Socio-economic impact assessments

Socio-economic Impact Assessments

Regulatory requirements

Regulation 50

As part of the Environmental Approval Process for resource right applications in South Africa, an economic alternative land-use analysis is required.  The requirement to effect this is outlined in the Department of Minerals and Resources’ “Guideline For The Compilation Of An Environmental Impact Assessment And An Environmental Management Programme To Be Submitted With Applications For A Mining Right In Terms Of The Mineral And Petroleum Resources Development Act, 2002, (Act No. 28 Of 2002) (The Act).”

We quote from this guideline, paragraph 6, which indicate the requirements for the purposes of this study of an economic alternative land-use analysis:

“Quantify the impact on the socio-economic conditions of directly affected persons, as determined by the findings and recommendations of a specialist report in that regard.

6.5.1. State the amount, of the quantified potential impact expressed in terms of the loss in value of property or infrastructural assets that will potentially be impacted upon as a result of the mining activity. 

6.5.2. State the amount, of the quantified potential impact expressed in terms of the loss in net present value of commercial, economic or business activity which will be impacted upon as a result of the mining activity. 

6.5.3. State, the sum of the amounts, referred to in paragraphs 6.6.1 and 6.6.2  above.” 

Furthermore, the following is also required as stated in par 9 of this Guideline:  “Provide, in listed format, the results of a specialist study, which study must be conducted in accordance with generally accepted principles of sustainable development by integrating social, economic and environmental factors into a comparison of the costs and benefits of the alternative land uses with those of the mining operation on an equitable basis.” 

It needs to be stated that the above paragraphs are very high level and no specific standards with respect to methodologies have been specified.  To this extent, we use best practice sustainable development standards.

GUIDELINE ON NEED AND DESIRABILITY IN TERMS OF THE ENVIRONMENTAL IMPACT ASSESSMENT (EIA) REGULATIONS, 2010

This guideline requires that the following relevant economic impact aspects be evaluated:

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  • Does the proposed development exacerbate the increased dependency on increased use of resources to maintain economic growth or does it reduce resource dependency (i.e. de-materialised growth)?
  • What is the socio-economic context of the area based on:
    • The IDP (and its sector plans’ vision, objectives, strategies, indicators and targets) and any other strategic plans, frameworks of policies applicable to the area.
    • Spatial priorities and desired spatial patterns (e.g. need for integrated of segregated communities, need to upgrade informal settlements, need for densification, etc.
    • Spatial characteristics (e.g. existing land uses, planned land uses, cultural landscapes, etc.)
    • The Municipal Economic Development Strategy (“LED Strategy”)?
  • Considering the socio-economic context, what will the socio-economic impacts be of the development (and its separate elements/aspects), and specifically also on the socio-economic objectives of the area?
  • Will the development complement the local socio-economic initiatives (such as local economic development (LED) initiatives), or skills development programs. 
  • How will this development address the specific physical, psychological, developmental, cultural and social needs and interests of the relevant communities?
  • Will the development result in equitable (intra- and inter-generational) impact distribution, in the short- and long term?
  • Will the impact be socially and economically sustainable in the short- and long-term. 
  • In terms of location, describe how the placement of the proposed development will result in:
    • the creation of residential and employment opportunities in close proximity to or integrated with each other
    • the reduction in the need for transport of people and goods
    • access to public transport or enable non-motorised and pedestrian transport (e.g. will the development result in densification and the achievement of thresholds in terms public transport)
  • The complementation of other uses in the impact area also need to be evaluated in terms of:
    • alignment to the planning for the area,
    • urban related development, make use of underutilised land available with the urban edge
    • optimisation of the use of existing resources and infrastructure
    • discouragement of “urban sprawl” and contribute to compaction/densification
    • the contribution to the correction of the historically distorted spatial patterns of settlements and to the optimum use of existing infrastructure in excess of current needs
    • the taking into account of special locational factors that might favour the specific location (e.g. the location of a strategic mineral resource, access to the port, access to rail, etc.),
    • the taking into account that the investment in the settlement or area in question will generate the highest socio-economic returns(i.e. an area with high economic potential)
    • a risk-averse and cautious approach applied in terms of socio-economic impacts.
  • What are the limits of current knowledge (note: the gaps, uncertainties and assumptions must be clearly stated).
  • What is the level of risk (note: related to inequality, social fabric, livelihoods, vulnerable communities, critical resources, economic vulnerability and sustainability) associated with the limits of current knowledge.
  • Based on the limits of knowledge and the level of risk, how and to what extent was a risk-averse and cautious approach applied to the development?
  • What measures were taken to:
    • ensure the participation of all interested and affected parties. 
    • provide all people with an opportunity to develop the understanding, skills and capacity necessary for achieving equitable and effective participation.
    • ensure participation by vulnerable and disadvantaged persons
  • Describe how the development will impact on job creation in terms of, amongst other aspects:
    • the number of temporary versus permanent jobs that will be created
    • whether the labour available in the area will be able to take up the job opportunities (i.e. do the required skills match the skills available in the area)
    • the distance from where labourers will have to travel
    • the location of job opportunities versus the location of impacts (i.e. equitable distribution of costs and benefits)
    • the opportunity costs in terms of job creation (e.g. a mine might create 100 jobs, but impact on 1000agricultural jobs, etc.).

Best practice considerations

Flow of money, goods and services

In addition to the regulatory aspects that require covering, a key approach to economic impact assessments is to follow the flow of money, goods and services in a mine labour area.  In the figure above, the mine investment acts as the initial catalyst which then initiates a chain reaction throughout the economy.  The investment results in a sustainable increase in output, which leads to increases in employment and social benefits.  Through direct and indirect taxes, the Government Sector increases its income and capacity to spend.  Profits are saved (or paid out as dividends) into the banking sector, which creates further capital for lending.  A dividend that leaves the economy is considered a leakage.

Review project

We need to obtain a description of the project in order to comprehend the full footprint and implications of the development.  This is obviously necessary as it informs the scope and breadth of the economic impacts.

Understand the mine’s anticipated supply chain

The supply chain of the project is important as it shows the material economic inflection points of the investment and economic activities.  This furthermore highlights the direct and indirect contribution of the mine to various industries and will assist us on commenting on all the possible economic consequence.

Development and Economic Baseline

Once an understanding of the nature and footprint of the project has been obtained, it is all set to determine the economic baseline that will be impacted (the receiving area). The general factors to be considered in an economic baseline are outlined in the diagram to the left.

These socio-economic indicators will be derived from site visits and existing secondary socio-economic information in the area.  As a limitation, it needs to be stated that the DRC is information poor and hence imputations would have to be made.

Impact Assessment

The impact assessment will be made in accordance with the stated impact rating methodology of the lead environmental consultant.  In essence, the economic impact assessment will indicate which aspects of the local, regional and national economies will benefit, why this is the case and to what extent.  Following from this, the question of how the mine can assist in further economic development needs to be considered. (There are rarely any significant economic detractors in responsible investments).

Aspects to consider in an Impact Assessment

Our impact assessment will take the following into account:

  • Which of the impacts are material? 
  • What are the multiplier impacts? (Note we will not be undertaking detailed econometric modelling and hence this will be done with best practice economic information.)
  • We will also assess the impacts of the project’s supply chain on the economy and thus look at up- and downstream impacts.
  • We will assess the impacts regionally (a combination of local and provincial) and nationally.
  • The impacts will be assessed over the life cycle of the mine, thus construction, operational, decommissioning and closure.
  • The impact assessment rating will be undertaken as per the normal environmental rating standards.
  • Mitigation and enhancement strategies will be put forward.

Years of Social and Labour Plan Consulting Experience