When local content requirements meet technological innovations
The robots are coming to the mine nearest you. Technological innovations are shaping our future and changing the old way of doing things, including the productive systems in resource extraction.
Technological innovations in the mining industry are increasing rapidly, touching on many facets of the industry, from surveying, exploration, production, processing and data analytics. Investments in highly automated equipment and machinery are changing the mix of physical capital and labour in the production process as well as the environmental footprints of the industry.
The robots are coming to the mine nearest you. Technological innovations are shaping our future and changing the old way of doing things, including the productive systems in resource extraction. Technological innovations in the mining industry are increasing rapidly, touching on many facets of the industry, from surveying, exploration, production, processing and data analytics. Investments in highly automated equipment and machinery are changing the mix of physical capital and labour in the production process as well as the environmental footprints of the industry.
At the 2015 West Africa Mining and Power Conference, the emphasis was on the need for mining firms to adopt new technologies in order to improve operations efficiency and to stay competitive. The Mineral Policy of Namibia acknowledges that the sustainability of the industry will be determined by the ability to maintain the use of new and efficient mining technologies.
Promoting employment and skills development
One of the key pillars of local content strategy increasingly adopted by resource-rich economies (RREs) is to promote direct job creation. As identified in an eight-country study across sub-Saharan Africa undertaken by the African Center for Economic Transformation (ACET), local content legislation and regulations typically set employment targets and quotas, an affirmative action policy with which industry must comply. Ghana and Nigeria have dedicated laws to that effect. Ethiopia, Mozambique, and Namibia have varying policies and provisions which oblige mining companies to submit employment and training programmes for nationals as part of mining license applications.
At a time when technology is shaping the mine of the future, how are the innovations informing public policy in the design of local content strategy? Are innovations taking place on the blind side of local content design and enforcement? What should be the direction of local content strategies in promoting job creation?
Demand for technological innovations
What is driving the rapid adoption of technology in mining? First, depleting reserves means exploration must reach for greater depths. Greater depth means more intensive data analytics and greater safety needs. Second, rising labour costs, due in part to the influence of labour unions and to the overall cost-push effects (due to declining easily accessible reserves), compel modernisation and greater operational efficiency.
Clearly, there is an understandable need to improve efficiency, minimise mine accidents and health hazards, and to improve data analytics. Moreover, at the firm level, employment targets and quotas introduce cost bottlenecks and inflexibilities in cost structures.
From Ghana to Zambia, mining firms are required to submit to regulators annual reports on how the employment affirmative action plan is being implemented. A capital-intensive productive system cuts down on this need.
The employment effects of increased technological innovations
The intensification of the application of technology in mining also means that the direct mining employment effects, at least in the conventional sense, are sharply on the decline. In South Africa, Namibia and Ghana mining companies are spending less and less on low and semi-skilled labour.
Generally, technology is making mining less and less labour absorbing, raising questions about the primacy of the employment objective of local content legislation, making it less viable and increasingly difficult to enforce.
For example in Zambia, the government’s calculation that “investment in the mining industry would lead to more output and that additional output would mean an increase in Zambian employment” is becoming less and less a reality. While every additional 10 tonnes of copper extracted created four jobs in the 1960s, currently it generates only one more job as a result of the accelerated capital intensity and technological innovations in copper production.
In Namibia, the Employment Equity Commission in its 2014/2015 Annual Report observed that mining sector workforce recorded a 12% decline between 2014/15 and 2013/14 despite the rise in production.
Moreover, with the exception of South Africa, most of the labour-substituting intelligent inputs (machines) are being built elsewhere and serviced often by itinerant technicians with a limited involvement of local technical personnel. The innovations are further undermining the status and force of the conventional mine worker, who is not likely to be the beneficiary of skills and technology transfer because of the low levels of education.
It is not unreasonable to ask: Will the efficiency gains from technological innovations translate into revenue benefits to the resource rich economy? Not necessarily. Unless matched by increased productivity and increased mine life, increased capital spending may further erode tax bases if 1) country tax systems continue to provide generous capital cost deductions, and 2) country tax systems are unable to audit transfer pricing schemes often associated with the acquisition of capital goods and technical services from affiliates overseas.
These raise a number of practical questions.
- Are technological innovations occurring on the blind side of conventional local content strategy? If so, how should this inform governments’ approach to local content legislation and regulations?
- How can resource-rich countries develop the local workforce within small and medium enterprises and make them adaptable to the rapid pace of technological innovations?
What should governments do?
The future may not lie in the legislation of direct employment targets or in setting quotas. Intensive production systems may have shifted the potential for job creation into upstream activities within the supply chain. The future of employment lies in a new kind of workforce beyond unskilled and semi-skilled operations. Opportunities will require medium to top-level technical skills to operate and manage high-tech machines and technological processes along the entire supply value chain.
As the bulk of resource companies’ spending shifts to non-labour goods and high technology services, future local content in strengthening linkages may lie more in the procurement of goods and services and the engagement of SMEs in the supply chain than in direct mine employment. As spending shifts to consumables and technology-embodied capital goods, the locus of local content requirements has to change.
Building a local workforce and the technical capacity of local institutions to make them adapt to and embrace efficient mining technologies requires considerable investment and continuous skills development. These are often beyond the capacity of individual mining companies, certainly beyond industry voluntarism, and beyond individual mining economies. Are regional institutes with strong government-industry collaboration the right model for skills development and technical capacity training?
About the author
Dr. Joe Amoako-Tuffour is Director of Research at the African Center for Economic Transformation.
Read the full magazine issue
