Ambatovy mine, Madagascar

Madagascar has a problem. A problem that brings together all of the major issues the state is facing, including political instability, corruption and deforestation on a huge scale. The conundrum the government must solve is how to alleviate poverty by extracting valuable minerals from beneath the ground without causing permanent damage to its unique environment.

The island country is one of the most biodiverse in the world, with over 250,000 species (5% of the world’s plant and animal species) the majority of which are endemic to the island, according to the World Wildlife Foundation. The numbers keep growing; in the last decade, more than 600 new species of animal and flora and fauna have been discovered.

"Destruction is whittling away the opportunity for the Malagasy Government to capitalise on the ecological tourism market"

Unfortunately, a number of threats to wildlife have also emerged in the last century. The practice of tavy- deforesting land for agricultural use- and the hunting of endangered species for food by the local population is a symptom of a country struggling with crippling poverty. Weak government authority has also led to problems with illegal logging, clearing large sections of precious forest for profit. This destruction is whittling away the opportunity for the Malagasy Government to capitalise on an ecological tourism market which could provide income for some of its 23 million citizens.

Mining has been equally hailed as a potential saviour of the Malagasy economy and torn down as a destroyer of its natural assets. One of the projects both lauded and criticised by various parties has been the Ambatovy nickel and cobalt mine, 40%-owned by the Canadian Sherritt International, 32.5% by the Japanese Sumitomo Corporation and 27.5% by the South Korean Korea Resources Corporation.

Shaky ground for investment

Madagascar has struggled to get to its feet since gaining independence from France in 1960. Various military takeovers and overstaying leaders have had a negative effect on investor confidence and long-term environmental protection policy. The latest military coup in 2009 dealt a major blow to outside investment in the country, stalling projects in the pipeline and dissuading new projects.

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By GlobalData

Fortunes have begun to change with the election of a democratic government in 2013, and the number of mining projects in the region has grown slowly but steadily since. Mining and oil’s contribution to Madagascar’s GDP has grown from 1.6% in 2012 to 2% in 2015.

The Ambatovy mine site was purchased by its current owners in 2006, obtaining a licence from the government in 2007. The first nickel was shipped internationally in 2012 and production has been ramping up ever since. At full capacity, the mine is expected to produce 60,000t of refined nickel, 5,600t of cobalt, and 210,000t of ammonium sulphate fertiliser per year. As of October 2015, the mine and its refinery employ 8,000 people, 94% of which are Malagasy.

As well as contributing to the economy by employing locally, the company predicts it will pay "well over $ 4.5bn" in taxes and royalties over the next 30 years. If this cash injection can be guaranteed to enter the right government coffers and be distributed on much-needed poverty alleviation schemes, this should be a significant boost for the Malagasy people. However, it isn’t just about money. For Madagascar to remain the bastion of biodiversity is currently is, mining companies need to ensure they work to protect the environment, even if the state’s legislation is weak on the matter.

It is hoped that the new government, headed by Hery Rajaonarimampianina, and the presence of large international mining entities with reputations to protect will bring about a change in the sector. Programme manager for Natural Resources at Transparency International, Hajanirina Randria Arson says international companies have an "interest to participate and collaborate in the fight against corruption", especially if they are publicly traded. However, because these companies wield influence in the country, they may lobby for land access and changes in environmental obligations which are contrary to the needs of the Malagasy people.

The country is an Extractive Industries Transparency Initiative (EITI) candidate country, which means it is required to hand over documentation on tax payments, licences, contracts, production and other information in the name of transparency. This data is then cross-checked against records provided by the companies operating in the state. EITI regional director for Africa and the Middle East, Eddie Rich, says the initiative "is about getting information to citizens to inform public debate in the country".

"Licensing without scrutiny has become a problem for the government"

News that mining projects on the island are on the rise has been met with trepidation by some environmental campaigners. "Licensing without scrutiny has become a problem for the government," says Randria Arson. "These permits pose environmental problems, security and governance issues since some of these permits were issued to the limit of legality." But according to senior director of responsible mining and energy at Conservation International, Marielle Cantel Weikel, the government is beginning to adopt a more even-handed approach to mining and conservation.

"The government has placed priority in recent years on better understanding and valuing the variety of services that nature provides to people, through natural capital accounting," says Weikel. "The goal of this effort is to economically assess the country’s environmental assets alongside mineral assets in order to make better informed decisions about natural resource management."

A balancing act

This does not mean it is plain sailing for mining in Madagascar. Transparency International’s Corruption Perceptions Index for 2015 scored the country 28 points out of a possible 100, highlighting ongoing issues with corruption. The World Economic Forum’s 2013-2014 global competitiveness report agreed finding that that corruption is the second biggest impediment, after political turmoil, for doing business in the state.

In the Malagasy mining sector, corruption primarily takes the form of rent-seeking, where officials demand payment for licences or other bureaucratic sign-offs. Commonly, this money does not filter through to the Malagasy people, so provides no benefit to the state. Other forms of corruption present in the sector are political interference, state officials gaining lucrative positions in mining companies and bribery, according to Transparency International’s Sofia Wickberg. Much of this is done with little or no regard to the environment.

Weikel praises the work the Ambatovy mine is doing to minimise its impact on the Malagsy environment. Conservation International has provided advice and input to the project as it has progressed. The team at Ambatovy is "using voluntary biodiversity offsets as a way to address or compensate for residual impacts from the project and applying global best practice standards such as those from the Business and Biodiversity Offsets Programme and the International Finance Corporation’s performance standards" according to Weikel. Conservation International, along with a number of other environmental NGOs, has provided input to these projects as they have progressed.

Other organisations have not given Ambatovy such glowing praise. A report released in January by eradication, invasive species and herpetology experts Pete McClelland, James T Reardon, Fred Kraus and Christopher J Raxworthy has laid the blame for the recent invasion of the Asian toad partially at Ambatovy’s door, claiming that "it appears there are negligible biosecurity measures in place…at the Ambatovy mine", and the mine used a Thai firm during construction which brought the toads over inadvertently.

According to the report the toads are "rapid breeders producing up to 40,000 eggs per year, long-lived, poisonous to other animals and opportunistic predators devouring anything they can swallow." This obviously poses a threat to the indigenous wildlife. Ambatovy has recognised the problem and met with the research team to find a solution. The controversy is another reminder of the perils associated with mining in a protected environment.

The government and mining companies are performing a delicate tightrope walk between profit and destruction. Large mining companies have experts on-hand and procedures in place to minimise their impact and ensure corruption doesn’t factor in their operations. Ambatovy seems to be endeavouring to do the right thing by the environment and people of Malagsay, but even then, it has fallen foul by helping to introduce the Asian toad.

What’s needed are clear rules on environmental protection coupled with severe penalties for those who step out of line. A government struggling with authority cannot enact these changes easily, but as the Malagasy democracy gains momentum, the next government should have the mandate to begin setting coherent policies to address how to provide for its people without strangling its unique environment.