EghtesadOnline: The mining sector’s impact is not limited to promoting economic growth, its contribution to the creation of equal employment opportunities, poverty alleviation, advancement of social justice and sustainable economic development is also consequential, says Amir-Hesam Es’haqi, a university professor, in a write-up on IRNA.
The translation of the full text follows:
Mining is one of the central sectors of industrial economies for achieving long-term goals. As a macro driver, mining is a perfect replacement for advancing non-oil economies, or reducing reliance on oil revenues. The success and profitability of industries like steel, lead, zinc, copper, aluminum, cement and construction industry won’t be possible without growth and economic development in mining.
The indirect partnership of mining sector with downstream industries in economies like Brazil and Romania is significant.
A one-dollar investment in the mining sector is said to create up to $3 of value in other economic sectors.
Attraction for Foreign Investors
Most foreign direct investments in low-income countries go to the mining sector, such that 60-90% of total FDI in these economies are poured into the mining sector.
Investment in the mining sector is not a coefficient attached to variables like infrastructures, skilled workforce and financial services. However, it totally depends on business environment, particularly in the private sector, and transparency in privatization.
Regrettably, investment in Iran’s mining sector is disproportional to the riches of its mines. The mechanism of attracting foreign investment is broken, hence mining laws and bylaws need to undergo an overhaul.
According to the Ministry of Industries, Mining and Trade, of all commercial mining projects in the fiscal 2020-21, only 63 projects worth $1.3 billion were financed totally by foreign investors and 78 projects worth $550 million were carried out by domestic investors.
China, Germany and the UAE were Iran’s top three partners in carrying out industrial, mining and commercial projects; they made investments worth $543 million, $487 million and $363 million in these projects, respectively.
Total investment made in mining sector from the very beginning is estimated to stand at less than $50 billion. As a result, Iran exploits 1% of its mineral resources whereas the global average nears 5%.
Share of GDP; Job Creation Potential
Mining industries account for 5% of Iran’s GDP; for mining, it stands at around 1%. The Ministry of Industries, Mining and Trade estimates that the share of mining in GDP will increase from the current 1.1% to 1.5% by the end of the Sixth Five-Year Development Plan (2016-21).
The plan had targeted a 3% share for mining in GDP. The country aims to produce 700 million tons of minerals by 2025 as per the 20-Year Vision Plan.
Experts have estimated that one-third of Iran’s economy relies directly on mining. With 57 billion tons of resources from 68 types of minerals worth $770 billion, Iran accounts for 7% of world’s mines.
The country holds the largest resources of zinc, iron ore and chromite, and is among the 10 largest owner of mineral resources around the globe. A total of 400 million tons of minerals are extracted from 5,600 mines of the country annually. Kerman, Khorasan Razavi, Isfahan and West Azarbaijan provinces own the greatest mineral resources of the country.
Thus far, exploration operations have been carried out over 8% of the area of the country and 12,000 small and large mines have been discovered, of which 5,000-7,000 are active. These mines have employed 100,000 people directly, i.e. 0.5% of total employment in Iran. In other words, only one out of 200 workers is directly employed in mines. This comes as mining sector in other countries accounts for 5-7% of GDP and plays a significant role in job creation.
More than 300,000 or 2% of all workers in Canada, the mining potential of which matches Iran’s, are employed by the mining sector, i.e. one out of 50 direct jobs.
Russia owns a number of mines as well. There are over 20,000 small and large mines in this country, of which one-third are active. One million people are directly employed by the mining sector. The most prominent mining companies in the world are owned by Canada and Russia. Mining in these two countries not only promotes economic growth but helps create jobs and reduces poverty. It is an economic catalyst that strengthens economic motivation via commercial activities.
Despite having massive mineral resources, the number of Iran’s mining jobs stands at 500,000. Minerals are used as raw materials in other industries. Therefore, the mining sector has the capacity to create a variety of indirect jobs. It also has the potential to create more direct employment compared with other sectors.
In Peru, there are 14 indirect jobs per one direct job in mining whereas in Iran, the ratio stands at five to one (five indirect per one direct job). More than seven million indirect jobs can be created in Iran, given its mineral resources. The International Labor Organization says for each direct job in the mining sector, as many as 17 indirect jobs will be created.
New Government’s To-Do List
But now, under economic pressure arising from sanctions and Covid-19 pandemic, the new government is expected to pave the way for investment by foreigners by toning down the political discourse and employing a pragmatic approach and efficient industrial diplomacy.
The government also needs to provide financial facilities for the import of modern mining machinery and technologies to enhance exploration and extraction operations and improve productivity.
Mining suffers from poor productivity in Iran due to outdated technologies employed in small mines. These mines account for 30% of mining added value.
The negative growth of production quality is an indicator of low productivity. Mineral processing technologies are capital-intensive, specialized fields. The level of growth in Iran’s mining sector has not been commensurate with the growth of knowledge and mining technologies in the world, particularly in exploration and processing sectors.
There is a lack of research and field studies when it comes to mining. A report by the Industries Ministry shows Iran exported 55 million tons of minerals in the fiscal 2020-21. Iran’s mineral turnover and revenues are meager compared with other countries, despite registering a $4.27 billion worth of trade surplus last year.
Experts and mining players have recommended the following measures in order to clear the obstacles to mining growth and development:
Developing transparent policies in the mining sector, presenting expert reports by the government regarding the realization of targets set in the fifth and sixth five-year development plans in the mining sector, eliminating state control and restricting its responsibilities in the mining sector, completing the value-added minerals production chain, drawing up packages aimed at attracting large-scale international investments, expanding outsourcing and purchasing services instead of making direct investment by Iranian Mines and Mining Industries Development and Renovation Organization, tapping into market and stock market mechanisms in setting prices, lending real support to domestic industries by enforcing the law on maximum employment of private sector capacities, improving transportation and rail infrastructures, discontinuing the allocation of resources to mining projects that lack technical or economic viability, improving partnership between organizations and private sector, lending support to manufacturers of mining products at the time of sharp fluctuations in global prices by enhancing their access to financial resources, liberalizing the pricing of minerals, weighing the possibility of merger between mines and downstream industries such as iron ore mines with steel industry, and facilitating the bankruptcy procedure of enterprises that are incapable of sustainable production in the new economic climate.