Gold, Copper and Neocolonialism in Peru

As in any number of other countries, mining remains a most controversial industry in Latin America. If you want an industry which has every possible controversy going with it--pollution issues, labour issues, domestic revenue issues and foreign exploitation issues among others--look no further. It is not encouraging that the issues remain the same after all these years: Being unable to create local mining concerns of requisite sophistication, it remains the case that foreign mining concerns still possess the much-needed expertise to bring extractive industries' output to the world market.

This situation is playing out in Peru as we speak. Listening to the industry's critics and following recent events, it's as if the conquistadors and their rapacious habits never left the Cajamarca region:

North of this sprawling capital city [of Lima] and high in the Andes Mountains lies Cajamarca, a region well-known in Peru for two main reasons: the conquest of the Inca Empire by Spain’s Francisco Pizarro and the area’s extraordinary wealth of natural resources. Here, Colorado-based Newmont Mining Corp. has been operating Latin America’s largest gold mine, Yanacocha, since 1993.

The mine is nearing the end of its life and Newmont wants to develop the nearby $4.8 billion Minas Conga copper and gold project, which will be the biggest foreign investment in Peru’s history. But the project has run into intense local opposition and five people were killed during recent protests, causing the government to impose a state of emergency.

Opponents, led by Cajamarca’s president, contend that the project will harm scarce water resources in the area. Their position has clashed with that of Peruvian President Ollanta Humala, who officially announced his support for Minas Conga in late June. This conflict has become a high-stakes test of how Peru treats foreign investment. The country has more than $50 billion in mining investments in the pipeline and taxes from mining are a key source of government revenue.

The odd thing as followers of Latin American politics are concerned will point out is that Humala originally styled himself as a leftist in the Hugo Chavez mould. Yet, upon ascending to the presidency, he has been quite the opposite in liberalizing opportunities for foreign investment. Is he the Peruvian Fernando Henrique Cardoso? His opponents wish otherwise and desire a Hugo-alike according to some--especially in light of the coloured history of foreign miners operating in the region:

[Miguel] Santillana, an analyst at the Peru Institute who has also worked as a consultant for foreign mining companies said there was bad blood from the beginning between the local community and the Yanacocha mine operators, as people in Cajamarca tend to associate mining with abuse of resources. The current conflict over Minas Conga has much more to do with politics than environmental concerns and it’s an effort to redefine the country’s economic model, according to Santillana, who believes that political leaders in Cajamarca want to weaken Humala and redirect Peru toward left-wing policies like those pursued by Ecuador, Venezuela and Bolivia.

In late June, Newmont said in a statement that before it begins the construction of Minas Conga mining facilities, it will build water reservoirs that will benefit the local community. But this commitment failed to appease the project’s opponents and the conflict has escalated.

More recently, outright hostility has broken out as the regional president has told the foreign miners to pack up and leave--clearly in contrast to the desires of the central government:

The president of the Peruvian region of Cajamarca, Gregorio Santos, said there is no use continuing talks with two Roman Catholic priests trying to reach a peaceful solution to the dispute over the Minas Conga copper and gold project[...]between those who oppose the Minas Conga project and the company, which has been supported by the government of President Ollanta Humala.

"The facilitators have already completed their tasks," Mr. Santos said. "The facilitators aren't going to make any decisions. The executive branch already knows the position of the people of Cajamarca." Mr. Santos has been one of the main leaders of the opposition and the protests against the mining project in the northern region of Cajamarca. 

Call it a rebellion over mining, but for now, the state of emergency declared by the central government in this region continues.

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Today's Resource Curse on Aussie Surfboard Mfg

Little surfer, little one, make my heart come all undone...with your"Made in China" surfboard?

Is there nothing sacred about beach culture that the Chinese won't infiltrate with their relentless manufacturing machine? First you had them testing the Brazilian bikini industry. Now you have them putting Australia's equally famed surfboard makers to the test with inexpensive boards.

It may be odd that the Bloomberg article I excerpt here was the main story on the site front page, but closer inspection reveals that it's quite a straightforward application of resource curse theory: Enduringly strong global and in particular Chinese demand for Aussie minerals and deposits has appreciated the Australian dollar (AUD) massively, promoting both a decline in domestic manufacturing and an influx of foreign goods (that are often substitutes as the article notes). Given how seriously Australians take their surfing, emotions are running high as PRC-made wares come ashore in larger quantities:

On Australia’s Gold Coast, a 22-mile- long (35-kilometer) stretch of beaches named Surfers Paradise and Rainbow Bay, Neil Rech opened a surf shop in December and unwittingly disturbed the peace. His store, Sedition Surfboards [an apt name IMHO], sells Chinese imports for A$250 ($259), one-third the cost of some Australian-made boards that competitors are offering. Rival retailers averse to discounts and upset about local job losses questioned his patriotism, and even threatened violence, he said.

“It’s quite heavy,” Rech, 34, said of the backlash. After teaching for two years in China before opening a store in Coolangatta, Queensland, “I realized how cheap you can actually get these boards so I thought it’d be a great opportunity to bring them here and sell them to the public cheaper.”

And then we have a backgrounder on the economics of it all that are definitely unfavourable to the domestic industry:

Inexpensive imports from Asia, coupled with a 54 percent jump in the local dollar since October 2008, are delivering a double dose of pain to one of Australia’s most iconic industries. The struggles at surfboard makers are playing out at manufacturers across a country where China’s demand for iron ore and fuel has spurred a mining boom while leaving non-resource businesses behind.

Manufacturers are on the wrong side of a divide in Australia’s economy, which has avoided a recession since 1991 and boasts an unemployment rate of 5.3 percent, about half the level in Europe. While the number of mining jobs (AULQMINN) soared 21 percent to 242,400 in the fourth quarter from a year earlier, manufacturing employment slumped 4.4 percent to 953,500 and retail positions sank 2.2 percent to 1.21 million.

Chalk another one up for China. Now, if they only had a Beach Boys-like ensemble singing in Mandarin it would be a total appropriation of beach culture. Heaven knows, they've already got the beachwear arena, er, covered.

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Clare Short, New Mining Transparency (EITI) Chair

Here's a worthwhile initiative I may not have mentioned yet that should nevertheless gain more attention for the work it does. I suppose that it's only fitting that an initiative that was launched by Tony Blair (in 2002) should now be chaired by none other than his bete noire Clare Short. If you remember, Clare Short was the international development secretary (head of DfID) from when New Labour took the reins of power in 1997 to May 2003 when she resigned this post to indicate her disgust over UK participation in the Iraq invasion. Those were some days; dare I say when Brits still used to dream about the future.

In the meantime, let it not be said that the Extractive Industries Transparency Initiative (EITI) has been less than active. Devised to help follow the money in mineral-rich countries--it is hoped that doing so will help reduce chances for corruption and channel revenues to more productive purposes. That is, to reduce the resource curse so common to countries blessed with abundant resources.

Something promising is that mining firms are actually calling for EITI to monitor activities in countries where they have mining operations--a phenomenon similar to that in any number of other industries such as tea production (the Ethical Tea Partnership). Here is a snippet from a recent interview of Clare Short:

In your own work with international development issues, you have occasionally been a severe critic of extractive industries in developing countries. Can you now say that there are positive signs of a genuine will among oil and mining companies to change their behaviour and to be more open in their dealings – especially when working amid the weaker regulatory environments of developing countries?

There are many places where resource extraction has not delivered adequate benefits to local people. It remains true that resource-rich countries on average have more poverty than comparable non-resource rich countries.

A growing number of companies have woken up to the reality that in order to succeed in the long term, transparency is the way to go. They have learned the hard way about the risk involved in operating in countries where there is little trust and also the risk of corrupt practices which breach their domestic law. To mitigate these risks, and because they know that it is the right thing to do, companies are now working with governments and civil society in organisations such as EITI. In several countries, it is the extractive companies that are calling upon the national governments to act more transparently, and to implement the EITI standard.

I’m encouraged by the number of companies that are supporting EITI. I hope that this is a reflection of a desire to be part of the solution. But there are still many companies that do not really favour transparency and are only willing to permit very limited reporting, and maybe see the EITI as a fig leaf rather than a route to full transparency. Of course, governments can require fuller reporting, and some are doing so.

It's me here again. Also note that while EITI may not receive much press notice in North America, it is being widely implemented, with 35 countries signing up to it and a dozen having already being declared EITI-compliant...

Would you expect EITI compliance to become a global standard any time soon?

With 35 countries implementing the EITI [standard] and more joining, EITI is making good progress towards becoming a global standard. It is critical that countries don’t just stop at compliance: they can use the EITI platform to debate wider issues affecting their country. That might be bidding, contracting, operating, allocating or spending. It might be that the reports can go deeper to list payment-by-payment, or physical volumes or sales. It might be that the principles can be applied to other sectors – for example, forestry, fisheries or agriculture. We are seeing innovations in countries that really want to use the EITI as a route to better management of the whole of their extractive sector, thus improving the benefits of the sector to the citizens of their countries. To me, that is even more important than being a global standard.
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One hopes this tough, principled Brummie politician is just what the EITI needs to move its programmes forward.

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