This is a summary of the excerpts from the outline of the report; please contact the World Gold Council to read the entire article. The contact information is provided at the end. Janet Deleuse
The social and economic impacts of gold mining.
A research study by Maxwell Stamp commissioned by the World Gold Council.
About the World Gold Council
The World Gold Council is the market development organisation for the gold industry. Working within the investment, jewellery and technology sectors, as well as engaging with governments and central banks, our purpose is to provide industry leadership, whilst stimulating and sustaining demand for gold.
We develop gold-backed solutions, services and markets based on true market insight. As a result we create structural shifts in demand for gold across key market sectors.
We provide insights into international gold markets, helping people to better understand the wealth preservation qualities of gold and its role in meeting the social and environmental needs of society.
Based in the UK, with operations in India, the Far East, and the US, the World Gold Council is an association whose members comprise the world’s leading gold mining companies.
About Maxwell Stamp
Maxwell Stamp is one of the world’s leading international economics consultancies. Established in 1959, they have over 50 years of experience in over 165 countries and territories, with a strong track record in developing and transitional countries and expertise across a wide range of competencies and policy areas: from international trade to rural livelihoods, from privatisation to financial reform, from gender to industrial strategy. Through the services delivered for clients, Maxwell Stamp is committed
to working towards the eradication of poverty and increased social well-being.
Despite the industry’s scale, the socio-economic impacts of the gold mining industry are not well understood.
Gold mining companies are a major source of income and economic growth, with an important role in supporting sustainable socio-economic development. During 2013, gold mining companies contributed over US$171.6bn to the global economy through their production activities and expenditure on goods and services. This is more than the combined gross domestic product of Ecuador, Ghana and Tanzania, or close to half of the gross domestic product of countries such as South Africa or Denmark.
- 70% of total expenditures by gold mining companies are on payments to suppliers, contractors and employees.
- One of the objectives of transparency initiatives such as the EITI is to reduce corruption risk, a significant factor in the misuse of revenues from extractive industries. In gold producing countries, this appears to be working.
- Globally, gold mining companies directly employed over one million people in 2013, with over three million more people employed as a result of the industry’s procurement activities.
Gold mining companies are relatively successful at employing local people in their operations: in most regions over 90% of the employees at gold mining operations are local workers.
In recent years there has been increasing recognition
of the role that the extractive industries can play in supporting sustainable socio-economic development. Multilateral institutions such as the World Bank, donor agencies such as the United States Agency for International Development (USAID) and the UK’s Department for International Development, civil society organisations
such as CARE International and Building Markets, and policy think-tanks such as the Africa Progress Panel all recognise the significant contributions that the sector can make to improving peoples’ lives, often in some of the world’s poorest regions. As one of the key segments of the broader extractives sector, the gold mining industry has
the potential to make a significant, positive impact on the economies of the countries in which gold mining takes place and on the lives of the citizens of those countries.
- The nature and distribution of the socio-economic contributions that mining can make to host nations and communities is poorly understood.
The scope of this report is limited to the impacts of larger scale gold mining. Artisanal and small-
scale (ASM) gold miners can play a significant role in many local economies and communities, but reliable data on the socio-economic impacts of artisanal gold production is not currently available.
Section 1: Supporting global economic growth
“Growth is not an end in itself. But it makes it possible to achieve other important objectives of individuals and societies. It can spare people en masse from poverty and drudgery. Nothing else ever has.”
- Globally, the gold mining industry directly contributed around US $83.1bn to the global economy in 2013; once the indirect
- Following the onset of the commodities boom in 2005, the economies of Asia and Africa, followed by South America, were the largest beneficiaries of GVA from gold mining.
- With an almost seven-fold increase in gold mining direct GVA from 2000 to 2013 the longer-term trend remains that of industry growth, despite the gold price movements of recent years.
- The economic impact of the industry more than doubles when both the direct and indirect GVA contributions of the gold mining industry are taken into account.
- An important macro trend that can be observed is the shift in the geographical location of the gold mining industry’s value creation activities from advanced to less developed economies.
Section 2: Supporting host nations
“Defying the predictions of those who believe that Africa is gripped by a ‘resource curse’, many resource-rich countries have sustained high growth and improved their citizens’ daily lives.”
Kofi Annan, former UN Secretary-General (1997-2006)
- Companies also make significant investments, for example in infrastructure, which can have wider benefits for local communities beyond the life of the mine itself.
- Amongst some of the smaller producing nations, the gold mining industry is very significant for the national economy, particularly once the indirect impact of gold mining companies’ procurement is taken into account.
- Recently some governments have started to see extractives companies as potential partners in development.
- One of the most important roles for mining companies as partners in development is that of value creator: generating the financial resources that governments can invest in developing their countries.
- Income and other corporate taxes account for almost 60% of direct payments to governments, compared to 15% from royalties and land use payments.
- There is strong evidence that the Extractives Industries Transparency Initiative is having a positive impact on revenue reporting in resource-rich countries.
Section 3: Investing in people
“People, wherever they are, want the opportunity to be financially independent, and to have the dignity of being able to provide for themselves and their family.”
The Rt Hon Justine Greening MP, UK Department for International Development
- In low income countries, each wage-earning worker usually supports a higher number of dependents than in higher income countries.
- Average mine worker salaries are consistently higher than the national average.
- Ensuring that local communities directly benefit from job creation opportunities is, and will remain, a critical issue for the gold mining industry.
- Broader benefits can also be obtained when training provides skills that are transferable beyond the mine.
Section 4: Supporting communities
“Do your little bit of good where you are; it’s those little bits of good put together that overwhelm the world.”
"Maintaining the social license to operate is a critical business issue and community investment activities have an important role to play in developing and maintaining this.
Gold mining companies can catalyze development projects that improve the socio-economic conditions of host communities – often aimed at tackling similar issues to those that aid agencies seek to address.
Community investment projects can often be supported by a sound financial business case which can enable companies to mobilise significant resources to address social issues in a way that traditional aid donors often cannot.
Health care is a significant focus area for gold mining companies, particularly HIV/AIDS, tuberculosis and malaria – in a significant number of gold producing countries, the growth of the gold mining industry over a ten-year period coincides with a reduction in the prevalence of these diseases."
Archbishop Desmond Tutu
- The value of a mining company’s assets below ground can only be realised if the social and political environment above ground enables production.
- It is increasingly recognized, both by the gold mining industry and by external stakeholders, that building linkages from the mine to the broader economy is central to supporting wider developmentof the local economy.
- Whilst not solely attributable to the gold industry, in several gold producing countries as the industry has grown the prevalence of a number of serious diseases has reduced.
Without economic development there can be no sustainable poverty reduction. For some countries there is no path to development that does not involve leveraging the contributions of extractive industries such as gold mining. This report has shown that gold mining industry has a key role to play in helping to develop nations and provide opportunities to enhance public well-being. It has also shown that these benefits extend far beyond those that many stakeholders traditionally focus on, such as the mineral royalties received by governments. Any discussion of how to maximise the contributions of gold mining to host economies needs to consider the broader context, including the indirect impacts of the industry supply chain and also the broader investments that companies make in people and in host communities.
There are many benefits for host communities and governments in gold producing countries. However, there remain very significant challenges. Whilst many communities are benefiting from responsible gold mining, there are others where there
are disputes and even conflict between mining companies and other stakeholders. Undoubtedly, gold mining companies bear a burden of responsibility to ensure that their presence in a community and country results in socio-economic benefits.
However, this cannot be the responsibility of companies alone. Partnerships are key. Furthermore, for gold mining companies to be active development partners, host country governments need to ensure that there is a viable commercial operating environment in place. Nonetheless, considering gold mining companies as development partners for gold producing countries would represent a major shift from the conventional, more transactional type of relationship that currently exists between many industry, government and community stakeholders, and a major milestone in the journey towards sustainable socio-economic development. By shedding some light on the broader socio-economic effects of the gold mining industry, it is hoped that this report at least marks a contribution towards that journey.
Improving socio-economic development reporting
In undertaking this research there were a number of notable deficiencies in the available data; addressing these would be of significant benefit to all stakeholders working on understanding, improving or making the most of the socio-economic impacts of gold mining. Key areas for improvement include:
• Defining local: Despite local content being a high business issue both within and beyond the gold mining industry,
it remains an area that suffers from a lack of consistent definitions and terminology. This hinders effective dialogue between stakeholders as well as limiting the ability for companies to report on their performance and for stakeholders to evaluate performance. The gold mining industry could develop and agree to report against consistent definitions and utilize standard metrics.
• Socio-economic baselines: A common challenge in development (that is not unique to the gold mining industry) is a lack of baseline social and economic data against which the effectiveness of socio-economic development initiatives can be measured. Whilst the gold mining industry cannot take responsibility for national-level data deficiencies in host nations, they could work in partnership with local stakeholders to support the systematic collection, analysis and utilisation of relevant data from communities impacted by mining operations. Where appropriate, companies could support appropriate research institutions in building or updating datasets that would be useful not just for analysing the company’s own impacts but also more broadly by other development actors.
• Community investment data: Few companies provide a breakdown of precisely how community investment funds are spent, and where information is provided definitions often vary between companies. This is not covered by the Global Reporting Initiative indicators against which many companies report, but would be useful at a local or national level for quantifying certain aspects of companies’ contribution to development and thereby informing subsequent analyses of effectiveness (i.e. are community investments achieving the desired outcomes?). Whilst care would be needed on how such information is disclosed in order to avoid potential risks such as inter-community rivalry, such data could usefully support companies in understanding and improving the development effectiveness of their community investment activities. The gold mining industry could agree to report this information against consistent categories and definitions.
This research has found notable gaps in the available data on the social and economic impacts of gold mining – addressing this would be of significant benefit to all stakeholders.
The social and economic impacts of gold mining
Appendix: Study methodology
This appendix describes the mechanisms and data sources employed in this study to calculate the economic contributions of the gold mining industry. Primarily, it provides an explanation of the techniques applied in calculating direct and indirect Gross Value Added (GVA) in both a national and regional context.
A description of the techniques used to estimate direct and indirect employment is also included.
A1. Gross Value Added
Calculating GVA is a widely recognised approach for estimating the economic contribution of a particular company or industry to the economy of a country or region.44 GVA is closely linked to Gross Domestic Product (GDP), the primary means by which national economies are measured, and forms part of its calculation.xviii Similar to GDP, estimates of GVA can be compiled using three approaches:
• Total value of output less intermediate consumption (production).
• Total earnings derived from production (income).
• Total expenditure on goods and services (expenditure).
In theory, all three approaches (income, expenditure or production) will produce the same results.
A1.1 National GVA
This report uses the income approach to calculate the value added in each nation’s gold mining industry. This approach calculates the total income directly earned by companies and their employees from the production of goods or services and was selected as the key data inputs to the GVA calculation, described below, are widely available in reports published by listed gold mining companies and by industry data providers.
A number of data sources were utilised in our estimation of GVA. The average annual gold price supplied by The London Gold Market Fixing Limited (TLGMFL), the annual gold output figures recorded by GFMS, Thomson Reuters Gold survey and industry production costs provided by GFMS, Thomson Reuters Gold mine economics service were used to forecast total corporate earnings in the industry before tax, depreciation and amortisation. Data on labour costs, sourced from GFMS, Thomson Reuters Gold mine economics service, acted as a proxy for labour compensation and are added to the estimate of corporate earnings to produce a measure of direct GVA for each country i at time t as illustrated in the following equation:
Direct GVAit = Revenuesit – Operating costsit + Labour compensationit
A1.2 Regional GVA
National GVA estimations formed the basis of the regional analysis. Amongst the regional groupings, the value added by each gold producing country was totalled to give an estimate of the value created in each region, as illustrated in the following equation:
Direct GVASt outh America = GVAPt eru + GVABt razil + GVAAt rgentina ... + GVAOt ther
In some cases a proportion of the regional gold output reported by the GFMS, Thomson Reuters Gold survey was attributed to ‘other countries’ within a region rather than being assigned to specific named countries. A credible estimation of the GVA produced in these unclassified countries was achieved by calculating the average earnings and compensation per ounce of gold within each region before multiplying these figure by the recorded volume of gold produced by the unclassified countries within the region. Regional GVA is therefore equivalent to the sum of the value added by all classified and unclassified countries in that region.
This research study was undertaken for the World Gold Council by Maxwell Stamp PLC. The lead author was Andrew Britton, working closely with Ross Lakhdari. Additional contributions were provided by Jack Harvey and Simon Forster.
For the World Gold Council, the project was led by John Mulligan.
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Executive summary 01
Introduction 05 Report structure 06 Scope and approach 06
Section 1: Supporting global economic growth 07
Section 2: Supporting host nations 11 2.1 Industry contributions to national economies 11 2.2 Supporting better governance 15
Section 3: Investing in people 19 3.1 Job creation 19 3.2 Employment income 21 3.3 Local employment 23 3.4 Gender equality 24 3.5 Building human capital 26
Section 4: Supporting communities 27 4.1 Distribution of community investments 28 4.2 Focus on healthcare 30
Conclusions 32 Improving socio-economic development reporting 32
Appendix: Study methodology 33 A1. Gross value added 33 A2. Indirect gross value added 34 A3. Employment 35