Eyes on the prize: How can local value chains genuinely benefit from extractive incentives?

By Kyle Aristophere T. Atienza, Reporter

THE PHILIPPINE government should ensure that its plan to incentivize the processing of critical minerals would benefit local players and prioritize domestic value chains, analysts said.

Jose Enrique “Sonny” A. Africa, executive director at think tank IBON Foundation, said the incentive plan — whether in the form of tax breaks or subsidies — should strictly serve national interests, including efforts for national industrialization.

“Incentives for mineral processing will support industrialization only if they prioritize Filipino firms over foreign ones and if they’re part of a more comprehensive industrial policy,” he said in a Facebook Messenger chat.

Mr. Africa lamented that a general incentive policy would benefit foreign companies more than the local ones since domestic firms are weak in terms of their processing capacity.

“Absent real support for domestic firms, the main beneficiaries of incentives will be foreign transnational companies that have processing capacity and advantages to begin with,” he said.

Mr. Marcos has been highlighting efforts to make the Philippines a manufacturing hub in many public and business events.

But the ambition has been anchored on foreign direct investments (FDI), with Mr. Marcos consistently citing liberal economic reforms including efforts to further cut corporate income tax to encourage the entry of foreign firms.

Mr. Africa said the government should not conflate the entry of foreign investments with industrialization. “Getting this right would enable the great leap forward for Filipino industry that has been so elusive for so long,” he added.

Environment Secretary Maria Antonia Yulo-Loyzaga last week told BusinessWorld the Trade department was geared “towards incentivizing processing because that’s what will enable us to be a participant in the electric vehicle (EV) market.”

The two departments are working together to harness the potential of the mineral industry in line with the country’s goal of manufacturing EVs and other green technologies, she said.

“We need to establish what is critical to us in order to move the mining industry forward,” she said. “We are working on, to say, for the EV push, what do we need and what materials do we have for our own consumption?”

Ms. Loyzaga said in a separate briefing that potential incentives could cover the processing of nickel, which is needed for the processing of clean energy technologies, and copper, which is key to making EV batteries.

Cielo D. Magno, who served as Finance undersecretary under the Marcos government, noted a global trend restricting the exportation of critical minerals.

“When you incentivize, that means you forgo the government’s power to tax,” she said via Messenger chat. “The thinking of other countries is that instead of incentivizing, you discourage exporting raw minerals by imposing additional tax — you penalize.”

She cited the case of Mongolia, which imposes additional taxes if minerals are unprocessed when exported.

Indonesia, meanwhile, banned the export of raw ore and required processing within the country, she added.

“The idea is for a country rich in mineral resources to take advantage of its ownership and maximize the benefits for its people,” said Ms. Magno, the point person for the Philippine Extractive Industries Transparency Initiative (PH-EITI).

“Providing incentives to process is the opposite. You are giving away potential government revenue so companies will process,” she added. “It doesn’t make sense. There is no need to give incentives when a country controls its resources.”

Mr. Africa said restrictions on mineral exports could include export taxes, export quotas, various licensing requirements or an outright ban.

“The most widely used restrictions are export taxes, because taxes are technically restrictions because they are government-induced increases in prices,” he said.

Mr. Africa said private domestic industrial capacity is so weak that the most expedient way to develop national processing capacity is with a state-owned enterprise.

“Filipino firms can, however, also be spurred with incentives like subsidies or tax breaks… A national program for developing indigenous industrial capacity in critical minerals will have to go far beyond just incentives,” he added.

He said the government should support research and development for processing critical minerals to develop indigenous technological capacity and reduce reliance on imported technologies.

“Combined with export restraint, Filipino firms will ensure control over and maximum economic benefits from critical mineral resources like nickel,” he added.

Ms. Loyzaga said while the mining sector only accounts for 0.5% of the country’s economic output, it is critical to helping the country achieve its infrastructure and green ambitions.

“Export restrictions on raw minerals are important to encourage value-added domestic processing by Filipino firms before export. Industrialization is most of all about higher-value production by Filipino enterprises.”

When asked how the economic benefits of mining are weighed against the impact on local communities, Ms. Loyzaga said: “It’s not black or white. You have to contextualize what the country needs in terms of development — how we can mitigate these environmental impacts and how we can deliver the social goods.”

Mr. Africa said aiming for cleaner, more efficient mining and processing technologies is easiest with state-owned firms, “although support for private firms can be contingent on using green technology.”

He said foreign companies could also be offered incentives but with conditions on technology transfer and domestic skill development, especially in the context of joint ventures.

“In any case, the general direction should be towards developing Filipino mineral processing capacity and not just attracting foreign firms to do this for us in-country,” he said.

Beyond just processing, Mr. Africa said Philippine industrialization should aim for vertically integrated Filipino firms handling everything — from mining to final product manufacturing — to ensure that more of the value chain remains within the country and embedded in the national economy.

GREATER TRANSPARENCY
Meanwhile, Ms. Magno said transparency in the extractive sector remains a key issue.

“The government attempted to review the sector’s compliance with government regulation. These reports have not been made public,” the former Finance official said, referring to reports of the Mining Industry Coordinating Council (MICC).

The MICC was an inter-agency body created to review all mining operations concerning their compliance with existing laws and regulations.

“Greater transparency is needed in the sector to ensure we prioritize national interests,” she added.

Ms. Magno said the Department of Environment and Natural Resources (DENR) and Mines and Geosciences Bureau should also include the disclosure of beneficial owners of mines in the country “so we can remove conflict of interest.”

“A number of politicians are involved in mining that is why it is not surprising to see policies that favor companies rather than the public,” she said.

Leonardo A. Lanzona, who teaches economics at the Ateneo de Manila University, said revising property rights is an important step to expanding the mining sector and ensuring that it will serve national interests.

“In regions with weak property rights, mineral extraction can be prone to corruption, with illegal mining operations or bribery undermining governance,” he said via Messenger chat.

“Strong, transparent property rights frameworks reduce the chances of illicit activities and corruption by establishing clear rules for who can mine and how they are held accountable,” he added

The Chamber of Mines of the Philippines earlier expressed support for the incentive plan but said fundamental problems “that ail our industry should first be solved” before “we take the leap to value-added mineral processing.”

“Only then can we be able to produce enough minerals to feed the mineral processing facilities we aspire to build,” Chairman Michael T. Toledo told BusinessWorld.