Mamphela Ramphele Mining Indaba
BUILDING MINING INDUSTRIES OF THE 21ST
CENTURY: CAN WE GROW ECONOMIES BEYOND TRIPPINGS OF THE DUTCH DISEASE?
Cape Town, 6/2/2013
INTRODUCTION
Good morning distinguished
guests, ladies and gentlemen. These are difficult times to be in the mining
industry – even more so than a year ago when I first addressed you at the
Mining Indaba. At that time the mining sector was already in the midst of the rising
tide of resource nationalism and anti-mining sentiment. That sentiment has
grown stronger world-wide. In South Africa, my beloved country, the legacy of
the past has come home to haunt us in the tragedy that is Marikana and many
other violent incidents that have come to characterise conflicts over scarce
resources in our social relationships.
The benefits of high levels
of mineral resources have in many cases across the world tended not to benefit
the majority of citizens. There are exceptions. The Peruvian government
ring-fences royalty payments for mining communities and spends the money there,
while the way Norway manages its oil revenues is probably the closest we get to
an ideal model. The Norwegian government only uses four percent of its oil
revenues on expenditure, and the rest is invested in Norway’s Petroleum Savings
Fund, focussing largely on investments to develop other sectors of the economy.
Unfortunately these are exceptions and for the most, mining tax revenues vanish
in the black hole that is the central fiscus and end up funding large rural
estates for presidents.
Today I would like to take
you on a journey of imagining a global mining industry that operates on a
completely different model. I would like us to imagine a mining industry of the
21st century that is both a catalyst and an engine of growth in both
advanced and emerging economies. I would like to borrow the words of a friend
and colleague, Gunter Pauli:
“Countries with rich
mineral reserves and part of broad free trade zones are particularly affected
by the globalized economy, where increased demand for raw materials pushes up
commodity prices, which increase export revenues that strengthen the local
currency against the dollar. A strong local currency driven by ore exports and
direct foreign investments turn imports cheaper. This leads to a
de-industrialization, or the impossibility to ever build an industry, and
adversely affects agriculture that is dependent on overseas markets. This
phenomenon is known as the “Dutch Disease”. It affects large commodity
exporting nations like Colombia. (I must add South Africa at the top of the
list).
The only way to respond to
these adverse macro-economic effects of commodity driven export strategies is
to change the business model of the mining industry. Evolving mining from a
core business, focused on the extraction of ores and the export thereof to a
clustering of mining, agriculture and manufacturing using all available
resources of the mine, from land to energy and waste like rock refuse and
tailings. The design of a positive response strategy to social challenges like
artisanal mining, combined with securing a cluster of businesses around mining
could reverse de-industrialization. Better, this could create an economy that
remains vibrant after the mining operation have exhausted their resources. At
first sight, the process of clustering industries and social needs have no
relation. However this proven strategy that is now subscribed to by leading
global corporations adds value and jobs, while strengthening each competitive
position in every core business generating growth in the country.”[1]
My presentation today is
intended to start the difficult conversations that are essential to such a
re-structuring process in the mining industry. We often avoid difficult
conversations because we believe that the business of business, as one CEO told
me a fortnight ago, is to make money regardless of the socio-political
environment. The reality is that in the 21st century the
inter-connected nature of economics, social and political systems, fuelled by
rapid information technology knowledge and information dissemination, makes
such a simplistic business approach unsustainable.
I will sketch what in my
view are the key issues that the mining industry, governments and other
regulators, workers representatives and unions as well as citizens in general
should be discussing as a matter of urgency to set a new sustainable foundation
for mining. The key issues are:
-
How does one build a mine in the 21st century to ensure that the
benefits and risks of exploiting the resource base are shared more equitably by
all stakeholders?
-
How does one deal with legacy issues of old mine operations in a manner that
enables fair co-ownership of the risks and rewards in a sustainable model?
-
What needs to change in the framing of the paradigm of sustainable mining
within a greater focus on sustainable economies and socio-political systems?
These difficult
conversations have to be held in an atmosphere of candour, mutual respect and a
focus on the common good for each country. Governments need to listen very
carefully to mining houses and the industry as a whole. Of course when
governments are truly representative and accountable to all the people, it
needs to be a two-way street, and the mining industry needs to listen to them
as well. But it is not helpful to imagine that governments are the only
credible representatives of public good interests. Modesty on the part of
governments is essential to minimize the risks of conflating governing party
interests, government’s role as a regulator and the state as the custodian of
inter-generational long-term interests of the society as a whole.
The private sector must
confidently voice its views within the broad rubric of its accountability to
its shareholders whilst mindful of the shared long-term interests of sustaining
the industry in the challenging environment of the 21st century.
Silence in the face of abuse of power on the part of governments tends to come
back to haunt industry players.
The workers and their
representatives need to take a longer term view beyond annual wage increases.
Issues of productivity, use of technology and innovative business models
require openness to new opportunities. Defending existing jobs may ultimately
be to the detriment of sustaining the industry with new types of jobs yet to be
experimented with. Unions should be at the forefront of promoting innovation
and productivity as the surest guarantors of sustainable rewarding jobs. The
imperative of creating new types of jobs and livelihoods needs to be at the
forefront of all the parties to conversations about sustainability. Union
leadership is critical in forging partnerships that benefit society including
future generations.
TOWARDS
BUILDING 21ST CENTURY MINES
The extractive mining
industry models that have characterized mining in most countries of the world
over the last centuries are being challenged on many fronts. The idea that
economic and political elites can continue to capture the benefits of mineral
and natural resources is not only morally wrong but bound to lead to civil
conflict which is bad for everyone including business. Extractive industry
modes are by their nature unsustainable given their failure to invest in
innovation and creativity to enlarge the resource base and to allow new
entrants to bring renewal to the industry. Instead, mining has more often than
not relied on monopolistic business models that keep new entrants out thus
limiting the possibility of new ideas.
Elite pacts that have
underpinned most mining licence agreements across the globe are being
challenged by local communities and civil society actors. Greater transparency
is being demanded about the nature of the agreements, benefit sharing
arrangements, environmental impact assessments and management of the mining
footprints on ecological systems.
The proverbial resource
curse has continued to plague most emerging economies where political elites
are seen to be the sole beneficiaries of non-transparent licensing arrangements
with industry players. Extractive industry approaches are often inextricably
linked to extractive political systems driven by patronage networks that take
home the greatest spoils. In such circumstances higher royalties and taxes do
not necessarily benefit ordinary citizens who continue to live in grinding
poverty. Post-colonial Africa has more than its fair share of countries caught
up in the vicious cycle of the extractive industry mode in mining and other
natural resources. Nigeria, Democratic Republic of the Congo, Angola and now
increasingly my own South Africa are showing signs and symptoms of the resource
curse.
Inclusive economic and
political systems focus on institutions that emphasise meritocracy and promote
the contributions of the best talents and creativity of their citizens to
increase productivity and generate a sense of shared value in resources.
Unfortunately, South Africa has sustained an extractive economic system that
started with mining and energy companies, but now includes monopolies in many
other sectors including many serviced by large and powerful – and not necessary
– very efficient parastatals.
The experience of the black
economic empowerment programme demonstrates how this extractive economic system
has seduced new black elites to become part of the closed patronage system.
Very few BEE deals have really achieved what they set out to do – namely
empower the many and not the few. If we could go back to the drawing board I
would make employees the largest beneficiaries together with neighbouring
communities as well as communities in labour sending areas that provide the
mines with their manpower.
South Africa is also
increasingly finding itself in a very difficult position that reflects all the
symptoms of the Dutch Disease. The huge export revenues we enjoyed at the top
of the resource super cycle pushed up our exchange rate and rendered our
agriculture, textile and other industrial sectors increasingly uncompetitive.
The failure of successive post-apartheid governments to invest in, and manage
the creation of high quality education and training systems to enhance
productivity, has led to a classical unsustainable economic base.
The shrinking economic cake
alongside the rising tide of higher expectations that freedom would deliver
better material conditions has raised the risk profile of the country. The
tragic events in Marikana and protests by agricultural sector workers in the
fruit and wine farms in De Doorns in the Western Cape are a wake-up call
alerting South Africans to the many time bombs waiting to go off.
A turnaround is possible.
It must start with difficult conversations between leaders of the government,
mining industry, and worker representatives. The government must commit to
creating an environment of: policy certainty, higher quality physical and
social infrastructure, including education for the 21st century, and
transparent fair regulatory systems to enable investors to commit long-term
resources. The adoption of the first ever National Development Plan by the government
is a promising starting point. Success will depend on the implementation of the
commitments made to focus more intently on fighting poverty and creating a more
positive investment climate with appropriate incentives for both domestic and
international investors.
The mining houses and the
government must accept primary responsibility for addressing the legacy of the
extractive industry mode of mining: the triple burden of silicosis, HIV/AIDS,
acid mine drainage, dusty and uranium contaminated environments. Industry led
Public/Private Partnership arrangements must be struck to enable comprehensive
holistic solutions to emerge. Government must provide incentives for the mining
industry to invest in clean up operations which would also provide alternative
livelihoods and jobs for ex-mine workers and local communities. Investors would
also have to refocus their mindsets away from the short-termism that has driven
the extractive industry mode. There is an urgent need to re-align the time
horizons of expectations of high returns with the unavoidable longer term
horizons of the build up process of projects in this capital intensive
industry.
Workers representatives and
unions must shift their mindset from short-termism to focus more on sustainable
livelihoods and higher productivity to enhance returns for everyone. A greater
emphasis on demanding higher quality education and training as well as wellness
for their members should be the primary focus. Unions have dropped the ball
with respect of fighting for proper housing, promoting healthier families and
conducive environments for work-life balance for workers. The distance that has
developed between workers and their representatives is a key factor in the
recent wildcat strikes and tragedies in the mining industry in South Africa.
Union leaders are perceived to have become part of the elite with a focus on
consumption and status for themselves.
What this requires is that
companies continue to create shared value for communities, governments and
other key stakeholders in the areas they operate, building on what has already
been achieved.
This means that mining
houses must:
§ Build on sustainable local economic development
programmes
§ Enhance programs focused on the procurement of
local goods and services and promote responsible supply chain management
§ Work with government to ensure community
programmes align and support government development strategies
§ Develop sustainable community infrastructure and
other projects in collaboration with local communities, government and other
key stakeholders
§ Respect human rights
§ Monitor and optimise stakeholder engagement
Finally and perhaps most
critically we will all have to accept the fact that the traditional way of
mining in South Africa with its reliance on cheap, low-skilled and plentiful
labour is over. It is not sustainable. The labour-intensive nature of South
African mining has deterred investment and the longer government structures its
regulations around this model the longer investors will stay away.
HOW
DOES ONE ESCAPE THE TRAP AND BUILD THE FUTURE?
I would like to share
Gunter Pauli’s ideas informed by his work in Colombia which can be adapted to
any other country:
“This possible solution
operates within the free market philosophy. However, the future relies on a
fundamental change of the mining business model which evolves from a core
business centered around a core competence, to a clustering of activities that
exploits all available local resources, generating multiple benefits for the
mining companies, its industrial partners, the local communities and even the
environment. This clustered approach ensures that the Dutch Disease will not
smite the commodity trading countries. On the contrary, the design of a new
business model for mining ensures that the whole economy regains
competitiveness, including the farming and (manufacturing) industries which
have already faced a downturn.
Clustering
of Mining, Agriculture and Manufacturing Industry
A shift in the business
model for mining provides a chance to reverse this trend of deindustrialization
in commodity exporting countries. In order to accelerate its effectiveness, it
is ideally combined with a shift in taxation policies. As long as mining
companies remain core businesses focussed on extracting more ounces from the
Earth, and ship these out of the country at lower costs paying a fixed
percentage as tax to the government on each unit exported, then there is no
solution.
However, if we rethink the
activities of the extractive industries and how these could be redirected to
respond to both global and local demand, maintaining a focus on minerals, while
ensuring an effective use of all opportunities made possible by the mining boom,
then there is a future for agriculture and local industries. If the government
were to recognize the tremendous potential of this multiplier effect, then a
smart shift in taxation can steer mining towards the clustering of productive
activities. Mining and the commodity trade will then turn into a catalyst of
local economic development instead of being a cause of de-industrialization and
rural poverty.
Mining
and Basic Needs
Let us take a gold mine as
a case in point. Just about every goldmine in the world needs water to process
ore. Actually, most mines require water and seldom find abundance in their area
of influence. The traditional response of the mining engineers has been to pump
water from aquifers, to pipe water over long distances, or to install reverse
osmosis facilities if there is salt water in close proximity. These are major
infrastructural
adjustments, increasing both capital and operational expenses of the mine at a
cost of water per cubic meter that the local population would never be able to
afford.
Time
to think different. While not all regions in
the world can provide lasting solutions exactly like the one described below,
most mining zones can undergo a major regeneration of native vegetation, or a
reforestation in order to turn the hydrological cycles from excessive water
consumption by mines and perceived drought and contamination of water to
abundance of water for private, agricultural and industrial consumption. Since
five to eight years will span the discovery of a commodity to mine and its
commercial exploitation, there is enough time to reverse the water supply in
the region using all available resources.
Convert
Cost into Revenue
If we were only considering
the regeneration of forests for the purpose of water, then this represents a
cost. This still reduces capital and operational expenses of the mine, since
water production and filtration by a natural forest remains cheaper than
installing water catchment areas and water treatment systems. However in the
business philosophy of the Blue Economy, we are not only interested in merely
reducing expenses, we are keen on increasing revenues, not just for the company
concerned, but for the local economy. A mining project in the Colombian Andes
offers the opportunity to regenerate part of the bamboo forest that once
reigned the region. Bamboo, especially giant bamboo (Guadua angustifolia)
is well known for its capacity to regenerate water cycles, purifying
contaminated water, while regenerating top soil and increasing rainfall since a
bamboo cover of the land decreases the surface temperature and therefore
increases precipitation.
FROM
EXTRACTIVE TO INCLUSIVE MINING MODEL
My experience of growing up
in a rural area, operating as an activist in a hostile environment of the
apartheid regime and being a witness to, and participating in efforts to build
a post-apartheid inclusive society, has taught me that almost every challenge
can be turned into an opportunity for change. I have benefitted enormously from
turning the hardships of my life journey into learning opportunities. The
question for the mining industry today is how we are to turn the challenges we
face into opportunities for creative fresh starts?
The mining industry in
South Africa has no choice but to make a fresh start. Fortunately many are
already working together to develop alternative models to tackle common
problems such as the TB/Silica and HIV/AIDs Industry-led effort (The Chamber of
Mines with Gold Fields, Anglo Ashanti, and some platinum companies taking the
lead) supported by the National Department of Health and international
development partners. But much more boldness is needed to develop the
“clustering model” that Gunter Pauli refers to above.
Just imagine turning
Rustenburg, in North West Province, into a modern mining town with a cluster of
appropriate industries that form the supply chain of the platinum mines in the
area. Imagine the human and intellectual capital that can be generated through
the construction of both physical and social infrastructure to create a buzzing
town housing all levels of employees working on neighbouring mines and
industries. Imagine turning the ugly landscape of mining shafts into green
spaces that provide agri-business jobs for locals and feeds the households in
the area and beyond. Imagine the government, private sector and citizens
working together in a transparent way to build a sustainable future together.
But legacy issues in labour
sending areas have to also be addressed. Imagine the Eastern Cape and Kwa-Zulu
Natal becoming the bread baskets of the mining industry as part of its supply
chain for food and other agricultural inputs. Imagine the potential of
clustering agri-businesses in these provinces and enhancing the country’s food
security as well as its export potential. Gold Fields and Anglo Ashanti are
putting together just such an experiment with a chicken value chain in the
Eastern Cape. Imagine the growing social capital of rural areas that could
follow the termination of the destructive migrant labour model that has damaged
rural family life. Imagine the return of these provinces to proud producers of
high quality school graduates feeding into a rejuvenated higher education and
training system.
All this is possible, but
it will take a willingness to take risks and engage in tough conversations
between the government, private sector, workers and civil society. It is
possible to leverage the mineral resource wealth into a catalyst for
re-industrialization of our country, continent and other parts of the world.
But we must heed Einstein’s words – we cannot solve today’s problems by using
the same thinking that created them in the first instance. Are you ready for
change?
