Mining and the Philippine Economy: Some Facts and Figures

When Philippine Environment Sec. Gina Lopez decided to suspend permits of 75 mining contracts, the national debate on the importance of the mining and quarrying (MAQ) sector in the economy was already raging. On the one hand, you have former Economic Planning Chief and UP School of Economics Professor Emeritus Solita “Winnie” Monsod already exposing some facts:

Is Gina Lopez dealing a mortal blow to the economy in protecting the environment? Is she being irresponsible? Look at the data: Mining industry statistics (as of Dec. 15, 2016) show that the gross value added in mining averaged about 0.65 percent of GDP for 2012–2016, and that includes nonmetallic mining. That is less than 1 percent of total GDP. Even if the entire mining industry goes under, GDP will decrease by less than 1 percent. What about exports? The same data indicate that the mining industry, both metallic and nonmetallic, accounts for about 5 percent of total exports. Employment? The industry accounts for about 0.6 percent of total employment.

On the other, here is Prof. Carlos Arcilla of UP National Institute of Geological Sciences responding four days later:

This is to answer Mareng Winnie Monsod and other people suggesting mining be stopped because it only contributes <1 % to the GDP. First only a SMALL part of the Philippines have mining activities — the graph shows that in CARAGA and MIMAROPA, contributions from mining exceeds 20%!! Now, when you AVERAGE mining contributions to include those places that have no mining, no WONDER why the national GDP contribution is <1 %. If we stop mining, we stop 25% of income in CARAGA and MIMAROPA. This is why taking averages is sometimes tyrannical. Maybe Mareng Winnie should take a break from Forbes Park and go to visit CARAGA and MIMAROPA to find out.

Prof. Arcilla then uploaded the following chart, probably from Philippine Statistics Authority’s (PSA) latest figures on the Gross Regional Domestic Production (GRDP):

UPDATE (February 19, 2017): Just recently, he also posted another round of photos, this time on the breakdown of GRDP of MIMAROPA and CARAGA:

Mining is important in mining areas! These graphs from MIMAROPA and CARAGA show mining income is the most dominant. Since mining occurs in less than 3% of the country, averaging the income nationally will make its contribution small. It remains to be seen whether the green projects of Secretary Lopez proposed in MIMAROPA and CARAGA can attain these same percentages. It is defintely not true in Palawan, where mining is the biggest income source despite its being a top tourist destination. Ugong Rock, the ecotourism site managed by ABS CBN, is NOT in southern Palawan, and its tax earnings are definitely much lesser from mining. Also, geologically, north Palawan geology is very different from the south, where all mining is situated. Tourism and mining can coexist, but this is lost in the emotional sloganeering.

To summarize: Prof. Monsod is arguing how negligible the mining sector is with respect to the whole economy — which means that we can, as a country, practically live without it. Prof. Arcilla wants to emphasize that there are actually regions which are heavily dependent on the sector. So what now?

What is still missing in the picture is a more historical take on mining’s role on the national and regional economies. Is the share of the MAQ sector in the Philippine economy always that small? Is it always the case that CARAGA and MIMAROPA are heavily dependent on MAQ for regional production? And how come MAQ’s share in Cordillera’s economy is so low, when Benguet was, for the longest time, the epicenter of Philippine mining activity? Consider that the Benguet Corporation, the Philippine’s first and oldest mining company (gold, copper, and chromite), has been operating in the area (specifically Itogon) since 1903.

Mining and the Post-EDSA Economy

To answer these queries, we further mine the official data from theNational Accounts of the Philippines (NAP) and the Regional Accounts of the Philippines (RAP), both released by the Philippine Statistics Authority (PSA). We specifically look at the MAQ data from the last leg of the term of former President Ferdinand Marcos (when he lifted Martial Law in paper) to the end of the term of former President Benigno Aquino. Unless specified, we will be using current rather than constant values.

Here are some facts:

As we can see in the first two charts, the MAQ sector has shown steady growth from 1986 EDSA I revolution to 2001 EDSA II revolution — then a rapid pace of (more volatile) growth starting from 2002, during the time of former President Gloria Arroyo. Interestingly, it was Arroyo, then a Senator under the Ramos administration, who championed Republic Act 7942 or the Mining Act of 1995.

MAQ’s Gross Value Added (GVA) doubled from 2001 to 2002, and grew a little bit more slowly from 2002–2003, and 2003–2004. In December 2004, the Supreme Court affirmed the Mining Act as well as the state’s authority to enter into Financial or Technical Assistance (FTAA) with foreign mining firms — which explained another big round of boost which lasted until the end of Arroyos term. By the time then Arroyo administration ended, the MAQ sector would have grown almost seven times.

There was, in fact, a slow down during the administration of former President Benigno Aquino III. It started in 2011, when the administration created a mining study group including the Executive Secretary and several members of the Climate Change Adaptation and Mitigation Cabinet Cluster. Then Executive Order 79 was released, which banned mining in tourism areas, critical ecosystems, prime agricultural lands and fisheries zone, among others. By 2013, however, the ban was lifted — which caused a new round of growth in 2013.

As an aside, if we look at the composite stock market index of mining and oil versus the total, one can clearly see the effect of Aquino’s EO 79 on confidence on mining stocks.

Source: Bangko Sentral ng Pilipinas (BSP)

Of course, we have to contextualize this growth with the fact that the GVA figures are in nominal terms. The rise would be less steep if we use constant terms, say, if we peg prices to 2000 or 1985 levels. Moreover, the rest of the economy is also growing — which means the macroeconomic importance of mining cannot be seen by looking at GVA figures alone; we have to take mining’s share of the total economy.

The next two charts give us quarterly and yearly pictures of the MAQ’s share of the total economy. The data confirms Prof. Monsod’s claim — even if we account the data from 1981 onwards, the share of the MAQ sector never exceed 2.5%. Once again, we notice the rise of mining during the Arroyo period, reversing the decline in MAQ’s share from 1986 to 2001 with a sudden boom in 2002. We also notice the decline of MAQ during Aquino III’s time, with a slight uptick when EO 79 was lifted in 2012.

That mining has reached its peak in the last 35 years during the final years of the Marcos is not surprising — we know that metallic and non-metallic mineral commodities are good hedges during severe financial crisis. We usually hear that prior to Sec. Lopez’s crackdown of mining sites, stock prices of mining companies — especially gold — usually surge when the economy slows down or the stock market index growth dips. One can imagine that the faster capital flies away during the 1985 EDSA revolution and the subsequent unrest of 1987, the tighter Filipino billionaires hold on to their commodity assets. A similar tick was noticed during the election of President Joseph Estrada.
The next two charts show us the dynamics of the structure of the MAQ sector. As we can see, there was a steady decline of the share of copper mining on the overall industry, largely eased out by quarrying and non-metallic mining. What is notable is how much the structure changed from the last year of Estrada onward due to a sudden hike in crude oil mining. One particular reason stands out — it was discovered in 2000 that Malampaya wells in West Philippine not only contains natural gas, but crude oil as well, equivalent to 15% of crude oil imports in 1999.

There is also a steady increase in the share of Nickel production during Arroyo’s second tumultuous second term. Remember that this was the period, pre-NBN-ZTE deal, that the Arroyo administration was courting Chinese investments left and right. The mining sector is not exempt. In 2006, Chinese firm Jinchuan Non-ferrous metals Corp. invested $1-billion in the Nonoc nickel project in Surigao del Norte. Also that year, Aglubang Mining Corp. expressed its intention to develop a large-scale nickel project in Mindoro.

Mining and the Regional Economies

That these investments are targeted to specific provinces just demonstrates the obvious fact that extractive industries, by nature, are local industries — the increase and decrease in production is geographically concentrated. Unlike, say, food manufacturing, the products of MAQ sectors is usually consumed entirely elsewhere, and not where it was mined.

It is thus important for our purposes to look at how the regional MAQ sectors evolved — in absolute terms, vis-à-vis the national MAQ sector, relative to each other, and relative to the regional economies. From here, we can have a sense on whether or not the MAQ sector really forms an integral part of certain regional economies, like CARAGA or MIMAROPA.

Looking at the regional evolution of the MAQ GVA, we will notice that prior to 2001, the Cordillera Administrative Region (CAR) holds the top rank among regions in terms of mining production. This was already so when it was created in 1987 (notice that it took a huge part of the Ilocos MAQ production). As we hinted earlier, this makes sense — since Benguet has been a traditional mining hotspot in recent Philippine history. Davao region is also a known mining hotspot, given that it has Mt. Diwalwal in Compostela Valley — which is said to hold the largest gold deposits in the country.

But what explains the sudden boom in MIMAROPA and CARAGA? We are not sure yet (as we have no access to regional-subsector data), but our earlier data shows that this coincides with the surge in Crude Oil production due to Malampaya (in MIMAROPA) and Nickel in Surigao del Norte (in CARAGA). One can hypothesize that much of MIMAROPA’s supposedly mining activity is on Crude Oil; for CARAGA, it is probably Nickel. We can thus better contextualize Prof. Arcilla’s claim of mining’s importance in the MIMAROPA with this data: at least for MIMAROPA, DENR’s latest actions did not target crude oil.

This brings us to Prof. Arcilla’s claim on the importance of MAQ on specific regional economies. We then look at the MAQ GVA as share of the total Gross Regional Domestic Product (GRDP) across the years — and not just 2015. Here, we see that things were never static — the dependence on mining of certain regions was never intrinsic to them.

For instance, consider the decline in the MAQ share of CAR’s GRDP — from a peak of almost 30%, a mere generation (30 years) have reduced it to less than 5%. In fact, EO 79 alone was responsible for arresting the recovery of CAR’s share during Arroyo’s term, halving the figure in just one year. This shows that a local economy can transition from being extractive industry heavy to a more mixed one, and regulatory policies don’t necessarily have a debilitating effect — even as it drastically change the regional economic structure.

At this point, we can safely ignore MIMAROPA’s rise for now — assuming that much of its MAQ production is actually crude oil (there might also be substantial production in Romblon). Let us focus instead on CARAGA. Our earlier hypothesis was that a huge part of Nickel production was actually jumpstarted by Chinese investments just before Arroyo’s NBN-ZTE scandal, thus the spike in 2005.

But what is interesting is that it took CARAGA only a year to raise its MAQ share from 9.6% to 22.4%. And then it only took the region two years to reduce its share back to 8%! This shows us that we really shouldn’t fetishize MAQ share of GRDP as a figure — it can and it has drastically changed from year to year, and it really doesn’t point out how important mining is to the regional economy. In any case, we also have demonstrated that it is possible for a regional economy to transition away from MAQ, as in the case of CAR, and to a lesser extent, Davao.

Besides, we have to take note of the accounting procedure — while GRDP points to regional production, it does not give us a clue on regional income. We know that many local mining companies are usually foreign owned, which means that while their production is counted as production within the region, the profits (which constitutes a large share of the revenue) are usually repatriated back to home countries.

One nice fact before we proceed, there was once substantial mining in Central Visayas rivaling that of Ilocos’ (which then included CAR). This can be a point of further investigation.

How about the share of the local MAQ sector to the national MAQ production? The next chart gives us that:

As we can see, MIMAROPA’s rise really resembles the Crude Oil rise in the earlier charts (notice also how Region IV was split into two in 2001, and well it coincides with the sudden boom of MAQ in MIMAROPA). Right now, it dominates the national MAQ sector, but that wasn’t always the case. Central Visayas share also shrunk during the post-EDSA I, pre-EDSA II period.

Davao region’s share shrunk precipitously since Arroyo took over, largely replaced by CARAGA. In the recent years, this may have been due to then Mayor Rodigo Duterte’s declaration of moratorium. The cancellation of tax exemption of small-scale miner’s cooperatives sale to the Bangko Sentral ng Pilipinas (BSP) might have also forced some miners to go to black market, thus escaping national accounting.

Cagayan, on the other hand, seems to be growing fast, and Ilocos (sans CAR) seems to be steadily growing its local MAQ share to national MAQ. The alleged proliferation of illegal black sand mining in those two regions may have helped increase mining production, though it has not been without severe environmental consequences.

Mining and Philippine Exports

Finally, we come to the claim of exports. For the data for this entire chapter, we used Harvard-MIT’s Atlas of Economic Complexity, which monitors trade across countries and across products. You can check out the atlas here:

Prof. Monsod claims that the share of mining to Philippine exports is just 5%. We can be more generous and include not just the entire MAQ sector, but also refined and manufactured metallic and non-metallic exports as well as the stone and glass sub-sector — we will just end up with just 14%. Setting aside petroleum products, mining exports is dominated by gold and gold content, other metal content, copper, and nickel. This mirrors closely our data on the MAQ structure.

Philippine Exports (2014)

We can actually zoom in on each sub-sector to see their composition:

Philippine Metal Exports (2014)
Philippine Mineral Exports (2014)
Philippine Stone/Glass Exports (2014)

To check out where those exported minerals are actually going, we can sample a few products. For unrefined copper, almost all of it goes to Malaysia. For refined copper and copper products, China takes 73%.

Where did the Philippines export Unrefined copper to in 2014?
Where did the Philippines export Refined copper and copper alloys to in 2014?

For gold, the trade is dominated by Hong Kong, where it is probably processed and exported elsewhere.

Where did the Philippines export Gold to in 2014?

For Chromium ore, China takes the lion share.

Where did the Philippines export Chromium ore to in 2014?

For unwrought Nickel, all of it goes to Japan. We have to examine the rest of the Nickel products since it was recently reported that the Philippines is now the top exporter of Nickel to China.

Where did the Philippines export Nickel unwrought to in 2014?

We can, in the future, try to analyse the impact of these countries to local economies. It is not imprudent to suspect, for instance, that targeted aid is given by specific countries on specific regions because their mining companies are there. This can be a subject of a future post.

The author is currently finishing his MS in Computer Science at the UP College of Engineering after completing his coursework for an MA in Economics at the UP School of Economics.