Can the gold in Burkina Faso be a way out of poverty?

Representatives from the Council on Ethics visited the country in autumn 2012 to gain a better understanding of the challenges faced by mining companies and other companies when establishing themselves in a developing country.

A country facing challenges, where small initiatives can make a big difference

Burkina Faso in West Africa is one of the poorest countries in the world [*1]. Some 85 percent of the population of 17 million live off the land and livestock. The infrastructure is underdeveloped. Around 70 percent of the population are illiterate. The population is also very young, with approximately 65 percent aged under 21.

The country has begun to tackle its poverty levels in recent years. Economic reforms have been initiated and several social indicators show improvements, including an increase in the number of children attending school. The country’s largest sources of income are currently gold (approximately 70 percent) and cotton.

Major opportunities for a young mining nation

Burkina Faso is a young mining nation. The first exploitation permit for gold deposits was issued in 2007. Naturally the gold reserves are limited and it is now that Burkina Faso has the chance to use the income from its gold to build up the country’s prosperity. This means that the country’s government has excellent opportunities to learn from the experiences of other countries. Income from a developing country’s mining industry is often low and rarely benefits the people.

International organisations, such as the IFC [*2], EITI [*3] and the World Bank, can help the country to set up processes to ensure it receives appropriate levels of royalties from the gold extraction and corporate taxes. The country is also given support in establishing frameworks for guaranteeing transparency, as well as help in getting the finance ministry and mining ministry to “speak the same language”.

Increased transparency is important, not only to reduce the risk of corruption but also to encourage understanding among the population and gain their endorsement for how the income from gold will be used to contribute to the country’s development. Burkina Faso has made great progress in the right direction on this point through its application for membership of the Extractive Industries Transparency Initiative, EITI. The current mining legislation is under review and it will be obligatory for companies extracting gold to submit reports in accordance with EITI’s standards. The mining chamber of commerce (Chambre de Mines) is there to working on a report that gives details of the mining industry’s contributions in the form of infrastructure, schools and other social development. A proposal has also been put forward regarding the establishment of a gold reserve fund to further increase transparency on how the income from the gold industry is being used.

Mining industry creates jobs and generates government income

The multinational mining companies that are currently operating in the country pay 5 percent in royalties on the value of the gold that is exported from the country, 17 percent in corporate tax and 16 percent in tax on dividends. Property tax is paid based on the area of land taken up by the mine, and the government has a 10 percent stake in all mining projects.

The mining companies employ local people as far as possible, which creates new jobs in and outside the mine and encourages knowledge transfer. One of the mining companies that the Council on Ethics visited, Semafo, explained that one employee within the mining industry creates approximately ten new jobs outside the mine. These are jobs and incomes that are essential in the country’s efforts to tackle poverty.

Alongside the industrial mine exploration work there is also an artisanal mining extraction/exploration going on, where large amounts are extracted using non-industrial methods. There are an estimated 500-600 mines of this kind employing between 1,000 and 30,000 people per mine. The health and safety risks are enormous, with many unreported deaths from tunnels collapsing and poor handling of cyanide and other hazardous chemicals. There are often children working in these mines.

Major investment required

However, companies that see business opportunities in Burkina Faso face major challenges. Extracting gold requires huge amounts of capital and major investment, resources that a poor country simply cannot supply. Excavators, drilling equipment and lorries, along with road building and processing plants to crush and separate the gold from the ore are all major investments. One tonne of ore produces just 1-7 grams of gold, and the ore in Burkina Faso is considered rich in gold. In other words, companies are taking huge financial risks. Exploiting gold in the current climate does pay off thanks to the high price of gold, but if that price falls, companies are left having already invested money. Although Burkina Faso is now one of the more stable countries in the region, any risk assessment must also consider the political risk associated with possible future transfers of power, not just in the country but also in the surrounding countries.

Major impact on environment and society

Another important matter that companies need to handle responsibly is the social and environmental risks that arise. The mining industry has a major impact on the environment and society, and mining companies have great responsibility in this area.

There are many environmental issues to consider, for example more than 99 percent of the ore that is mined is waste that needs to be disposed of properly, and tailing ponds must be made impermeable so as not to contaminate watercourses. Cyanide and other chemicals must be handled and stored securely, and the use of water must be restricted in regions that are prone to water shortages, which is why it is extremely important to have systems that reuse process water. On top of this, reinstatement plans and funding need to be in place for the eventual closure of the mine.

Dialogue with local population key to success

Having a constructive dialogue with the local communities who are affected and consulting them both before and during the process is a key factor for success. For the companies, it is a matter of minimising risk, but if everything is managed using a responsible approach that is sustainable in the long term then it can be a win-win situation for both the company and the local population, as well as the country as a whole. It is important to have local knowledge and respect local communities. Burkina Faso is made up of a large number of ethnic groups, whose needs can vary. Put simply, there is no one-size-fits-all solution.

The voluntary organisation Orcade often informs the local people so that they understand their rights and the obligations of the mining companies at the various stages of starting up mining operations. By law, for example, mining companies must consult the population and provide compensation for homes that need to be moved because of mine exploitation – but only when they have acquired an exploitation permit. The question is, what the mining companies can do to help the population in addition to what the law says they are obliged to do.

Women, education and health – focus areas for companies’ social contributions

The Council on Ethics was able to see examples of how local communities are consulted through the Canadian mining companies Semafo and IAMGOLD. The two companies have different approaches to handling social issues. Semafo works through its own foundation, while IAMGOLD has a more traditional model, in which the company manages its local work through employees and sponsorship of a nationwide education programme via the voluntary organisation Plan Canada.

Semafo’s foundation has built schools, toilets, wells and libraries, donated school books, school meals, solar panels and invested in preventive health care initiatives. They have also built health clinics. Through education initiatives, funding and support, the foundation has helped women to open a factory for producing shea butter, which is made from shea nuts and used in beauty and skincare products and soap, as well as cultivation of sesame seeds and peppers. The products are sold both locally and exported.

Many of these initiatives may seem small, but they bring about critical changes. Installing a water pump in a village improves hygiene and saves women and children a huge amount of time that would otherwise be spent walking several kilometres to fetch water. The construction of local schools increases opportunities for children to go to school, and providing meals attracts pupils and gives them the energy to cope with the school day. Financing a mill for grinding flour saves time for the women when the only meal of the day is often just one meal based on millet flour.

One important purpose of the mining companies’ social work is the principle of help to self-help, i.e. avoiding dependency on the mining companies and instead enabling local communities to continue to support themselves after the companies are no longer in the area. This is where education initiatives play a key role, as does the importance of trying not to take over the duties and responsibilities of the state, which is a delicate balancing act for companies in many cases.

”Burkina Faso is becoming a mining nation and it is the government’s responsibility to support mining companies in their efforts not to kill the goose that lays the golden egg,” commented one women who represents the provincial government [*4} at one of the meetings of the local advisory [*5] committee.

Importance of collaboration between different stakeholders

Many NGOs and aid agencies, including the Swedish International Development Cooperation Agency (Sida), have offices in Burkina Faso, and the Council on Ethics met several of them. The focus areas are health and education issues, as well as emergency aid for example when there is a famine. Lifting Burkina Faso out of poverty requires lots of organisations to work together, and although mining companies bear a heavy responsibility, international, national and regional initiatives are also needed, as well as the involvement of investors and NGOs – and it is of the utmost importance that they cooperate. Sharing experiences on all levels is essential for the country’s continued development.

*1 1 In 2011, Burkina Faso achieved a ranking of 181 out of 187 in the UNDP’s Human Development Index (HDI).
*2 IFC, International Finance Corporation, the part of the World Bank that works with the private sector in developing countries.
*3 EITI, Extractive Industries Transparency Initiative. See page 16 for a more detailed description of EITI. EITI approves Burkina Faso´s membership during the first quarter of 2013.
*4 Quotes from notes taken at consultation meeting on 31 October, 2011, between Semafo and representatives from the local population (Comité consultatif local).
*5 Two advisory committees have been set up at the Mana Mine to facilitate dialogue between the mining company and the communities that are affected by mining operations. The local advisory committee at the Mana Mine consists of company representatives, representatives from the province, official representatives from the villages that are located around the mine, individuals representing various faiths and representatives for young people, women and others.