PERSPECTIVE
Written by Adam Jones / OBG Editorial Manager
Wednesday, 15 July 2009 20:19

The Philippines, a country with an abundance of natural resources, has remained a largely untapped market for the mining industry. However, it seems the Filipino government has finally decided to start capitalizing on its inherent asset by pursuing investor-friendly reforms designed to benefit all stakeholders.

The debate over the exploitation of the country’s vast mineral deposits largely stemmed from an extended period of poor regulatory oversight and substandard environmental practices on behalf of the private sector. A prime example came just after the passing of the Mining Act of 1995 when it was discovered that mine tailings had been spilling into the now dead Boac River as a result of negligent mining in the Marcopper Mines in Marinduque.

In 2007 mining contributed $1.96 billion to the economy, or 1.4 percent of GDP. While this was a significant improvement from its 0.59-percent contribution to GDP in 2001, it is still a long way way from the targeted $10 billion in 2011, which would equate to 6.6 percent of GDP (thus making the Philippines a “mining country” according to World Bank criteria). The historic high for the sector came in 1973 when mining contributed 2.41 percent to the economy.

Despite the ambitious original target set by the government to achieve $1 billion in mining investments throughout 2009, the first quarter of the year fell far short of expectations. Investment during the first three months amounted to $11.16 million, forcing the government to revise its annual target to $600 million. Yet even this could be a challenge, with the Philippines only attracting $577 million in actual mining investments last year.

Furthermore, the timing is not favorable for investors. Currently, the bulk of the world’s mining companies are operating in a state of uncertainty as they wait to obtain a clear picture on the global outlook of demand for minerals. The good news is that prices of copper, nickel and gold, all of which are found in abundance in the Philippines, seem to be recovering in 2009.

The large quantities of reserves in the country indicate that downstream processing and manufacturing remains an area of immense potential. Clearly a missed opportunity according to most analysts, the potential value added through downstream activities is far greater than the extraction of the minerals themselves. So far, high energy costs, inadequate infrastructure, bureaucracy and corruption have effectively prevented the expansion of downstream processes. Energy and infrastructure have been focal points of the Arroyo government and if the incoming administration continues to address these issues, along with further reform stimulating the mining sector, downstream processing plants could increase their contribution to the economy.

Another complaint often cited from private-sector companies, especially those coming from abroad, is the long registration and lisensing processes. In response to this criticism Atienza told OBG that, “The important thing for investors to understand is that the sector is in its infancy right now…and as these initial disputes are resolved I expect to see fewer and fewer delays in the permitting process. Quicker permitting translates into more investments, more jobs, more production and more taxes for the government.”

Regardless of the initial ups and downs of the government’s “revitalization” of the mining sector, this course of action will undoubtedly prove to be a long-term economic winner for the country. Furthermore, the government’s newfound strategy based on fair and transparent social, environmental and economic regulation should both ensure the appeasement of all parties and the sustainability of the sector.

*We do not know that the very minerals we stand upon may very well be the key to the salvation of the Philippine economy, depends on how you look at it.