As the world struggles to get COVID-19 infections under control, it is becoming clear that the impact of the pandemic will be far reaching. Many countries have rolled out stimulus packages to cushion their economies and citizens from the blow that is already showing significant casualties in lives, jobs and business viability.
This upset will be equally sobering to resource reliant economies. The aggregate demand on commodities has plummeted due to shutdowns in primary and secondary industries and these disruptions are likely to continue into the year.
Most mines have had to shut down or place their operations on care and maintenance in line with lockdown protocols and this will leave a formidable dent on production and exports. Resource-based economies also face the additional strain of the impending global recession which is coming hot on the heels of the pandemic.
The mining sector needs a deliberate and structured plan to remain viable. The gravity of the challenge ahead requires a coordinated and comprehensive strategy which will use policy, governance and business reinvention to provide stability and growth.
The upheaval occasioned by COVID-19 has created immense financial and operational pressure to entities in the mining industry. Production has abruptly been scaled down and supply chains have been significantly disrupted.
The impact of this pressure is manifesting differently amongst the various industry players with the going concern status of many small and medium scale companies already compromised. Many entities will need help and it is important to provide the appropriate support timeously.
The framework of support measures should be structured to address liquidity, access to financing, optimization of the operational environment and the provision of enhanced safety and health protocols to contain the risk of contagion. The ability to quickly adapt and find alternatives will determine the degree to which the mining industry eco-system can remain intact.
The quantum and nature of assistance needed should be informed by a factual investigation and needs assessment. It is imperative that governments should initiate extensive engagement as soon as possible.
This assessment will enable government to correctly scope impact and thereafter guide the process of structuring appropriate support measures targeted at every level within the mining industry.
Providing support packages prematurely or implementing inappropriate support measures will only waste limited resources and time.
At the highest level of the response strategy is the need to smooth the operating environment for remarkable difficulty. Governments need to use fiscal, financial and structural measures to ensure that the mining industry does not collapse from capital flight, trade disruptions and operational difficulties.
It is noted that Central Banks in Africa have lowered interest and repo rates to improve liquidity and make credit accessible and cheaper.
This strategy is very important in mineral rich countries to curb capital flight and to improve liquidity for mining companies. The natural reaction to uncertainty is to reduce spending and debt.
However, countries that rely on mining also consequently rely on the capacity of mining entities to maintain production thresholds, continue exploration projects, increase operational capacity and extend into new projects.
It is therefore important to ensure that the mining industry keeps spending during this time and can access credit and capital cheaply and sustainably. This in turn enables companies to sustain remittances and revenue thresholds.
At present, the entire mining sector is faced with diminished returns in both the short and long term due to reduced production and demand on commodities.
Following the same, it is important to examine how the sectors’ taxation structure can be adjusted in the immediate and medium term to relieve financial pressure.
Tax relief measures can be enforced for specific and reviewable periods to ensure that business cash flows are not overwhelmed by tax obligations. Governments may consider deferring or wholly suspending certain tax categories, introducing new tax deduction considerations or reviewing certain tax rates or levies downwards.
The Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) and the African Tax Administration Forum (ATAF) have developed a helpful guidance note for governments on how to approach resource tax relief measures whilst maintaining the overall integrity of the tax structure.
Whilst this move seemingly reduces remittances to government, tax relief can improve the ability of the mining industry to absorb the pressure.
The mining industry is also considering when and how to re-open the sector safely.
This determination should be a careful deduction of facts and science. The decision is subject to several considerations such as the anticipated infection peak, rates of infection and the capacity of the country concerned. It is also determined by the efficacy of the health and safety protocols that have been structured to keep the contagion out of mines.
It is fundamental that the protocols must evoke a high degree of confidence in the ability to keep operational sites sterile. Governments need to work closely with mines and health departments to produce guidelines that are duly supported by the capacity to screen, test and monitor the workforce meticulously.
This is a massive effort because it will require entities to invest in continuous screening and proactive risk containment measures. This will include having acute awareness of the living environment and interactive paths of their workforce. The scale of monitoring requires government machinery to assist companies.
Both mines and relevant government departments should have a coordinated monitoring strategy and a dedicated pool of resources constituting dedicated personnel, test kits, adequate protective equipment, isolation capacity etc in order be able to monitor and implement control and containment measures effectively.
It is also becoming apparent that the mining industry workforce will also suffer job losses. Some mining companies will need to retrench or restructure the workforce, close, merge or go into administration and others may need to re-negotiate contractual benefits in order to remain viable. It is important for employers and employees alike to approach the coming changes with good faith.
IMF approves US$1 billion to address COVID-19 in Ghana
COVID-19 or not, government must face the elephant in the room
COVID-19 and what it means for tax in the mining industry
The impact of COVID-19 on the mining sector
The overall approach should be to save as many jobs as can be saved and cushion the landing of those that are going to be affected by job reductions. It is important for unions and employers to think outside the box and explore all alternatives that can be lawfully implemented to limit job losses.
Uncomfortable alternatives will need to be considered and the range and scope of concessions will be a balance between what is needed to keep companies viable and the degree of shock that the workforce is able to take on without decimating their livelihoods.
Similarly, the current conditions also provide an opportunity for entities that have the capacity to do so to shield the welfare of their employees, especially lower level workforce. Commerce relies on its labour force especially in Africa where the workforce is the backbone of the mining industry.
The state of employment in the industry heavily influences the undertones of the social license to operate. While the full impact on jobs is yet to be seen, when the time comes to have these hard discussions, collective bargaining and negotiations should be at the forefront of reaching progressive decisions.
Learn more about COVID-19
Resource rich nations must be able to rally and maximise internal resources, synergies and capacity very quickly. While the losses that come with a crisis are inevitable, the environment also provides an opportunity to introspect and reset the systems that support the mining sector.
The mining industry is adequately positioned to lead recovery in many African countries if it is utilized and organized optimally for the task.