Australia take note: study shows automation at mines will have significant impact on jobs, tax revenues

Local communities and governments will lose jobs and tax revenues as mines become increasingly automated using emerging technologies such as self-driving trucks.

A new study from the International Institute for Sustainable Development (IISD), the Columbia Center on Sustainable Investment (CCSI) and Engineers Without Borders (EWB) assesses the latest technological innovations in the mining sector and parses procurement data from mining companies to estimate the impact of automation on developing and developed countries. It has found that local communities and governments will lose jobs and tax revenues as mines become increasingly automated using emerging technologies such as self-driving trucks.

“Our analysis suggests that host countries will be increasingly at risk of reduced socioeconomic benefits from mining as existing new technologies are further rolled out in the near and medium terms,” said lead author Aaron Cosbey, a development economist at IISD.

“The impacts will be primarily in terms of lost local employment and personal income tax revenue, but will also come from reduced employment-related local procurement.”

The concept of shared value has become a linchpin of the modern mining sector. It has become a core concept to ensure that resource-rich countries gain the maximum benefit from the extraction of their resources, while ensuring that the private sector has a legitimate opportunity to extract the resources on a for-profit basis.

“Much of the social licence to operate depends on the degree to which the shared value proposition holds true,” said Jeff Geipel, who leads the Mining Shared Value initiative of EWB.

“This predicted drop in benefits derived from local procurement and employment should be a concern for mining companies and host countries alike. Governments and mining companies need to work together to focus on other ways in which mining can contribute to the host economy and host communities.”

The study was launched on 27 October 2016 at the annual general meeting of the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development in Geneva, and can be downloaded from IISD’s library. A blog discussing the findings is also available.

The study found that job losses will hit sooner and in greater numbers in developed countries where labour costs are higher and where mining companies typically purchase a larger percentage of their goods and services locally. Social and economic impacts, however, could be much more significant in developing countries.

“Mining typically makes up a larger component of the national economy in developing countries,” said Perrine Toledano, head of extractive industries at CCSI.

“Automation also shifts a mine’s labour needs to more high-skilled workers, which will exacerbate the problem of employing foreign workers. Developing countries also have fewer resources to help them adapt to these changes.”

The study analyses procurement data supplied by two mining companies with annual expenditures exceeding US$600 million.

One was located in a high-income OECD country, where 91% of goods and services procured were local (from the host country), amounting to 58% of total operational expenditures. In the lower-middle-income country operation, by contrast, only 21% of procurement was local, amounting to 12% of operational expenditure.

The study examines the impacts of three scenarios:  30%, 50% and 70% reductions in direct employment at the mines studied. These scenarios are in line with a range of recent estimates of the employment impact of automation.

It found that this led to:

• The hit to national GDP was significant in the lower-middle-income country: the study found it was cut by a range of just below 2% to just below 4% in the three scenarios.
• The impact on GDP in the high-income OECD country was negligible.
• Tax revenues associated with the operation dropped 25% to 58% in the high-income OECD country, which had higher wages and higher reliance on personal income tax.
• Tax revenues associated with the operation fell just 6% to 15% in the lower-middle-income country case.

“This study shows that governments need to re-examine the current shared value approach,” said Howard Mann, senior law advisor at IISD. “Instead of asking what portion of its revenues the company should share with the government, the question could be reversed to ask what level of returns the company should receive,” Mann said.

“One option could be increased ownership by governments, either directly or through state-owned enterprises. This could expand options for enhancing value in other parts of the shared value paradigm, especially if linked with other government policies on training and local economic development.”