Local communities and governments will lose jobs and tax revenues as mines become increasingly automated through the adoption of emerging technologies, such as self- driving trucks.

This is according to the recently released ‘Mining a Mirage?: Reassessing the shared-value paradigm in light of the technological advances in the mining sector’ report, which was compiled by the International Institute for Sustainable Development (IISD), the Columbia Center on Sustainable Investment (CCSI) and Engineers Without Borders (EWB). The report assesses the latest technological innovations in the mining sector and analyses procurement data from mining companies to estimate the impact of automation on developing and developed countries.

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

He points out that the impacts will primarily be in terms of lost local employment and personal income tax revenue, but will also come from reduced employment-related local procurement.

Cosbey states that the concept of shared value has become a “linchpin” of the modern mining sector. He says that it has become a core concept to ensure that resource-rich countries gain 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,” comments EWB mining shared value initiative leader Jeff Geipel.

He stresses that 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,” Geipel urges.

The study finds that job losses in the mining sector will “hit sooner and in greater numbers” in developed countries, where labour costs are higher and where mining companies typically buy a larger percentage of their goods and services locally. Social and economic impacts, however, could be much more significant in developing countries, where shrinkage in the mining sector is not cushioned by as much tertiary activity as in a developing country.

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

Moreover, she notes that automation also shifts a mine’s labour needs to more high-skilled workers, which will exacerbate the problem, in that employment of foreign workers becomes a greater imperative. “Developing countries will also have fewer resources to help them adapt to these changes,” Toledano adds,

Further, the study analyses procurement data supplied by two mining companies with annual expenditure exceeding $600-million. One of the companies is based in a high-income, Organisation for Economic Cooperation and Development (OECD) country, where 91% of goods and services are bought locally, amounting to 58% of total operational expenditure, while the other is based in a lower- middle-income country.

The report notes that, in the lower-middle-income country operation, by contrast, only 21% of procurement is local, amounting to 12% of operational expenditure.

The study examines the impacts of three scenarios, where new technologies were introduced to particular operations, reducing the number of direct employees by 30%, 50% and 70%. These scenarios are in line with a range of recent estimates of the impact of automation on employment at mines.

The report also finds technological change led to significant declines in national gross domestic product (GDP) in the lower- middle-income country. The report states that the impact on GDP in the high-income OECD country was, however, negligible. However, the 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, unlike the lower-middle-income mining jurisdictions.

In those jurisdictions, tax revenues associated with the operation declined 6% to 15%.

Meanwhile, IISD senior law adviser Howard Mann highlights that this study illustrates that governments need to re-examine the current shared value approach.

He elaborates that, instead of asking what portion of its revenues the company should share with government, the question could be reversed to ask what level of returns the company should receive.

“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, particularly if linked with other government policies on training and local economic development,” Mann concludes.