Mining and Employment

I love the debates that comes out of mining sector. But most of it is actually lack of understanding of several issues. That is where the problem is.

Mining essentially involves depleting of natural resources and degradation of the environment when extracting the needed resource from the ground. The official definition will go as: mining means extracting minerals from the earth. So whatever decision one has to make about mining, it should address the depleted resources, the negative externalities of that depletion, the cost on environment (wont include this in externality), the positive externalities (such as job creation, revenue for tax collectors, etc), etc

Now a rational decision on this issue will have to weigh the costs and benefits before any decision to allow mining to take place anywhere. For Zambia and other developing countries, I think the costs and benefits should also take into account the costs of collecting that revenue in the wake of tax avoidance and tax evasion. It certainly wont pay, to include revenue which no one will ever collect!

So can we sum all the costs and then the benefits? Will any mining project pass that test? Frankly, I think mining in this country has more costs than benefits since the privatization jump on our roofs. We have seen more depletion and rarely few positive outcomes! Even Switzerland makes more tax revenue from our mines that we do. I think we are lost in the "employment" fight we don't see the real costs to this nation. If our aim was to really get the maximum benefit from mining, a lot of things would be done differently. Since that is not the aim, but employment, our aims fall short of any benefits. Let me explain.

Mining Efficiency

For this country and indeed any country to achieve mining efficiency, that is, extract the minerals at least cost and sell them at high price, we need to look at the costs of that extraction. Costs are many and include, royalties, labour, fuel, rentals, licenses, etc. A reduction in one of those elements will reduce the cost of extraction and surely makes for a good bargain.

However, the country imposes a cost on the mines through demand not to lay off workers. Hallo! We want efficiency, so the mining company would really do good in that area if they reduced the work force and instead invest in capital equipment that would extract the minerals cheaply compared with a man with a pick! Are we then saying we can do with the inefficiency in the mining sector as long as the people are employed? I have heard people say, they would rather have that since mines "cheat" in taxes. My view is different, if we need to do something, we must do it the best way we can. If we can't do that, we should as well close the mines and find something else to do. Mining companies may actually be motivated to "cheat" on the basis of balancing their books since we have bloated there work force. Now if we offer no conditions to them, we will have a better bargaining stand since all mining companies need to do is carry out an efficient operation.

My take on the mining would actually be to run them on a whole new platform that will force efficiency and productivity in the country. Many compare with Chile. This is a wrong comparison. They don't even need value addition as it is useless for them. Our case if different. We own less in the mines compared to 50% of which they own. Therefore, our aim should be to get more from these mines in form of value addition. The country will get more from the value added compared to exporting of raw minerals. If the companies want to export the raw minerals, we control it through taxes. Anyone exporting should pay export tax! Right now, there is no motivation to add value to the copper that we export. Tax revenue has also eluded the country. Meaning we are losing out on both fronts!

What Value Addition?

The value addition I talked about, still remains. It is here.

The setting up of "support industries" around the mining sector will bring in better rewards, especially if we stop the export and tax leakage in the current exports of the mining sector.

Environment Stance

There exist a principle in environment which states that: Polluter pays principle. This simply means whoever will bring about harm to the environment will have to clean it up and pay for all the costs related to that pollution.

So our position for someone to setup a mine in a lake is simple, how then will that person clean up the environment. When that issue has been clearly sorted out, we move now to the other costs, then look at the revenue one will make and address the positive externalities on that end. 

But what shocks me, is people talking about the employment that will be created by the mine and ignoring the cost of that environment! We are doing it wrong, lets start from the cost aspects and only move to looking at the employment when the cleaning up of the environment has been addressed. What value is a mine employing 2000 workers and then a million die from environmental degradation? Are we really so into making jobs available that we will even jeopardize our environment to get people employed?

What are our cost - benefit analysis on this issue? Environmental issues are one thing that should come first, everything else second. What villagers are there who would cost the country's environment to be employed. What genuine revenue will come out of this.

Mining Should Not Be For Employment

Mining sector should therefore not be looked at as an employment engine. It is a resource sector whose returns should be pumped into the economy, clean up the mess it generates and ensure these returns are pumped back into high growth sectors of the economy.

The "support industries" should then be the area of focus for employment. These will employ more and will have great efficiency in the mining sector. The people will benefit more from this than imposition of employees on the mines. It is a modern world which uses modern technology, the mines are not any different. If they can't contribute to tax revenues, do we really need them to operate in this country?

Fight Tax Evasion/Avoidance ... Don't Give Aid

A lot of African people have stood up and said no to Aid. For obvious reasons, Aid has been around for decades with little to no hope of seeing Africa move a step closer to development and provide for its people. 

In extreme cases, people have even claimed a reduction in living standards as statistics show that African people have become poorer in the time of Aid. From 11% poor to 66% is a scary statistic. 

"Despite a deluge of Aid between the years of 1970 and 1998, poverty on the continent skyrocketed from 11 percent of the population to 66 percent, which means over six hundred million Africans are now impoverished." (Guernica)

This is under the claim that over 1 trillion dollars have been sent. A figure nicely fought by pro-aid people like Owen Barder that the figure is less than trillions of dollars! "since aid began in the 1960s donors have given a grand total of $502 billion to sub-Saharan Africa, which is worth about $866 billion in today’s prices. (Table 29; excludes debt relief.)". But is it really trillion dollars or no does not bother me. The fact that it has not worked will not make a point for it because the figure is $200billion less to be regarded as a failure! Will it make the point more true if they said 'despite the 500billion to 800billion of aid, there is nothing to show that aid is helping Africa (oh sub-Sahara Africa?' I think the substance that aid has failed to improve the lives of the continent is priority in considering this issue even if you disagree on the figures. I think the case that this policy should be re-looked at is a good one and one that should be taken on for people truely interested in seeing the growth of Africa and an improvement of people's life. Surely, there is no transparency on aid (even recognized by the OECD - "The current lack of transparency and predictability of aid have been recognized as key bottlenecks in making aid more effective."), will a $200billion not be spent through back door "help"? If you really want the $1 trillion to show up somewhere before you indicate that aid has failed.

My alternative to aid has been fairness in trade and the West not stealing the resources from Africa. After all, it is common knowledge that the West benefits more from Africa and only send Aid as a personal action to sleep at night. 

By calculations that need not be very complicated and require a lot of resources, just qwids (1) I have created a graph of aid inflows into Africa from 1960 to 2012.

Now we see how much aid has been increasingly off-loaded into Africa and one would expect a corresponding effect on eradicating poverty. The simple graphic data I could find is on a working paper by Dr. Mark Perry (University of Michigan) from this post.

Not much improvement from the '70s to warranty a fight to maintain the status quo. Obvisoiusly, updated data is needed and I am working on it.

On the other hand, data from different sources shows the same dismal result - aid is not helping at all. "Helping Africa is a noble cause, but the campaign has become a theater of the absurd – the blind leading the clueless. The record of Western aid to Africa is one of abysmal failure. More than $500 billion in foreign aid – the equivalent of four Marshall Aid Plans – was pumped into Africa between 1960 and 1997. Instead of increasing development, aid has created dependence.....
The more aid poured into Africa, the lower its standard of living. Per capita GDP of Africans living south of the Sahara declined at an average annual rate of 0.59 percent between 1975 and 2000. Over that period, per capita GDP adjusted for purchasing power parity declined from $1,770 in constant 1995 international dollars to $1,479. The evidence that foreign aid underwrites misguided policies and feeds corrupt and bloated state bureaucracies is overwhelming."(CATO Institute). I think Andrew Mwenda and Dambisa Moyo are on to something that can clearly be seen although fought by the likes of Bono and Bill Gates. Aid is not doing Africa any good.

Tax Problems

I believe this is an area where Bill Gates and the team can help Africa and not handouts! There is a lot of out flows in revenues from Africa which can have far better impact on development prospects and eradicating poverty than aid. I would have loved to show how good Bill Gates' company was doing on that front, but this is not helping. I wouldn't want to think of the effect on Africa itself.

So if Africa and the West got together and fought this battle and seriously on disclosure, more results would come out than what Aid has done so far. Maybe as a result of recent fights by the West, Africa may actually benefit! 

"Rich countries have promised much but delivered little meaningful support to African countries on tax evasion, said a report ahead of a G8 meeting chaired by David Cameron.

The UK prime minister has made tax and transparency key subjects for next month's summit at Lough Erne, Northern Ireland, but this year's Africa Progress Panel report, Equity in Extractives, criticises the rich countries in the Organisation for Economic Co-operation and Development (OECD) for their failure to strengthen disclosure standards.

Africa loses twice as much in illicit financial outflows as it receives in international aid, the panel said. It is unconscionable that some companies, often supported by dishonest officials, use unethical tax avoidance, transfer pricing and anonymous company ownership to maximise profits, while millions of Africans go without adequate nutrition, health and education, the panel added."(Guardian)

I have said it before on this blog, no help is coming out of the West on this issue. It has more contribution than Aid will ever have. Most importantly, it would kill the dependence that Aid has created.

Edited:
You may wish to read the latest developments on this topic here (Give us access to information on tax havens and tax avoiders, African leaders tell David Cameron ahead of G8 Summit.)