Without innovation, the mining industry risks being taken over by conglomerates who can innovate. This view was expressed by the incoming CEO of Anglo-American, one of the world’s largest mining companies and parent of DeBeers, when he assumed the CEO role almost four years go.
He said, “Our industry is damned by the fact that our spending on innovation, research and development is one-10th that of the petroleum industry. If we don’t start to bring innovation back and do a hell of a lot better on our cost structures and deliver returns, the major diversifieds will be subsidiaries of General Electric or some other conglomerate that has still got innovation in their vocabulary. We either pick the ball up and innovate or somebody will do it for us.”
So, four years later, how is the mining industry embracing innovation? I was in Cape Town this week for the annual mining Indaba conference. There were high spirits. Commodity prices have reached a three-year peak and the global economy is growing. These are reasons to be cheerful, after one of the worst downturns for the industry in living memory. Most of the big mining majors have shed their CEO’s during this period. Marius Kloppers, Tom Albanese, Cynthia Carrol, Sam Walsh, to name a few.
Some of these individuals were in Cape Town, scouting for the next job. Most notably, there were many more exploration companies in attendance than in previous years– which bodes well for the sector. Mining has very long horizons, so if you aren’t exploring today, you won’t be producing in ten or fifteen years.
I chaired a session at the conference on the theme of mechanisation in the industry. My panel comprised the CEO’s of Zambia’s and Botswana’s Chamber of Mines, as well as the CEO of Royal Bafokeng Platinum and a Director of Government Relations at Anglo-American. We concluded that mechanisation was being adopted slowly in Africa, perhaps too slowly. We worried that Africa’s mining sector might become uncompetitive if it doesn’t adopt some of the technologies that are being introduced to mines in North America and Australia. These include driverless vehicles, robot excavation and location awareness technologies that improve the safety of each employee, which in turn reduces downtime and insurance costs.
Data-gathering and analytical tools are being introduced throughout the sector also, enabling miners to proactively manage environmental and energy inputs and emissions, such as carbon, water, fuel and waste. Company managers can now get a real-time view of their entire operations.
With the growing level of remote automation and computer-driven management, many operations managers might well ask “Couldn’t I run do this job remotely, from our headquarters in London or Toronto or Perth? Which begs the questions, how many local jobs will technology replace? Already drones are being introduced into mining operations and replacing humans with impressive results. Specifically, drones have replaced humans for many dangerous jobs, such as transporting hazardous waste; or monotonous jobs, such and monitoring and reporting.
My panellists in Cape Town concluded that the impact of innovations on unemployment will depend on government policies. To date we have witnessed a tendency on the part of African governments to bury their heads in the sand in an effort to protect jobs. Moving forwards what we need to see instead, is a commitment to protect the workers, not the jobs. Governments must be willing to pay for re-training or retiring of displaced workers. Nordic countries have demonstrated that this gives workers a much greater sense of security and makes them more supportive of technological innovations than workers in Tanzania, Zambia or the United States, for example.
Mining must embrace innovation. It’s good for safety and good for the environment. It’s the only way the industry can remain competitive. We must face a future with fewer people employed in mines. This requires honest acceptance and then concerted efforts to design and execute local economic development and diversification plans, so that communities can find employment in alternative industries.
Marcus Courage is CEO of africapractice, a pan-African strategic advisory group, specialised in political risk, public affairs and strategic communication. www.africapractice.com
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.