses caused by technologies.
• Mining companies and local governments must commit to reskill affected employees well in advance and adapt vocational training curricula in line with New Technologies. These adjustments to education and vocational training must align with some of the legitimate motivations for New Tech, being Productivity Improvements to compensate for lower grades, Safety and access to deposit in depth not feasible for humans in land and in the oceans.
I wish to add a few points that are relevant to this topic and were not directly covered:
• I believe that that communities have in many ways been disadvantaged for many years. Hence the huge trust deficits in most areas affected by mining and in many ways to areas as is the case in some countries in Latin America. The discussions about community FPIC (Free Prior and Informed Consent) remains an area of contestation.
• The question of ethical Leadership in managing transitions/ changes of this nature, Magnitudes and Impact is required. Whilst the discussions are about the “the mine of the future”, there has to be a conversation about the Mining Company “CEO of the future”. There were comments about the livelihood of investors imposing the need for “Fair Deals” among the parties. We notice increasing investor activism with regards to Sustainable Development by companies and their commitment to the SDG’s plus more and more calls for ethical leadership.
• Mining companies must urgently adopt new approaches in order to be acceptable to host communities, not just host governments and lastly,
• The impacts of electronic and social media will place pressure on companies to offer “Fair Deals” to communities.
I have deliberately drawn no conclusions in anticipation to a very interesting and mentally challenging Roundtable in Paris. Already there was mention that these discussions will continue to evolve. My call to action to all involved is that we, as influencers, must overtake and outrun the pace of change regarding New Tech and establish the appropriate foundations, systems and processes for New Tech “smooth” implementations.
David Noko
………………………………………………………….

Comment by Vanessa Ushie on June 2, 2019 at 19:21

Dear Simon, thank you for the useful comments. I agree with you on the need to channel resources into primary and secondary  education. These are the foundation for specialised disciplines such as STEM, which are vital to the mines of the future. Mining companies can partner with governments in designing and resourcing educational systems to be more practical and responsive to industry and business needs. Investing in education (human capital) is a win-win for governments and business due to the positive socio-economic spillovers that this generates. However, it is a long-term effort that should be factored into national mining strategies.

The point made by Kouassi on resilience and diversification in mineral-dependent countries is also very relevant.

On that note, many thanks to everyone that has contributed to the topic this week. It's been a very stimulating discussion, and there are good ideas to take forward in exploring how state-business fiscal models could evolve due to new mining technologies.

Comment by Simon Maurice on June 1, 2019 at 18:17
Very valid post Vanessa. Indeed, it is well understood and accepted that technology will reduce a considerable number of activities that are currently performed by people; especially, in the less technical / high repetition type tasks.

I would like to comment on your last 2 bullet points. Firstly, tertiary and STEM education, vocational and technical training are very important programs that can support socio-economic sustainability objectives. However, primary and secondary education are the precursor to trainability. Therefore, I would add the importance for industry to align with governments to support primary and secondary educational outcomes. This is particularly relevant in developing countries where education is known to be achieving less than the desired outcomes.
Secondly, alternative industries are essential for communities if the boom/bust cycle is to be avoided. Sustainability programs should be supporting entrepreneurial pursuits to establish sustainable business in the communities that they operate.
The challenge often seems to be that education and alternative industry ventures do not resonate with a mining company. Therefore, support typically is not forthcoming (let alone innovation).
I believe the social performance of mining companies must rethink their avenues of how they invest in communities and discontinue the 'build a soccer field approach' because it is the easier option.
Comment by KONGOUE Kouassi Mozart on May 31, 2019 at 18:04

Je suis d'accord sur la question que l'utilisation des technologies avancées dans le secteurs miniers en Afrique, constitue pour nos états africains riches en ressources naturelles, dénormes défis à relever; entre autres:
1-La perte d'emplois locaux ;
2- La faible utilisation des sous traitants locaux;
3- Problemes de contrôles de la productivité des entreprises extractives en matière de quantité réelle des produits extraits;
4-Les Problèmes environnementeaux socio-économiques et sanitaires;
5- Les questions de trêves, d'échappatoires ou d'évasions fiscales;
Et pourtant, la vision minière africaine veut un accroisseent de plus valeurs et d'emplois locaux.
C'est pourquoi comme solutions, nos gouvernants africains doivent :
1-Avoir une diversification et une résilience des économies d'Afrique riches en ressources naturelles:
2-Se doter de bases de données payantes pour contrôler la production et la vente des produits extractifs;
3-avoir une discipline fiscale globale en terme de capacité à produire des macro-prévisions crédibles sur le moyen terme afin d'échapper aux chocs exogènes

Comment by KONGOUE Kouassi Mozart on May 31, 2019 at 17:49

I agree that the use of advanced technologies in the mining sector in Africa is a huge challenge for our resource-rich African states; among others:
1-The loss of local jobs;
2- The low use of local subcontractors;
3- Problems of control of the productivity of extractive companies in terms of the actual quantity of extracted products;
4-Environmental, socio-economic and health problems;
5- The questions of truces, loopholes or tax evasions;
And yet, the African mining vision wants to increase more local values ​​and jobs.
Therefore, as solutions, our African rulers must:
1-To have a diversification and a resilience of the African economies rich in natural resources:
2-To have paid databases to control the production and sale of extractive products;
3-to have a global fiscal discipline in terms of capacity to produce credible macro-forecasts in the medium term in order to escape exogenous shocks

Je suis d'accord sur la question que l'utilisation des technologies avancées dans le secteurs miniers en Afrique, constitue pour nos états africains riches en ressources naturelles, dénormes défis à relever; entre autres:
1-La perte d'emplois locaux ;
2- La faible utilisation des sous traitants locaux;
3- Problemes de contrôles de la productivité des entreprises extractives en matière de quantité réelle des produits extraits;
4-Les Problèmes environnementeaux socio-économiques et sanitaires;
5- Les questions de trêves, d'échappatoires ou d'évasions fiscales;
Et pourtant, la vision minière africaine veut un accroisseent de plus valeurs et d'emplois locaux.
C'est pourquoi comme solutions, nos gouvernants africains doivent :
1-Avoir une diversification et une résilience des économies d'Afrique riches en ressources naturelles:
2-Se doter de bases de données payantes pour contrôler la production et la vente des produits extractifs;
3-avoir une discipline fiscale globale en terme de capacité à produire des macro-prévisions crédibles sur le moyen terme afin d'échapper aux chocs exogènes.

Comment by Vanessa Ushie on May 31, 2019 at 12:05

Hi Osvaldo, thanks for sharing this idea. Tax credits could be useful for preserving shared value in the wake of technological disruption, as mining companies offset operating costs while investing in well-defined skilling or reskilling programmes. Focusing on tech-based companies with potentials to create local supply chains is also a smart option that can attract new investments. The challenge will be for governments to use such tax credits in a strategic way, and linked to a broader policy framework on sustainable development.

Dear Mukasiri, thanks for the comment. It's encouraging to see that this topic is being discussed at the Zimbabwe Chamber of Mines policy forum. There is a need for much more multi-stakeholder dialogue across Africa and other parts of world, to better understand the impacts of new mining technologies, and design strategies to respond to the changing mining industry landscape.

Comment by Mukasiri Sibanda on May 31, 2019 at 6:05
Great article. Thanks for sharing. Currently i am representing ZImbabwe Environmental Law Association at the Chamber of Mines Annual 2019 Mining Conference, one of the issues raised by platinum sector is adoption of modern technologies- automation for production efficiencies
Comment by Osvaldo Urzua on May 30, 2019 at 22:58

Hi Vannesa and David, Thank you for steering this discussion.

An additional option to explore is to use tax credit to promote investment in training, definition of labor competences and certification of roles required in an automated mine to reduce the total cost to prepare the workforce to get the new skill to work in mining or other activity.

Since the 1980s mining industry has gone through a very significant vertical disintegration process, which has been driven the emergence of a very diverse sector of supplier to mining industry. This fast growing sector is globally organize and has been leading the introduction of new technologies in mining. Here we can find companies like ABB or Siemens.  This technology suppliers can play an important role to address the social challenges of automation. Tax incentive for this sector to support higher level of local content without sacrificing productivity.

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