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(ZAMBIAN-ECONOMIST BLOG) Mining Reflections: Proposition Two

Mining Reflections: Proposition Two
Thursday, 26 November 2009

Proposition 2: The local mining communities are not benefiting from the nation’s mineral wealth

The stronger version of the above statement would be expressed as: the people are not just neutral to the existence of the mines in their areas, the communities are currently suffering because of the mines. Or to put it even more starkly - mines are doing more harm than good to our local communities.

For the purpose of this discussion, “mining community” is taken to mean broadly the local area, typically a district, where mining activities are located, but principally excluding the mining employees. That rider is not critical as most workers usually come from outside to take up jobs. Historically this has been the case and underpins the rural-urban drift phenomenon. Similarly, in recent times we have seen mines essentially become magnets of migrant labour, not just from other parts of Zambia but also from abroad (e.g. Chinese labourers).

Related to that of course is the general point that jobs precisely understood are means not an end. What matters is the impact on local personal incomes. We will return to this issue in future posts, the purpose here is simply to note that for clarity, the question of employment is dealt with, without changing overall conclusions in the current narrative.

With the house keeping done, we can now turn to the central question: does the benefit of new mining activities to local communities, as currently delivered, outweigh the costs?

The most obvious benefit that any mining investor can give local communities is local tax revenues. These taxes can either be compensatory or predicated on local “exogenous rights” i.e. taxes that recognise the pre-eminence of local rights with respect to the mining resource in question. Mining companies’ contribution through local taxes is essential for Zambia because it represents the only legislated benefits to local people. Unlike in developed countries, Zambian local councils have no alternative value capture mechanisms and their power remains stunted in terms of engaging investors for local benefit. Even arrangements are not punitive on investors are restricted by central government, as Solwezi found out. In short local taxes are the only way local people capture development benefits from mining in a legally enforceable way.

At present local tax revenues are essentially negligible. There is currently no automatic mechanism for diverting resource revenues to the ground, which has meant many mining communities do not see direct benefits of new local investments. In 2008 KCM released a caption of how much they were paying. This showed that only 2% of KCM's mining taxes are local - assuming all of it goes to the local people. A meagre contribution by any standard..

The current injustice has not been lost on many parliamentarians who continue to call for a better settlement through the establishment of mining communities development funds (MCDFs). Some warn that should government fail to establish MCDFs, people living in mining communities would have no option but to start agitating for it. Nkana MP Mwenya Musenga is a principal advocate :

“.....many countries in the world have a development fund that benefits communities that live in mine areas. If we do not establish this fund in Zambia, even the mine developments that we are talking about like in North Western Province and Southern Province will not amount to anything.....There’s so much excitement for North Western Province but many years down the line, once the investors have made their profits and when there is no more mining to talk about, we’ll just be lamenting like we are doing for the Copperbelt.....the government should retain at least 40 per cent of the profits from the mines to benefit mining communities and cities....This money could be shared between the local authority for that particular town and communities surrounding the mine...”.

The Levy Patrick Mwanawasa (LPM) government toyed with a similar idea establishing trust funds that will make mining companies “contribute funds towards the sustainability of local communities”. These trust funds were to be controlled and managed by the communities themselves. That idea has never seen the light of day, and time after time people continue to agitate for it.

In theory, the government can set up these local arrangements without the need for new legislation. The Mines and Mineral Development Act 2008 does have a provision for sharing mineral royalties but it does not specify who they should shared with. Para 136 states "The Minister responsible for Finance shall, in consultation with the Minister [responsible for Mines], a mineral royalty sharing scheme for distributing royalty revenues".

There’s no provision within the legislation on what this mechanism should be. Equally there are no penalties to government for failing to implement a revenue sharing mechanism. It appears to be another case where parliamentarians fail asleep at critical moments of voting on the Act. Incidentally, even if government was taken to court, as one MP recently suggested, it's not clear the outcome would be a local sharing agreement acceptable to local people.

Normally the problem of poor local taxation would not be a significant problem if local communities are in some way integrated in the local economic system with the mines. The usual way of doing this is through the activities of the mines having sufficient linkages to local business. The reality is direct directly the opposite, a fact which has forced the government in recent years to initiate its own policies of empowerment.

The benefits of having local mines in the areas have not accrued to local economies because many mining companies simply feed suppliers, manufacturers and markets outside the country. The many local suppliers that used to exist prior to the privatisation process of the early 1990s have all but withered away. This is partly due to the fact that foreign companies come with their own supply chains.

Undoubtedly the larger problem is that local companies are currently unable to compete on quality and price with foreign suppliers. This can only be remedied by significant input from government to provide a system of incentives and resources that would tilt the balance. A proper starting point is development of a robust industrial policy designed to support local suppliers and to build a local manufacturing base processing copper.

No industrial policy has emerged as yet, but there has been some promising signs that government taking proactive steps which a future visionary approach may build on. The move by LPM to increase tax on copper concentrates has helped incentivise mining companies to provide more smelting facilities, though the energy deficit has not helped. The current government would also be quick to point out that its export led model of Multi Facility Economic Zones (MFEZs) is yet another mechanism to allow local mining communities to benefit from additional investments. That remains to be seen and significant questions exists on the general policy around MFEZs which go beyond our current series. What is clear is that not enough has been done to directly empowerment local communities per se. It is therefore difficult to argue that any local communities benefit from mining activities.

So the benefits are negligible, what about the costs to local communities?

One might excuse the non-existence of benefits as a “fact of life”, but what is unacceptable to any person who values human life are the huge and unpriced externalities that local communities endure from the mines. A prominent aspect of this is the so called “ecological debt” which has led to visible loss of lives even as many of our people die quietly.

The day is November 6, 2006, women and children living on the banks of the Kafue have just been awaken by the Zambian sun. What do they see? A strange sight! The wonderful Kafue River has turned turquoise. Our precious investor Vedanta has accidentally discharged its toxic waste into it. Panic sets in Chingola, where 100,000 who draw water directly from the river are now deprived of drinking water for at least two days. In the next few weeks thousands flock for hospital check-ups after eating fish from the river. Analyses of the Kafue’s water later show that it contained 38.5mg manganese, 10mg copper and 1mg cobalt per litre: concentrations 1.7 times, 10 times and 10.7 times higher respectively than the limits set by the World Health Organisation. With a pH of 1.5, the Kafue has become a river of acid.

A few weeks more, a Vedanta employee admits the company’s responsibility, only to be sacked on the spot. Reports abound that the company is threatening to withdraw advertising from Times of Zambia if the incident is reported. Will the editors curve in? Surprising not, as public pressure leads the Environmental Council of Zambia to call Vendanta to book and halt to its mining activities. The company reluctantly pays $2.5m. Then business starts up again. The price of copper continues to rise, and with it, the pollution unabated and our people never suffer quietly.

An unauthorised visit by a foreign investigative reporter two years or so later to the massive Vedanta site during the rainy season revealed a vision from Dante’s Inferno: 3km from the mines, the pollution control dam was overflowing, spewing copper-coloured water, reeking of acid, into a tributary of the Kafue.

The stories are endless and Vendata is not alone. In January 2008 acid waste from Chingola’s mines reached the ground water at Mufulira, around 40km away. More than 800 people in the township adjoining the Mopani Copper Mines (MCM) complained of diarrhoea, abdominal pain and vomiting. The mine is co-owned by the Swiss group Glencore and the Canadian company First Quantum Minerals (FQM), and the joint venture was set up with the help of the European Investment Bank.

Mufulira’s mining townships for years have borne the full brunt of the environmental damage. Kankoyo, home to 30,000 people, is an eye sore on an otherwise fertile and verdant landscape. I used to pass through this neighbourhood everyday on my way to Butondo Secondary School. Only two things grow in Kankoyo: avocado trees and cactus. In exchange for this damage the economic input consist of open sewers, dilapidated shacks with tin roofs corroded by acid rain, abandoned pharmacies, and grocers’ shops with broken windows. That is the legacy of the mining companies. When the mines eventually close, is this all they'll leave behind?

Whilst the environmental impacts have gain public attention in recent years, less reported are the broader negatives impacts of the mines on local infrastructure. When FQM announced in March 2007 that it was planning to spend K1bn to rehabilitate roads in Ndola, the move was applauded. It was good to see a mining company recognise the negative effects it imposes on local roads and seek to correct it. But FQM’s actions are a drop in a forgotten ocean, where many mining companies continue to free ride and use the roads with impunity. A fact well observed by Enock Kavindele:

“.....As it stands, the [road] repair and rehabilitation costs are borne entirely by the government and cease to be their problem. In the next three years, both Kitwe to Chingola road and the Kitwe to Lumwana road will be completely damaged.....All this heavy traffic combined with all other road users will place an extraordinary strain on all services, utilities and infrastructure....the combined Democratic Republic of Congo (DRC) and Zambian mines related freight volumes in 2010 would be 2,400 000 tonnes of copper ore per annum..... In Chingola, this will translate to having a truck on the roads every three minutes to and from. Roads in the town will become completely congested with the route between Chingola and Kitwe becoming almost impassable not to mention the hazardous conditions that will be faced by normal motorists and pedestrians".

Of course, it should not surprise anyone that mining companies free ride and when they do act to “correct”, it is done purely for selfish reasons. There's no such thing as "social responsibility" because mining companies are motivated purely by profit and will always act in the interest of their shareholders.

If using an existing road is cheaper than building a new one, then they use the existing one. The same goes for local schools and hospitals. When they occasionally provide a new school or fund the local football team, they "appear" to be socially responsible. Their true motivations are always those of the company. Unfortunately, it is one thing to abuse local roads in a developed country (not that they’ll let you), it’s quite another to destroy local roads where local councils have no financial capacity to replenish.

The other problem of course with the mining companies’ free riding of infrastructure is that it has led to zero incentives for investing in inter-urban infrastructure such as rail or motorways. Until the government realigns these incentives it becomes difficult to develop long term infrastructure for the common good of mining urban areas, and indeed the nation as a whole.

Taken together, the environmental and infrastructural impacts, significantly outweigh the small benefits identified. The mining companies response to all of this is perhaps better reflected by Vendata’s Social Responsibility Manager Sampa Chita attitude to the environmental genocide:

“Of course we pollute…but all the mines do. It was worse in ZCCM’s days...We are fed up being blamed. You cannot run a mine without causing pollution.”

That may be true but the comparison to ZCCM is wrong for two reasons. First, it is morally wrong to pursue profit at the expense of human life. Second, our new masters cannot be compared with ZCCM because these new investors pollute for free without any form of social compensation. ZCCM provided almost everything that held society together in the Copperbelt : jobs, hospitals, schools, housing, and a wide range of social services including HIV-AIDS and malaria awareness and prevention programmes. In many ways ZCCM compensated for any environmental damage directly to local communities through other mechanisms. Our new masters, with their focus on ‘core business’ the provision of social infrastructure goes beyond this remit. They have therefore done nothing to compensate our people in any way for their misdeeds.

Our people living in mining communities are humble and peaceful people. Their only crime is that the creator has endowed them with a precious gift - the minerals below their feet. It cannot be denied that they do not enjoy these precious gifts and continue to pay a huge price. It is a situation which would never be allowed in any society that values its citizens.

Next stop - Proposition Three.

Labels: CHOLA MUKANGA, MINING, NEOCOLONIALISM, TAXATION, WINDFALL TAX

posted by MrK @ 12:04 PM