Pambazuka News

Extractive industries and their socio-economic impacts

Moussa K. Traoré

2008-10-29, Issue 404

http://pambazuka.org/en/category/comment/51591

Underlining the fundamental absence of an effective legal framework around the mining sector’s increasing presence and power in the West African region, Moussa K. Traoré assesses the social and economic impacts of an industry that has uncovered riches for countries’ leaders while leaving local populations excluded and deprived. Concluding that far greater information and dialogue are needed between the companies, authorities, and local stakeholders, the author argues for an increased role for civil society as a means of ensuring industry benefits become more widespread.

Talking about extractive industries in West Africa is both a difficult and delicate exercise in a region where several stages have defined mining’s evolution. For this reason, many laws and regulations have been adopted as a means of harmonising and regulating mineral extraction. At times the laws have proved a deterrent, at others they have been lax, and others still they have been called attractive. Sometimes there has not even been a law and it has been necessary to ‘create’ one according to the demands of the time. This is to say that at certain points laws have been imposed retrospectively, something which a given rise to a host of advantages and disadvantages.

Because mines are not open at the same time and methods differ between them, and with each country wanting to appear more attractive than others, a variety of texts exist about extractive industry, sometimes even to the detriment of mining codes. As a result, the consequences and impacts associated with extractive industries are measured according to each country.

This is important as for many decades extractive industries have been experiencing a rapid expansion to become the main source of state budget contributions. If the bulk of budget revenue were to come from the primary sector (agriculture, cattle rearing, and fishing), this trend would be reversed. Our countries confront many problems in the form of internal and external constraints which impede the momentum of the primary sector.

Revenues provided by the primary sector are however in the process of being substituted by those from extractive industries. It is no secret that these industries are supported by a great many interests, notably those of financiers, with myriad consequences. For this reason, according to the moods of our rulers, establishing extractive industries occurs through a process of negotiations, deals, steps, and interviews which is not always transparent, known far better by administrations than their populations.

With the considerable revenues acquired or anticipated from extractive industries, populations’ expectations of their governments are high. Unfortunately, establishing extractive industries seems in general to be a ‘curse’ for our countries and especially for those zones where the industry operates.

The findings are grim: populations in mining zones suffer, and are hungry and thirsty. Flora and fauna are decimated. The environment is covered (a lunar landscape emerges and settles). Customs and habits begin to break down. Poverty and misery become endemic. Disease and perversion become commonplace. In short, areas under extractive industry see their future mortgaged, giving rise to total disarray.

So, the fundamental questions are the following:
- On what basis and under what criteria and conditions are the big mining companies authorised to establish themselves in our countries?
- What are the actual impacts produced by the establishment of extractive industries?
- What advantages are actually gained by both our populations and governments through the presence of these industries in our countries?
- And what arrangements have been made once these companies have up and left?

All these questions reinforce the essentially delicate and critical aspect of our subject. Because the answers to these questions can be found all around. They are among mining companies, national and international institutions, our peoples, our executives, and our leaders.

OVERVIEW OF THE WEST AFRICAN MINING CONTEXT, WITH SPECIFIC REFERENCE TO MALI

As a reminder, it is worthwhile knowing that mineral extraction in West Africa dates back far further than the 20th century. Mineral extraction has in fact always been undertaken throughout the region under various different traditional forms. From the 6th or 7th empire of Ghana/Ouagadou (which comprised a part of today’s Mali, of Mauritania, and of Senegal), ancient texts spoke of sovereigns adorned with golden ornaments. In Côte d’Ivoire and in Ghana, the empress Pokou of the Baoulés and the Ashanti demonstrated that their people had gold. In Guinea, Mali, and in Senegal, covering the ancient Manding empire, the exploits of the emperor Kankou Moussa have shown the region to be rich in gold. The same was true with regard to the mineral’s use in the Songhai empire (Mali, Niger, Nigeria, Benin, etc.) and the Mossi Kingdom of Yatenga.

This means that throughout West Africa there was a strong gold mining tradition. With the colonial invasion came the establishing of mining companies, meaning that the history of colonisation effectively gave rise to the appearance of mineral extraction under the industrial form that we all know today. It began in anglophone countries, notably in Ghana with Ashanti gold, and in francophone countries in Guinea with iron followed by bauxite.

Following a period of calm between 1960 and 1990, we have witnessed, after some decades, the exponential growth of extractive industries in the West African sub-region. Today in West Africa there is practically no country without its own extractive industry.

For example, in Mali between 1994 and 2007, around 150 operating licences were issued to both national and foreign companies, along with more that 25 certificates for exploitation and more than 200 research permits. Under normal conditions, this growth would be accompanied by a parallel rise in the development of our states and populations, especially those found in mining areas.

The production of gold in Mali has gone from less than half a tonne during the 1980s to more than 50 tonnes in 2007. Income received from mining increased from less than 10 billion in 1995 to more than 300 billion in 2007. The share of mining revenues in the total amount of budget revenues has gone from less than 1% in 1989 to 3% in 1993, then to almost 18% in 2007. In Mali’s case, gold has practically replaced cotton, a phenomenon common across the sub-region. This means that the share of revenues provided by industrial exploitation is replacing that of crops in our states.

Paradoxically, the development of our states seems far from reflecting the amount of revenue acquired. So is it reasonable to ask why the industry is present in our countries? To attempt to answer this question is to try to highlight the impact of mining in our countries. In Mali for example, one sees everybody ask the question: ‘what do we gain from this gold?’

One of the first answers is that, according to a small survey, the same companies originating from the same countries are found under a variety of names depending on the zones of extraction. To avoid being discovered, these companies have employed the tactic of using the name of places of the mineral’s discovery or something else of importance in the society in which it has established itself. In this way, the same company can operate within the same territory without the layman noticing.

The majority of companies that operate in the West African sub-region are all the same. They use all possible combinations from one country to another. The bulk of the companies within the region originate from the following countries: South Africa, France, the USA, Canada, England (with South Africa, the USA, or Canada as intermediaries), Russia, Australia, Switzerland, South Korea, and China.

This point must not obscure the fact that these companies are supported by extensive banking networks, the ramifications of which are everywhere within our countries and extend into the very depths of international institutions.

ECONOMIC IMPACTS ON EXTRACTIVE INDUSTRIES IN WEST AFRICA, ALSO WITH SPECIAL REFERENCE TO MALI

The extractive industry has considerable impacts in our countries, not least on our economies. Its impacts are felt and seen at many levels including employment, government revenues, expropriation of populations, population displacement, health, the environment, education, culture, and life in general.

ECONOMIC IMPACTS ON REVENUES

As regards the impact on revenues, industrial extraction gives rise at once to both positive and negative aspects that need to be identified and understood. Firstly, it is important to know that revenues from industrial exploitation come from:
- Money collected at the time of companies’ creation
- Revenue acquired through issuing permits and licenses for exploration and exploitation
- Customs revenue when the life of the company extends beyond three to five years - income received as part of taking part capital statements made on the World Bank
- Taxes acquired from the salaries of national workers - Certain fees for vocational training, and
- VAT for particular products generally purchased in the national market.

Conversely, there are serious shortfalls on the part of our states due to exemptions, whether full or partial, permanent or temporary. These aspects relate to:
- Property taxes normally taking three years
- Income taxes on industrial and commercial profits taking five to ten years
- Taxes on income securities throughout the duration of the agreement
- Contributions for patents taking three to five years
- Taxes on automobiles taking three to five years
- Taxes on mortmain: three to five years
- Taxes on services: 3 to 5 years
- Registration fees, generally at the research stage is usually 3 to 5 years in the year of production
- Stamp duty: 3 to 5 years
- Taxes insurance: 3 to 5 years
- The deposits on various taxes and fees: 3 to 5 years
- Customs duties on production equipment: 3 to 5 years from the date of acquisition
- Rights to tax imports: 3 to 5 years
- Various community levies: 3 to 5 years
- VAT: 3 to 5 years on imports
- VAT: 3 to 5 years on exports
- Taxes and fees for temporary equipment: 3 to 5 years
- Depreciation of research and development expenses often provided over 10 years
- Costs of restoring site are often left to the whim of the company, even if a tax is expected
- Incentives for reinvestment: can reach 27% to 30% of the value of diamonds from the mine and is generally up to 50% of net income in the form of a provision of a fund for replenishing deposits
- Industrial and commercial income tax: companies usually negotiate this exemption under agreement with governments.

Understood in this sense, one could easily advance the argument that the losses, in terms of revenue, are far superior to the gains for our states. In effect, these various losses could constitute up to 60-70% of the revenues acquired from mineral exploitation during the first three years of industrial exploitation.

In terms of income, industrial exploitations, especially those of the mining companies, redistribute enormous revenues in our countries each year. The Sadiola goldmine for example, in Mali, shed in 1998:
- Around two billion CFA as INPS taxes
- An around one billion CFA fee as a contribution to employees’ training
- More than two billion CFA as IGR (Impôt Général sur le Revenu) on wages
- Nearly five billion CFA as total taxes on wages
- The Sadiola mine, alone contributed nearly 18 billion CFA as redistribution or returns direct to the national economy.

In addition to these official returns, extractive industries contribute, in the localities in which they operate, in the form of infrastructural development, the building of schools, roads, bridges, health centres, the purchase of medical supplies, and sanitation etc.

Extractive industries undoubtedly contribute to the rapid development of the redistribution of revenues in our countries, but the big problem remains in:
- The failure to create activities with greater lifespan for local populations once the industry is gone
- The lack of investment in productive activities for the purpose of enabling local populations to earn decent revenues during the exploitation phase
- The general tendency not to recruit local employees
- The eviction of populations from their homes, forcing them into undesirable, even hostile, areas
- The fact that costs to local populations are generally calculated in the immediate term, while consequences will remain after the industry’s presence ends
- Shortfalls to be faced for future generations are not calculated, nor taken into account in the earnings accrued during the implementation and exploitation phases of mining. Even when imposed by international institutions, as was the case with petrol in Chad, our governments are the first to transgress and to put a foot wrong.

ECONOMIC IMPACTS ON JOBS

In terms of jobs, extractive industries create several forms of employment, such as:
- Direct jobs, permanent or temporary, on site and paid by the companies
- Indirect positions in the form of services offered to the industry by private operators
- The creation and implementation of other services, which can be either formal or informal, where the mine necessitates the displacement of local populations and new needs
- The establishing of infrastructures and administrations accompanying the industry, and that the state itself is obliged to create, produces new permanent jobs.

However, analysis of the impact of extractive industries in terms of jobs must be undertaken in relation to indigenous people. Here we see evidence that:
- 97% of the staff employed by the industry originates from other countries
- Over 60% of staff is not from the producing country/the area in which the industry has been established
- Less than 10% of staff is female. And when women are hired, this is merely in lower posts such as secretaries, cooks, cleaners, etc. As a an example, we can examine all of Mali’s goldmines, which until 2003 had only a single female engineer, whose salary was well below that of her male colleagues. This is despite the fact that several women qualify as engineers in Malian institutions each year!
- With extractive industries, jobs linked with local survival (farming, cattle-raising, fishing, hunting etc.) are lost by local populations with nothing to replace them. The loss is hard and then harder still.

IMPACTS ON EXPROPRIATION

In our countries, the state owns the land, attributing rights of ownership according to circumstances and conditions that it defines.

Despite the fact that our governments have signed up to various conventions related to human rights, and despite the existence of laws to protect the welfare and property of local populations along with laws and customs within our villages and towns, the signing of various agreements on the environment, our constitutions etc., our governments continue to expropriate, often with force, owners of local premises. Many conflicts have arisen from the methods and procedures of expropriation employed, notably from the excessive zeal with which the authorities approach the matter.

In certain cases, despite the steps taken by the companies, greed helps to ensure that the measures of expropriation are discriminatory. For example, in the case of Sadiola, during the census for expropriation, widows were excluded. Such cases are common.

ECONOMIC IMPACT ON DISPLACED POPULATIONS

When the need arises, populations are displaced and evicted without adequate compensation. Equally, in the majority of cases, local populations are not informed or involved save at the last minute of companies’ arrival; studies, contracts, and authorisations are all taken care of without their knowledge. And then a short time prior to a company setting up locally, these populations will be offered new sites of resettlement, compensation for their homes, fields, and pastures etc.

So, at the risk of losing everything, local populations are sometimes forced to accept these proposals. For example, in the community of Sadiola, 43 villages have been directly affected by displacement linked to the establishing of the local mine. In Fourou, for the Syama goldmines, 121 villages were affected, or around 200,000 inhabitants.

Generally, promises made to populations are not kept in full. Schools promised are never built or are built poorly; homes promised are inappropriate for local climates; there is no drinking water or its provision is insufficient; health centres operate to dubious standards; areas designated for cultivation are not replaced; cultivable areas are not provided with equipment; etc.

The displacement and resettlement of populations remains a major headache when extractive industries set up. They are invariably a source of conflict and myriad frustrations. Unfortunately, our authorities involved in developments are simultaneously lax and corrupt, something that further inhibits any chance of an equitable arrangement.

SOCIAL IMPACTS OF MINING IN WEST AFRICA WITH SPECIFIC REFERENCE TO MALI

On the social front, extractive industry has significant impacts on local populations.

SOCIAL IMPACTS ON HEALTH

When establishing themselves, mining companies will generally set up health centres for local residents. Under request from local authorities, extractive industries may also provide, from time to time, a contribution to health centres through donations in the form of ambulances, medical supplies, equipment, impregnated mosquito nets, and vaccinations etc. But generally these centres are poorly equipped and offer the minimum of service, while inside a company’s own hospital one will see range of technical equipment that would scarcely look out of place in a modern Western facility.

During one of our visits to Sadiola and to Syama, doctors were very proud to tell us that it would be possible for them to perform open-heart surgery with their equipment. This is how well equipped an industry hospital can be. But during the same period of time the health centres of both Sadiola and Syama were without essential medicines.

With extractive industries however, particular previously unknown illnesses have proliferated exponentially. For example, in the case of gold, we have witnessed a dizzying increase in the cases of STIs and STDs, of HIV/AIDS, of lung diseases, of cases of diarrhoea, of abortions, etc.

SOCIAL IMPACTS ON EDUCATION

New extractive industries and the resulting displacement of populations are accompanied by the construction of school infrastructure. Within their development programmes, local authorities can likewise seek the support of the industry for the building of classrooms in several of their localities. This was the case at Sikasso, for example.

Generally, schools built are modern and well equipped. In the majority of cases, extractive industries help only during the first few years of their presence, taking care of certain expenses. For example at Sadiola and at Syama, the mine provided support for the salaries of some teachers over a period of several years, purchased supplies and teaching materials for pupils and teachers, provided solar electricity for classrooms to enable students to study during the night, and provided transport funds for students to attend examinations in their final years of schooling.

Under normal conditions the opening of extractive industries should give rise to improved all-round levels of schooling and greater attendance. In reality the opposite is true however. Indeed, due to the high cost of living provoked by the opening of the mines, parents will often take their male children out of school in order to try to get them hired with the mining company. Not being well schooled, these children rapidly swell the number of unemployed once the mine ultimately closes. Young girls are taken out of school by their parents to seek work in the homes of industry employees, or as helpers for their parents. In the long term this situation results in unwanted pregnancies, STDs, STIs, and other diseases.

In the long run we ultimately find evidence that it is the children of industry employees and other workers from outside local communities who do best at local schools. Following the closure of local mines, local populations are left with classrooms with far fewer numbers and with infrastructure requiring money outside of their means. Extractive industries are a problem for children’s success at school in localities where extraction takes place. Once the industry ups and leaves, the localities they leave behind experience human deprivation in terms of low levels of schooling among boys, and even lower among girls.

IMPACTS ON HABITS AND CUSTOMS

Opening extractive industries is often accompanied by a high concentration of other populations of diverse backgrounds. Suddenly people with entirely different cultures, beliefs, traditions, habits and customs are forced to share everything.

Generally, certain trends develop in areas where extractive industries set up. This includes prostitution, an increased number of bars and brothels, higher juvenile delinquency, theft, violence and other unwanted social consequences, along with higher housing cost, and the general cost of living.

The extractive industry can easily be regarded as a monster in terms of its negative social effects. But it is not entirely negative for local populations, being also accompanied by the introduction of particular examples of scientific and technological progress which improve the availability of modern conveniences. Establishing mining companies has for example accelerated the access of the communities of Sadiola and Fourou to new Information and Communications Technology (ICT) and its associated equipment, to banking and financial systems, and to improved road transport.

IMPACTS ON TRANQUILLITY AND HOMES

Statistics are generally not readily available for this particular area. We can however comment that as a result of the establishing of extractive industries social tranquillity is often affected. In terms of people’s homes, a degree of instability exists linked to educational imbalances as a consequence of the prolonged absence of a parent. The cardinal virtues of marriage and educating children are essentially trampled on. Money is the only thing that matters. Everything is done while saying that one day or another ‘I’ll get out of here at the end of my contract.’

Divorce is common, along with alcoholic fathers. Incidents of infidelity increase under the power of money. Particular behaviour becomes no longer socially unacceptable, morally and socially forbidden, or a cause for shame. Money becomes the motor of social life. Working within extractive industry becomes a sort of privilege that places certain men above their peers. Social and moral values disappear.

POINTS OF CONCLUSION

If extractive industries are a source of revenue for our leaders, which they certainly are, they are also capable of being more. Which is why there is great need for civil control of the use and application of revenue generated by extractive industry. A two-way dialogue providing information, in other words communication, would be indispensable in enabling local populations who are victims of the industry to change their fortunes in the face of deteriorating livelihoods.

Certain provisions in the form of a framework for West African countries will allow our states to face up to the power of the mining companies. Many methods, approaches and means are required to put a stop to the current mismanagement of our national resources, starting with the extractive industries. If the companies themselves are united in capitalising on our riches, it is united that we ourselves will learn to profit from our soil and sub-soil.

* Moussa K. Traoré is a Malian economist and financial consultant at the Bureau d’Expertise en Management et Conseils en Entreprise. This article was translated from a piece featured in the 73rd French-language Pambazuka News, originally titled Les impacts économiques et sociaux des industries extractives.
* Translated from the French by Alex Free.
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