Depletion: The disregarded question of sustainability in Zimbabwe’s mining sector
By Lyman Mlambo
The concept of sustainable development is far from being non-controversial. Like most controversial concepts in economics its meaning, especially as an operational concept, tends to be purpose and author specific. However, the general definition by the World Commission on Environment and Development (WCED) is normally the starting point. WCED, in the book Our Common Future, defines sustainable development as development that meets the present generation’s requirements without prejudicing future generations from meeting their own requirements. There are two sub-concepts in this definition, namely intra-generational and inter-generational equity. Meeting the needs of the current generation is an intra-generational (within-the-same generation) concept which requires current economic growth, equitable wealth distribution and poverty reduction. The second aspect of the dichotomy (inter-generational equity) demands fairness across generations in the access to and use of mineral resources, which resources belong to all generations.
In the context of the above definition of sustainable development, it should be clear that it is important to consider the rate at which we are depleting our mineral resources and how the revenue from mining is being used. While a lot of biophysical issues covered in a typical Environmental Impact Assessment (EIA) are relevant in discussion of environmental bequest, most EIAs do not address the question of depletion of mineral resources and its impact on intergenerational equity. The main reason for this oversight is that many people do not regard minerals in the ground as capital that depreciates with use. Consider man-made capital such as machines and buildings. At the company level, an accountant accounts for the physical depreciation of both machines and buildings as a cost of production. In the same vein, the country as a whole, accounts for depreciation of these facilities in coming up with net measures of national income accounts published by ZIMSTAT. This is important because depreciation of productive assets is not income, but cost.
It is now widely agreed that natural resources such as minerals are a form of capital (productive asset) called natural capital, used in production of income. At the mining company level, the quantity of mineral reserves that the company’s deposits or claims hold is a company asset – in fact, the core asset that anchors mining operations. Thus, mineral resources are a natural capital base that depreciates (or economically deplete) with mining, so that the capacity of future generations to produce income is reduced. In sustainability studies, estimation of natural resource user costs, or at least some concept of depreciation or economic depletion of natural resources, as well as quantification and/or qualification of reinvestment of proceeds from extraction by both extractors and Government are of great necessity. However, it is important to note that not all the value of mineral production (sales revenue from mineral production) is depreciation because the whole point of mineral extraction is to generate some net income from it that can address current welfare needs. Thus, in sustainability discussions, we talk more of economic depletion than of physical depletion of the mineral resource base. This allows for the existence of a true income component that duly can be committed to current consumption, and a depreciation (economic depletion) component that should somehow be re-invested for the future generations. Re-investment in other assets creates the capacity to generate income streams that extend into the long-term future from the current physical depletion (extraction) of minerals.
The sense of all this is that we need to maintain the national capital base. If we deplete the mineral asset base, we need to compensate for it by increasing another asset base, be it renewable natural resource or purely man-made asset. Thus, reinvestment can be into sectors like agriculture, forestry, tourism, fishery, manufacturing, infrastructure of all kinds (such as roads, railways, air transport, energy, water, and communication), human resources, technology development (R & D), the financial sector by investing into financial assets (on-shore or off-shore) or creation of a sovereign wealth fund. This balances the subtractions from the capital base caused by current mineral extraction, thereby bequeathing an undissipated capital base to the future. While it sounds wonderful that mining companies should re-invest from their profits and Government invests from its mining fiscal revenue, this only meets the lesser level of sustainability (termed weak sustainability). This is because it does not consider the fact that mining does not just extract the mineral, but also causes some irreversible damages to the landscape, irreversible displacement and destruction of flora and fauna, and serious disturbance of the ecological or ecosystem balance function of the natural environment. Strong sustainability requires more than just a constant aggregate capital base which (weak sustainability) assumes perfect substitutability between mineral resources on one side, and other forms of capital, on the other. However, as an earlier statement suggested, there is a threshold of mineral extraction beyond which maintenance of a constant aggregate capital base maintains quantitative balance but upsets qualitative balance. Qualitative balance requires that extraction respects certain critical environmental limits and mitigates certain inevitable environmental outcomes to ensure that the environment as a whole continues to play its minimum ecosystem balance function to avoid disasters such as floods, climate change, respiratory health problems and various other forms of health problems.
Absolute sustainability remains an ideal given the practical human needs and wants (including some relaxed idea of right – ‘right’ to luxury). It is akin to extreme eco-centrism which would require that there be no extraction at all. As a minimal condition, the weak sustainability condition should be met, but should be enhanced by additional qualitative considerations related to sound environmental management, social and community benefits, and sound health and safety standards. That would strengthen the weak sustainability, albeit not achieving the strong sustainability condition. Fortunately, to some reasonable extent, an emphasis on qualitative balance exists in the form of environmental impact assessments (EIAs). The existence of EIA reports with comprehensive impact evaluations, environmental management plans, monitoring plans and mine closure plans, and which are strictly adhered to, would be a significant milestone in improving qualitative balance.
While the quantitative aspect of sustainable development (ensuring that the productive capacity or the capital asset base is not eroded) is arguably the dominant aspect in the definition of sustainable development by the World Commission on Environment and Development, the empirical irony in Zimbabwe is that it is the least worry of Government and corporates alike. There has been no deliberate effort, at the mining company level and at governmental level, to try and estimate the level of depreciation (that is, economic depletion) of the mineral resource base. The paucity of significant greenfield and brownfield exploration is testimony to the lack of concern to know even the physical depletion, which is a prerequisite for estimation of economic depletion. This article seeks to provoke and motivate: (i) mining companies to do more judicious detailed exploration and estimate depreciation (economic depletion) of their mineral deposits; (ii) Government to undertake serious reconnaissance exploration and incentivise mining companies to undertake detailed exploration; and (iii) Government to incorporate mineral resource accounts in National Income Accounts published by ZIMSTAT.
(This article is a significant adaptation of some extracts from an unpublished report by Gibson Chigumira, Isaac Kwesu and Lyman Mlambo on “Contribution of the Mining Sector to the Economic Development of Zimbabwe” which was submitted to the Chamber of Mines of Zimbabwe in 2014)