Business Cost NewsGovernance NewsLegislation NewsLocal Government NewsMining NewsPart 3 News: Seven Winning SectorsPart 4 News: General Business Environment

[OPINION] Minding our mines

THE CORNER ORACLE – Andrew J. Masigan (The Philippine Star) – January 6, 2021 – 12:00am

Economic think tanks around the world are in agreement that the Philippines will post one of the highest economic contractions in 2020 followed by a slow recovery in 2021. Japanese investment bank Nomura was one of the last to publish its forecast. According to the Tokyo-based financial giant, the Philippine economy will likely contract by 9.8 percent this year followed by a 6.8 percent growth in 2021, lower than government’s projection of 7.5 percent growth. At this rate, the economy will only approximate 2019 levels by the second half of 2022.

Sadly, government’s heavy-handed anti-COVID response destroyed many parts of the economy and it is in worse shape than we are made to believe. Despite the prospects of the vaccine reaching our shores soon, consumer demand is still below 50 percent of its 2019 levels. Infrastructure spending has yet to come up to speed following a 33 percent slump in the third quarter. Manufacturing output is down and so are exports. All these have resulted to soaring poverty rates.

As far as foreign investments are concerned, the Philippines is no longer a contender in attracting foreign capital, given our inhospitable conditions and the uncertainty in our tax regime (which will persist until the CREATE bill is passed).

Economists predict a K-shaped or W-shaped recovery. Whatever shape it is, we can expect our climb back to pre-COVID levels to be slow and tough. Government’s vague vaccine procurement strategy is of no help. Neither is its benign economic stimulus package.

Rather than be a victim of our own circumstances, there are options that government can do to fire-up the economy and put her back on the fast track. One of these options is to re-energize the mining industry.

Fortunately, the Philippines is endowed with the third largest cache of metallic and non-metallic minerals in the world.

According to the last resource audit, the Philippines sits on 7 billion metric tons of metallic resources and 50 billion metric tons of non-metallic resources. Our gold deposits are the third largest in the world at an estimated 101.6 million metric tons. Our copper reserves are the fourth largest at 4.1 billion tons.  We have the fifth largest stockpile of nickel while our iron ore resources are at 298 million metric tons.

For non-metallic minerals, our limestone reserves are at 19.5 billion tons and our marble hoard is at 14.5 billion tons. The Philippines leads the world in chromite too. All things told, our mineral resources are worth well over a trillion US dollars at today’s prices.

Despite such massive resources, the contribution of the mining industry to the economy is minuscule. It comprises only one-sixth of one percent of GDP. Its contribution to tax collection is less than 1.5 percent. Its contribution to exports is six percent and contribution to employment is only half of one percent.

In contrast, mining comprises  six percent of Indonesia’s GDP and seven percent of Malaysia’s.

Politics have impeded the development of the mining industry in the country. For years, politicians have evaded dealing with the issue in a sensible manner due to its sheer unpopularity. In this sense, it is like population control or nuclear energy – both necessary for national development but stigmatized by misinformation.

Three laws have hindered the development of the mining industry in the country. The first is EO 79 of 2012 which imposed a moratorium on the issuance of new mining permits until a new tax structure is established. The second is the total ban on open pit mining imposed by the DENR in 2017. The third is the deluge of suspensions of mining permits, whether operational or under development, during the time of former DENR Sec. Gina Lopez.

As for EO 79, excise taxes have already doubled from 2 percent of market value to 4 percent. In addition, mining companies are made to pay a 5 percent reservation royalty a 1 percent indigenous people’s royalty and VAT. All these are on top of a 30 percent corporate income tax. In addition, mining companies are required to appropriate 1.5 percent of their annual operating cost for social development and management programs. Despite the doubling of taxes, the moratorium is still upheld today.

On open-pit mining, the Mining Industry Coordinating Council (MICC) has already made a recommendation to lift the ban given the stringent safety and sustainability protocols that have been imposed. The ban is still upheld without any reason from Malacañang.

Although open pit mining has been stigmatized by local environmental groups, it is actually an accepted global practice in extracting ores that sit 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 and cost-effective. There are only two open pit mines in the Philippines and both have been declared safe and environmentally sound.

As for the mining companies closed by the DENR, it is only fair that those that have rectified their deficiencies and those which are  in compliance with government’s stiff environmental standards be allowed to resume operations. Companies that haven’t started operations yet, but were caught by the ban, should also be allowed to operate provided they comply with government’s guidelines. In particular, the  mines in Tampakan, KingKing and Silangan, all in Mindanao, should be activated given their  potential to generate some $8 billion in exports earnings. This will go a long way towards filling our budget gap.

Based on DENR estimates, opening up the mining industry can unlock 781,750 jobs that will benefit 1.4 million families. Best of all, it will generate a whopping P83.73 billion in additional revenues for government. This is more than enough to fire-up the economy and put her back in the fast pace of growth.

Mind you, as of today, only two percent of the country’s terrain is being explored for minerals. So to say that we are abusing our natural resources is a misnomer.

Certain countries have prospered and became first-world economies on the back of responsible mining. Canada and Australia are among them. It proves that economic progress and sustainability can co-exist.

It would be a disservice to our people not to tap our God-given resources when we need it most.  It is like denying food to our starving countrymen when we have a nutritious buffet waiting to be consumed. The potentials of the mining industry can be unlocked in as quickly as three months. All it takes is a presidential go signal. It is that simple. Let’s hope the President  looks beyond politics and opens up the mining industry if only to save our battered economy.