During the bi-annual meeting of the nine-person Advisory Council (where I serve as a member) of the Asian Development Bank Institute (ADBI) held early October, I raised the concern that the huge stimulus funds created by most countries to stave off economic recession due to the coronavirus disease 2019 (Covid-19) pandemic gave rise to two serious financial challenges: one is the growing indebtedness of developing countries (DCs); and two is the difficulty in raising additional revenues by DCs to pay their future debt obligation and finance their development projects.
ADBI is a key think tank organization of the Asian Development Bank (ADB) located in Tokyo, Japan and is recognized as one of the best publicly-funded think tanks in the world. Its advisory council reviews and recommends future research and training activities for
ADBI.
Applying my concern to the Philippine case, our debt to gross domestic product (GDP) ratio is projected to rise from around 40 percent in 2010 to more than 50 percent of our GDP this year (the highest recorded was in 2004 at 71.6 percent), and that our budget deficit will increase from around 4 percent in 2019 to hover around 9 to 10 percent of our GDP this year. Undeniably, the question I raised in the ADBI meeting is a key macroeconomic issue that will soon confront countries in the Asia-Pacific region. Other eminent members of the council from various countries around the world agreed.
I believe that this is the context by which the Department of Finance (DoF) raised the issue last week that we need to take a second look at our mining industry as a possible source of revenue, given serious revenue shortfalls as a result of the severe contraction of our economy caused by the pandemic.
The Philippines is one of the richest mineral resource-endowed country in the world as it is geologically located at the ring of fire that stretches from the north of Japan down to the south of the Indonesian archipelago. The country is ranked the world’s fifth most mineral-rich country. It has the world’s third largest gold reserve deposits, and accounts for 6.4 percent of the world’s estimated reserves of nickel as of 2018. According to the Board of Investments (BOI) and the Mines and Geosciences Bureau (MGB), the Philippines has the potential to be among the top ten largest mining powers in the world as (in terms of occurrence per unit area) it ranks fourth in copper, fifth in nickel and sixth in chromite resources. Out of its 30 million hectares of land area, 30 percent (or 9 million hectares) has been found to be geologically prospective for metallic minerals, while an additional 17 percent (or 5 million hectares) of its total land area is potentially rich in non-metallic deposits.
The Department of Environment and Natural Resources estimated in 2012 the country’s metallic reserves at around 14.5 billion metric tons and the non-metallic reserves at 67.66 billion metric tons with a total value appraised at $1.4 trillion. Gold, nickel and copper contribute roughly about three fourths of the appraised value. Mindanao island has more than 70 percent of the country’s gold reserves and 62 percent of copper; while Luzon is rich in nickel (53 percent), zinc (85 percent), and chromite (47 percent). Despite these potentials, only 703,090 hectares have been awarded mining permits and exploration permits as of 2019, corresponding to only 7.8 percent of the 9 million hectares that are potentially geologically mineral endowed.
Opposition to mining development
The doctoral dissertation of Karlo S. Adriano (our eldest son) titled “Mining the Mining Industry” listed a number of economic reasons, besides its adverse environmental impacts, for the strong opposition against the development of the mining industry. Among which are as follows:
a. Contribution to the country’s gross value added (GVA) is minimal;
b. Share of mineral exports to total exports is negligible;
c. Limited job creation because of its capital-intensive nature;
d. Mining investments had the smallest contribution to foreign direct investments (FDI);
e. Government revenues from mining are low compared to countries in Africa, Latin America, among others, where a substantial mining industry operates; and
f. Fully developing the sector will result in the so-called “resource curse” phenomenon.
Addressing the criticisms
Each of these concerns was systematically tackled in Karlo’s dissertation with the use of time-series data, simulations, and employment of a computable general equilibrium (CGE) model. There is not enough space in this column to discuss in detail his arguments.
But the elephant in the room, which our policy makers and anti-mining groups conveniently forget, is the operation of small-scale mining players. The “People’s Small-Scale Mining Act of 1991” (Republic Act 7076) provides the legal framework for the operations of small-scale mines. They contribute around 35 percent of total mineral outputs (which are practically not taxed by the government), cause severe environmental degradation, a major source of corruption (including the ‘revolutionary tax’ imposed by the communist insurgents), particularly at the local government unit level, and operate with hardly any environmental monitoring done by the government.
‘Small is beautiful’
In 1973, a book was written by a Leftist thinker, E.F. Schumacher, titled Small is Beautiful.
The book inspired many idealistic youth (including this author) to romanticize the virtue of being a small producer tending to one’s family needs, producing without a tinge of greed that often characterized the operations of big corporations. This model well encapsulated Karl Marx’s socialist utopia: “From each according to his ability; to each according to his needs.”
The problem with the analysis is that it presupposes that greed is uniquely owned by big corporations and alien to small producers. Adam Smith’s proposition that “man is by nature greedy” in his classic book Wealth of Nations proved to be a far realistic assumption about the nature of man than Marx’s socialist utopia.
However, advances in welfare economics, which brought about the idea of “corporate social responsibility” (CSR), influenced big corporations to transform themselves to become partners in the country’s economic development to gain more consumers’ support. Many of the big responsible mining firms have made CSR an important component of their operations.
Along this line, my concrete suggestion, if we allow mining firms to fully develop in the country as a major revenue source, is that they contribute significant funds in the procurement of Covid-19 vaccine, once fully tested and publicly released, for free distribution particularly to the poor Filipinos.
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