Calling a spade
Business World, 11 September 2013


One sees where the mining industry is up to its old tricks again, holding the prospect of decreasing investments in the mining sector like a sword of Damocles presumably over the economy. A report yesterday in this newspaper quoted the head of the Philippine Chamber of Mines, Philip Romualdez, as saying in a speech he made at the Mining Philippines 2013 Conference, that he had warned government already last year that investments in the next three years will certainly go down, and that “sadly,” his warning was coming to pass.

What is more, he pointed out that the government’s new mining policy (under EO 270), was making the country “less competitive” — which obviously would exacerbate the situation as far as mining investments go. And then proceeded to proclaim that the mining industry “has always been and is more than willing to give government its fair share.” The implication of course being that the government is the one at fault, and is responsible for the current state of affairs in the mining sector.

Well, that is as it may be. On the other hand the question arises: Will the lack of mining investments constitute a drag on the country’s economic growth and poverty reduction objectives? A superficial answer would point to the spanking pace of growth of the Philippine economy as shown by the most recent data, occurring at the same time as a contraction in the mining sector; or point to the data that shows that the incidence of poverty in the mining sector is much higher than the Philippine average (roughly twice, if memory serves).

But that’s superficial. What does the (hard) empirical evidence from all over the world show about the relationship between mining, economic growth, and poverty reduction? A 2004 paper by Scott Pegg of the University of Indianapolis, entitled “Mining and Poverty Reduction: Transforming rhetoric into reality” (available online) is very instructive in this regard.

First, he cites a World Bank study, wherein 48 countries (between 1990 and 1999) were categorized into three different types: those where mining is “dominant,” with mining products contributing more than 50% of exports; where it is “critical” (contributing between 15 and 50% of all exports); and where it is “relevant” (6-15% of exports). The study found that not only was per capita GDP growth negative for all three categories during that period, but that the growth rates were inversely associated with the level of dependence on mineral exports — i.e., countries with substantial incomes from mining performance performed less well than countries with less income from mining.

Then he cites other studies that come to the same conclusion — Sachs and Warner, Ghylfason, Soysa, Leite and Weidmann, with quotes like “a statistically significant, inverse, and robust association between natural resource intensity and growth over the past twenty years,” or “suggests that an increase of about 10 percentage points in the natural capital share from one country to another is associated with a decrease in per capita growth by one percentage point per year on the average,” or “mineral wealth has a strong negative effect on growth,” or “suggest that natural resource abundance tends to reduce long-run growth rates.”

What about with regard to the matter of poverty (“material deprivation”)? Pegg cites an empirical study by Michael Ross to the effect that “mineral-dependent states have significantly higher levels of inequality than other states with similar incomes; the more that states rely on mineral exports, the smaller the share of income that accrues to the poorest 20% of the population” and that the capital intensive nature of mining projects fail to provide jobs that are accessible to the poor, who are generally unskilled or semi-skilled.

It gets worse: Ghylfason is reported to have found with respect to education that the greater the share of natural capital as between one country and the next, the less the expenditure on public education, the less schooling a girl can expect to receive, and the less secondary school enrolment. With respect to health, Pegg quotes the World Bank thus: “Miners in small-scale mining as well as in large-scale mining are often migrant workers living without their families and within disrupted social contexts. This situation can contribute to a high prevalence of human immunodeficiency virus (HIV) and other communicable diseases in mining communities’.’

The list of the negative effects of mining (and other extractive industries) continues: countries that become heavily dependent on oil and mineral exports are become more vulnerable to economic shocks (e.g. price volatility), not to mention risk of “intrastate armed conflict,” social risks (price inflation, alcohol abuse, prostitution and child labor). Then there is corruption: Pegg cites the work of Leite and Weidmann (at the IMF) finding that “capital intensive natural resources are a major determinant of corruption.” Further, there is the matter of anti-democratic effects: Ross finds that oil and other minerals impede democracy, but other primary commodities — which generate few or no rents, produce less export income for the state, and employ a larger fraction of the labor force — do not.

If PNoy read the Pegg paper or any of the others cited, it is no wonder he is very wary about mining. If he did not, then his natural instincts are as good as those of his mother.

(Note: I wish to disclose that my husband Christian S. Monsod argued before the Supreme Court on the unconstitutionality of the 1995 Mining Act earlier this year. It must also, however, be noted that I was writing about mining [mostly critical] long before then. There is no way anyone can tell who is influencing whom in this matter — and it makes no difference in any case because neither of us needs the other as a mouthpiece. We can speak for ourselves.)