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The mining industry can save the economy

Following an anticipated 9.8% economic contraction for 2020, Japanese investment bank Nomura expects the Philippines to recover at a slower pace of 6.8% next year, instead of the government’s projection of 7.5%.

The Philippines will only approximate the GDP levels of 2019 in the second semester 2022, said the Japanese financial giant.

This is due to the combined effects of having the smallest stimulus package in the region, slow-to-rebound consumer confidence, and the inability to attract FDIs at the same level as our neighbors. Exacerbating matters is the damage wrought on MSMEs and the slow recovery of the tourism, transport and hospitality sectors.

Now more than ever, the Duterte government must find ways to raise revenues and generate business activities to hasten economic recovery. Fortunately, the country has an untapped treasure trove of resources to fall back on.

Like Australia and Canada, the Philippines is endowed with a colossal amount of metals and mineral deposits.

Our cache of minerals amounts to well over a trillion US dollars, according to the Chamber of Mines. Our estimated levels of metallic and non-metallic minerals was at 7 billion metric tons and 50 billion metric tons, respectively, as per the last comprehensive audit conducted in 1994.

Gold deposits in the Philippines are among the largest in the world with reserves estimated at 101.6 million metric tons. Iron ore reserves are at 298 million metric tons. Among non-metallic minerals, limestone reserves are approximately 19.5 billion tons while marble reserves are at 14.5 billion tons. The Philippines leads the world in chromite resources too.

Despite our enormous mineral resources, the contribution of the mining industry to the economy remains minuscule. As of last year, the share of the mining output to GDP was a mere .06%. It contributed only 1.2% to national tax collection, and comprised only 6.3% of exports. In terms of jobs, it employed less than .04% of the workforce. In contrast, the mining sector in Indonesia accounts for 21% of exports and 7% of GDP.

The reason for the underwhelming performance is the moratorium imposed on new mining permits back in 2012 and the ban on open pit mining in 2017.

It will be recalled that former President Noynoy Aquino signed Executive Order 79 imposing a moratorium on the issuance of new mining permits while the government updated the outdated Mining Act of 1995. Among the contentious issues was an excise tax rate of only 2% of market value of gross output. The former Chief Executive felt that the people’s share was too low and proposed sweeping amendments to the tax structure.

Today, mining companies are charged a 4% excise tax; a 5% reservation royalty; a 1% indigenous people’s royalty; and 30% corporate income tax, on top of VAT. Over and above these taxes, mining companies are also required to appropriate 1.5% of their annual operating cost for social development and management programs. Despite the higher tax structure, the moratorium on the issuance of mining permits has not been lifted.

All taxes considered, mining companies in the Philippines are made to pay an effective tax rate of between 70% to 72%, according to the Chamber of Mines. Our tax system is higher than that of Peru, Chile, South Africa, and Australia. Still, mining companies are making a beeline to invest in the Philippines given the amount of untapped resources.

The pandemic has caused the Philippines to fall further behind the region’s development race, not to mention relegating millions to unemployment and hunger. Hence, we must use our natural resources to fill the gap. Not to do so is like depriving our starving children of food when there is a treasure trove which can be tapped to fill their stomachs.

To unlock the potentials of the mining industry, we must first lift the moratorium on mining permits and lift the ban on open pit mining. After all, excise tax rates have already been doubled and safeguards to ensure sustainable and responsible open pit mining are already in place.

Unbeknownst to many, only 2% of the country is being explored today, says the Chamber of Mines. We need to accelerate exploration to get a better idea of our mineral resources — where they are, and how large a cache exists. The technology used for exploration is non-invasive and has no negative impact on the environment.

Open pit mining has been made a political issue given its supposed damage to the environment. But open pit mining, also known as open-cast mining, is an accepted global practice in the extraction of ores that lay near the surface. It is used when the mine is structurally unsuitable for tunneling. The US has over 1,800 open pit mines in operation, all of which are proven safe, efficient, and cost-effective. There are only two open pit mines in the Philippines and both have been declared safe and environmentally sound. It’s all a matter of doing it according to sustainable protocols.

When retired, open pit mines can be rehabilitated into agro-forestry or agricultural purposes. A good example is Philex Mine’s Sibutad project. After its closure, the mine was transformed into a rainforest where new trees are planted at a rate of some 18.5 hectares per day. It holds the distinction of being the largest industrial tree-planting operation in the country’s history.

To deprive the country of its God-given resources is not only irresponsible, it is immoral. This is why I strongly advocate the reactivation and development of the mining industry. While I understand that we must be looking after the environment, it must also be balanced with our need for jobs, tax revenues, and opportunities for wealth generation. We need not reinvent the wheel. Canada and Australia provide a roadmap on how to manage the mining industry in a responsible and inclusive manner.

Even as I write this, there are three pending projects in Mindanao, caught by the ban, that can generate some $36 billion in output for the country. Government will be remiss not to reactivate these projects.

The ban on open pit mining was a departmental order by the Department of Environment and Natural Resources (DENR), and the Mining Industry Coordinating Council (MICC) has since handed-down its recommendation to lift it. We hope the DENR, with the blessings of the President, will consider doing so at the soonest time so the industry can get moving again. We understand Oceana Gold is waiting in the wings with a sizable investment and the prospect of employing thousands of workers should they be given the go signal.

The DENR has also recommended lifting the moratorium on the issuance of new mining permits to the Office of the President (OP). We urge the OP to accede to the recommendations given the urgency of our needs and the strict sustainable protocols already in place. The sooner the moratorium is lifted, the sooner the industry can work on all cylinders to contribute to the economy.

 

Andrew J. Masigan is an economist

andrew_rs6@yahoo.com

Twitter @aj_masigan

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