Green dreams: Duterte and the Philippine mining industry

Green dreams: Duterte and the Philippine mining industry
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Throughout its history, the Philippine mining industry has been defined by its diverse set of political risks relating to governance, inequality, elitism, foreign export and absent contribution towards the country’s overall economic growth. President Duterte’s nomination spells a radically different future for the industry; unprecedented opportunities may lie ahead for foreign investors, however they are not without risk.

Pervading problems

Since the 1500s, mining has played a critical part in the economic development of the Philippines. Despite the abundance of chromite, copper, gold and nickel deposits, the industry has been marred, since the 1980s, by issues of volatility, and defined to a realm of ‘potential’—rather than direct opportunity.

Issues that have and continue to plague the industry range from matters of foreign ownership, corruption, obdurate and unforced regulatory laws, environmental incidents, murky issues of land rights, militant attacks, as well as disastrous weather conditions.

These problems within mining play into established socio-economic pressures within the Philippines and form a pervading sense of frustration and sensitivity amongst many Filipinos—exposed to the turbulent realities of a rapidly developing nation, stuck between the First and Third World.

Green dreams

Observers note President Duterte’s ascent to the Presidency, as a reaction towards the multitude of issues the country faces due to its rapid growth. Promises to crackdown and clean up these issues saw Duterte go against drug use and trafficking, corruption, elitism, and the centralization of the country’s political-economic power in Manila—a strong proponent of federalization.

According to Duterte, mining was the hallmark of the country’s extensive problems, referring to the mining firms as ‘predatory’, and that the ‘true winners’ of the industry hailed from “imperial Manila”, in place of local communities. He defined this situation as a longstanding “historical injustice”, and one he vehemently sought to amend.

Alongside his nomination, Duterte appointed environmentalist Regina Lopez as Secretary of the Department of Environment and Natural Resources (DENR), an indicative sign of his determination to change the industry. With this, came the announcement of a nationwide audit of all mining facilities; backed by a newly formed task force of police and army units. Almost immediately, ten companies had their permits revoked due to environmental and law violations.

“An economic paradigm that puts people at risk is not the way to realize the country’s potential”, stated Lopez, whom sought to make ‘responsibility’ and the elimination of ‘suffering’ as the new prerequisites for not only the mining industry—but also the entire economy. Local communities who had 1% of total profits reinvested back into their areas were to be protected alongside the country’s ecosystems and habitats under a sustainable and eco-friendly business agenda that would be closely intertwined with the country’s economy.

Business leaders, once accustomed to the government’s support, suddenly saw their benefits taken away. Lopez publicly stated measures to rid mining, entirely. Duterte similarly expressed mining as a “sunset industry” and that it was perhaps too late for it to have any future within the country.

The state of the industry

Anti-mining or not— moving away from the resource-intensive industry was already in the works. In 2011, the previous Aquino administration opted to review the fiscal regime of the industry, rather than invest. In addition, it was also excluded from the Investment Priorities Plan (IIP) in 2012.

Prior to the audit, output and revenue was maintained by existing operations. Investments, however, declined from $1.4 billion to $639 million between 2013 and 2015, as a result of the industry’s failure to capitalize on the commodities boom—now at its tail end. Low mineral prices and high production costs, accompanied by outdated infrastructure, all contributed towards the mining industry’s stagnation.

The audit’s conclusion on September 25 suspended approximately twelve mines, with an additional twenty facilities recommended for suspension. Only eleven firms remained untouched. Consequently, Philippine Peso (P) 78 billion ($1.61 billion) out of P282 billion ($5.84 billion) of investments were at risk; some argued that mining in the Philippines was now on the verge of collapse.

The research group, IBON Foundation, found that since the year the 1995 Mining Act was signed—allowing foreign investment—no more than 0.7% went to the country’s GDP. Additionally, 97% of total mineral production went to foreign industries, and as of Quarter (Q) 1 in 2015, only 3% of total revenues contributed to the economy.

Within the government, different views exist on how to best steer the industry’s mining future. Lopez appeared cemented in her determination to shut down mining services, while Duterte, according to Mario Luis J. Jacinto, head of the Mines and Geosciences Bureau (MGB), possesses the ‘political-will’ to oversee reform. Jacinto argued that mining has the capacity to enact reform, enabling it to play a larger, more equitable part towards the country’s economy.

A potential for opportunity

Much like the current political climate, the future of mining is uncertain. Despite this environment, the country’s GDP grows at an impressive 7%. Alongside the country’s strong growth, the Duterte administration plans to usher in a ‘golden age of infrastructure’ spending by increasing funds towards the neglect sector to P7 trillion ($150.5 billion) between 2018 and 2022.

This may set the necessary preconditions for the mining industry’s revival. Adapting the industry towards facilitating the country’s strong domestic growth can provide the industry an opportunity to play a tangible part in the country’s economic development, proving that it can potentially provide a contribution not only to the economy, but also to the general population.

While previous renditions of the industry cannot continue, it is important that vengeful rhetoric or actions concerning mining’s previous transgression, by way of heavy taxation or further shutdowns, do not transpire.

It is imperative that a balance is reached between essential policies and a climate that favors growth and investment. A cautious deconstruction of the mining industry’s oligarch nature must occur in order to increase the sector’s competitiveness and dynamism; allowing it to play a comprehensive part in the country’s economy.

This will be no easy task, considering the industry’s many vested interests. Duterte’s widely-popular “strongman” approach may prove helpful; however, this too requires an uncharacterized and perhaps a unseen nuance by the President.

With an estimated $840 billion of mineral resources yet to be mined, the opportunities for growth are visible. In Duterte’s favorability, the country’s booming economy and ‘relative’ stability all present an exciting landscape to foreign investors. Nevertheless, with the industry currently up in the air, not to mention the rapid pace of developments of the country on both the domestic and international fronts—any endeavor will certainly will be one with inherent risk.

About Author

Robert Veldhuizen

Robert Veldhuizen is a security risk analyst at Thomson Reuters and holds a BSc (Hons) Geography, Politics and International Relations degree from the University of London, Royal Holloway. He has substantive research interests in the diverse manifestations of political risk whether it regards security and foreign policy, investment, due diligence, or market entry; covering areas such as the Asia-Pacific and the Middle East and North Africa, where he has also both lived and traveled extensively.