Base Titanium commissioned Ernst & Young to independently quantify the total economic and revenue contributions flowing from the development and operation of its Kwale Mine. The report included FY2016 operating data and also looks back at the impact made during the mine’s construction.
Report Findings
Mine Construction and Development
Economic contributions related to capital expenditure, referred to as “one-time” impacts, do not recur over the mine’s life. Base invested a total of US$310M (KES26.3b) on constructing and equipping the Kwale Mine.
- Over US$100M of capital expenditure was spent with Kenyan service providers.
- The construction phase supported a total of US$190M (KES16.2b) in economic output – measured as the sum of GDP and intermediate inputs:
- US$106M (KES9.0b) directly;
- US$61.3M (KES5.2b) indirectly; and
- US$22.3M (KES1.9b) through induced contributions.
The construction phase also generated a significant number of jobs.
- 8,255 “one-year” jobs in total where supported over the construction period;
- Of the 3,285 direct jobs generated during construction over 1,300 were filled from the local community.
In addition to engaging local contractors and providing employment opportunities, the construction phase generated US8M (KES670M) in tax revenue.
Base spent US$61M (KES5.2b) on legacy infrastructure. While it supports the project, it will contribute to the economy of the region in the long-term after mining operations cease. They include:
- Mukurumduzi Dam at a cost of US$14.5M (KES1.2b);
- A 132kV power transmission line and substation US$5.7M (KES485M);
- A sealed access road at US$6.6M (KES561M); and
- A port and ship loading facility in Likoni costing US$34M (KES2.9b)
Employment
Employment opportunities are an important measure of a mining project’s benefits to a local community and the national economy. The employment multiplier is significant.
- Base directly employs 642 people;
- the operations support another 1,429 indirect jobs in the supply chain; and a further 1,361 induced jobs as a result of employee consumer spending.
This equates to the mine supporting 3,432 jobs in total;
- For every direct employee an additional 4.3 jobs are created in the wider economy.
Employment is an important component of local content. At Base we actively prioritise opportunities for communities most impacted by our operations. As a result,
- 63% of Base’s direct and indirect workforce is sourced from Kwale County; and
- 96% of the direct and indirect workforce is Kenyan.
We are extremely proud of this achievement and It demonstrates both our commitment to maximising local content and the systematic skills transfer and succession planning programmes.
GDP Contribution
GDP is measured as the total value of labour incomes, taxes and gross operating surplus.
- The total contribution to Kenya’s GDP in FY2016 at US$108M (KES10.9b) and projecting this over the life of the mine the GDP contribution will approach US$1b (KES101b).
Public Funds
Much of the public debate around a mining project focuses on the level of government revenue generated through taxation.
- In FY2016, a year of depressed international mineral prices, the Kwale Mine is expected to contribute an estimated US$19.2M (KES1.9b) in government revenue with US$14.3M (KES1.4b) paid by Base in the form of royalties, PAYE on behalf of employees and withholding taxes; US$2.9M (KES290M) in taxes by Base’s supply chain; and US$2.0M (KES200M) of government revenue will be generated through associated consumer spending.
- Over the life of the mine Base expects to directly contribute US$236M (KES23.8b) to government revenue.
Building the Supply Chain
The debate over local content receives a lot of attention. It is our view that Kenya is well placed to take advantage of the business opportunities created by a mining project and a growing extractives sector. Kenya’s historical non-reliance on extractives has resulted in a relatively diversified economy with strong service, financial and construction sectors. Expenditure into the Kenyan supply chain:
- during the construction phase was US$100M, nearly a third of the total construction capital; and
- in subsequent operations our annual non-labour expenditure is US$44M, of which US$37M (KES3.7b), or 84% are purchases from Kenyan suppliers. This represents a significant local content spend and acts as a stimulus to the economy, generating indirect and induced jobs and additional taxation revenue.
Building Local Wealth
Wages to direct, indirect and induced job recipients generate significant economic activity and represent a direct injection into the local economy. In FY2016 the mine will support US$29M (KES2.9b) in employee compensation.
- Base’s annual wage bill is US$15M (KES1.5b); and that in the indirect and induced segments amounting to US$14M (KES1.4b).
The E&Y report found that Base is a relatively high paying employer:
- the average wage for Kenyan nationals working for Base is approximately 1.5 times the national average.
Community
At Base, we believe that achieving our long-term goals is dependent on building lasting relationships with the communities in which we operate and establishing a balanced flow of mutual benefits.
We consider investment in our local community as an investment in our future. To achieve this we, together with the local community, have developed a comprehensive Community Development Management Plan to identify and prioritise needs. The CDMP is aligned with the Kwale County Integrated Development Plan to ensure that investment is complementary.
- By the end of FY2016 Base will have spent US$9M (KES900M) on its community programmes, predominantly on community infrastructure and livelihood development, but also in health and education programmes.
Going forward the focus of our community programmes is on creating economic opportunities that are sustainable beyond the life of the mine. An exciting start has been made in this area already in collaboration with local farmers and supporting organisations involved in agricultural trials, including cotton, potatoes and poultry.
Conclusion
The findings demonstrate the significance of collateral economic and social impacts associated with Base’s operation. The findings of this study clearly demonstrate the reality of the mining economy. Large-scale, responsible mining is not just about government revenues; it has a much wider positive impact. Job creation, the supply chain and induced economic activity combined results in a mining economy four times the size of just the mining revenue.
Presently there are only two large-scale operations in Kenya – Magadi and Kwale. With a competitive and stable legislative framework, it is possible another two large mines may come on stream in the next five years in a growing mining sector, not to mention the possibilities of oil production.
By commissioning this study and launching its findings today our aim is to broaden the narrative around extractives, I want to start a conversation that looks at the bigger picture. By demonstrating that the benefits go beyond the narrowly defined “direct contributions”, our hope is that this report and its findings can help shape public perceptions of the industry and contribute to the ongoing policy debate.
Finally, the launch of this report today in the presence of the Cabinet Secretary and Principal Secretary for Mining marks an important milestone in the partnership between the Ministry and Base Titanium in jointly promoting the message of growing the sector into an increasingly important contributor to the socio-economic development of Kenya.