How Mining Towns Can Create Dependency

The mining sector has been a cornerstone of Namibia’s socio-economic development, driving job creation and contributing to the growth of both new and existing towns.

With key industries in diamond, uranium, zinc, copper and other metal ores, it has long provided stability and opportunities across the country.

Historically, mining towns have offered miners and residents a relatively low-cost lifestyle, with mining companies covering many essential expenses and offering fringe benefits.

While not as glamorous as in the past, miners at these towns still enjoy financial advantages, which help alleviate many of the daily costs city dwellers face.

Oranjemund, established in 1936 by Consolidated Diamond Mines and later managed by Namdeb, was originally a private, mining-owned town.

For decades, it provided essential services such as free housing, water and electricity to employees and the community.

Even after the town’s official proclamation, Namdeb continued to offer various financial benefits, including subsidised property sales for employees and financial assistance for those buying homes outside the town.

At the time of writing, Rosh Pinah had not yet been proclaimed a town. It was managed by Roshcor, a joint venture between Skorpion Zinc and Rosh Pinah Zinc Corporation.

Employees of both mines received water and electricity as part of their benefits. Similar trends exist at other mining towns, with Rössing Uranium shaping Arandis and Dundee Precious Metals influencing Tsumeb.

WHAT’S THE PROBLEM? 

While the mining sector offers many positives – such as its contribution to gross domestic product, job creation and the socio-economic development of towns – the issue lies in a ‘dependency syndrome’ among some miners.

Workers grow accustomed to the benefits. This has resulted in a lack of incentive or opportunities for miners to learn how to manage their finances or plan for the future.

It creates a cycle where financial literacy, including understanding and managing pensions, is often overlooked.

Many miners are unprepared to fend for themselves once they retire or if mines face retrenchments.

While some may have accumulated savings, the critical question remains: Do they possess the necessary financial literacy to effectively invest, preserve and sustainably utilise their pensions?

On retirement, many individuals return to their hometowns or villages.

Fringe benefits provided during employment may change, often leaving them responsible for securing housing, paying municipal bills and covering higher school fees.

Also, while employed, a mining company may subsidise a significant portion of an employee’s medical aid contribution but this support may be reduced or discontinued after retirement because of financial constraints or policy changes.

As a result, the former employee may need to cover the full cost of their medical aid premiums, or a substantial portion, themselves.
This can create significant financial challenges, especially given the high cost of medical aid premiums.

STEWARDSHIP

Pension fund members receive a lump sum and monthly pension upon retirement but effectively managing it for long-term financial security remains a significant challenge.

In a provident fund arrangement, where members can withdraw their full benefit in cash at retirement, one-third of the amount is tax free; the remaining two-thirds is subject to taxation either as a lump sum or as a monthly annuity.
Most members seem to opt to take the full amount in cash rather than converting the two-thirds portion into a monthly annuity.

In terms of the Income Tax Act, this lump sum withdrawal often results in Namra assessing retirees at a significantly higher tax rate.

Instead of spreading the tax liability over their lifetime through monthly annuity payments, retirees face immediate taxation on the full amount at a much higher rate.

This underscores the need for better pension and financial literacy to ensure miners’ long-term financial stability.

Given increasing life expectancy, economic instability and inflation, early retirement planning is essential.

Compound interest significantly boosts long-term savings, helping ensure financial independence.

SECURING MINERS’ FINANCIAL FUTURE

By fostering financial and pension literacy, mining companies, pension and provident funds should empower miners to manage their finances effectively, both during and after their careers.

This will enable them to transition smoothly into retirement or new roles, reducing financial stress and promoting long-term economic stability.

In turn, this contributes to the broader economy by creating a more financially empowered and educated workforce, capable of making informed decisions that support personal and national economic growth.

• – Vincent Shimutwikeni is the head: legal and compliance services at the University of Namibia. He holds a B Juris and LL.B degree.

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