TECHNICAL FILE

By Grain Wyson Phillip Malunga FIMMM Minerals, Geology, Environment & Corporate Affairs Consultant

Sustainable Development in the Minerals Sector

ABSTRACT

Sustainable development has been described as a means of development that meets the needs of the present without compromising the ability of future generations to meet their own needs. The mining sector needs to adopt this philosophy as it deals with depletable resources. The role of the community, government and resource companies in promoting sustainable development is described.

INTRODUCTION

Sustainable development is about society, economy and environment. These three entities are supposed to be nurtured in such a way as to bring positive benefits for current and future society. Sustainable development in the mining sector should address three constituents which are mining communities, government and resource companies.

Resource companies will look for high return on their investments while creating community benefits and generating reasonable revenue to government for economic growth. Government formulates taxation and fiscal regime that generates maximum benefits while attracting investment. The government has the responsibility of being transparent and accountable on mineral revenue utilisation.

Where revenue is able to cover budgetary needs, the excess amount should be invested as sovereign wealth for future generation. The figure above summarises the concept of sustainable development in mining.

Community benefits from mining includes social and economic benefits and environmental protection. Social benefits include water, education and health programs while economic benefits include access to agriculture markets, infrastructure services and employment opportunities. Issues of environmental protection are cross cutting in all these social economic benefits. Mining should take care of avoiding air, water and other environmental degradation. Communities are supreme and need to accept projects through a process of engagement. The role that government and resource companies enter into resource contracts should be accepted by concerned citizens and this is what promotes sustainable development.

ECONOMIC BENEFITS OF MINING

Economic benefits of mining come through taxation and fees. Taxation takes form of Corporate Tax, Value Added Tax, Pay As You Earn (PAYE) and Resource Rent (Windfall profits).  Fees collected include royalties, land rates and various application fees.

Recent developments have advocated for Community Development Agreements and meaningful Corporate Social Responsibility that uplift mining communities from poverty to prosperity.

The above thinking is against the philosophy of thinking that mining sector revenue is a cake for the whole country to share and a misunderstanding that CSR is a must and not a moral way of doing business that fosters good relationship with local communities.

SOLUTIONS OF SUSTAINABLE DEVELOPMENT IN MINING

Sustainable development in mining is the responsibility of all three parties. It is proposed that non-Tax Revenues be split between main government account and Community Trust. These should include royalties and ground rent. Government needs to encourage minority shareholding through community trust in resource companies. Dividends for Community Trust should serve communities within a 20 km radius. The role of women and youth should be clearly defined.

Any option for Community Development Agreement should start being negotiated during feasibility studies in order to assess viability of such interventions. Where Mines and Minerals Act is weak, international standards must be met. The government should be clear on rules of engagement and be able to help reduce resource governance speculations. Investors should be protected from being hounded out of their investments.

Government intervention in mineral resource development should display even playing field, show tangible benefits to its citizens and help make mining profitable thus attract mining investment. A system for determining fair mineral prices should be put in place.

Both resource companies and mining communities should be agents of environmental protection especially on air, water and vegetation.

INVESTOR PESPECTIVE

Investors are of the view that government should realise that financing and developing a mining project is complex and time consuming requiring government support through a stable taxation and fiscal regime with a robust security of tenure.

Appropriate incentives for investment and managing community expectation should be a shared responsibility.

CONCLUSION

Sustainable development in mining requires a development consensus that meets the needs of the investor, government and mining communities while taking into account the needs of the future generation and protection of the environment.

Issues related with resource contracts and social contracts must be fair, transparent and acceptable to all stakeholders.

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This piece was initially published in Malawi’s Mining & Trade Review Issue Number 65 (September 2018).

The full edition is available for download here. This monthly publication is edited by Marcel Chimwala.