1. The Mining Sector in Latin America: supporting or undermining social and economic development?
Aidan Davy
Program Director
Community and Social Development
International Council on Mining and Metals

2. Scope of presentation ICMM and the Resource Endowment Initiative
‘Mineral dependent’ economies globally and in Latin America – historical economic and social performance
Foreign Direct Investment in extractives in Latin America
More in-depth discussion of economic and social performance of two countries: Chile and Peru
Preliminary conclusions: supporting or undermining social and economic development?

3. Goal: Raise Standards of Performance
ICMM Corporate Members
ICMM is a CEO-led organisation. The CEOs meet twice per year to agree policies and strategic directions, and approve the work program and budget. In this respect ICMM is a unique organisation. Half of our members have investments in Peru.
Our goal is to raise standards of corporate performance on all aspects of sustainable development.
To achieve this, our 16 member companies are obligated to:
implement ICMM’s 10 principles (which are derived from the Mining Metals and Sustainable Development multi-stakeholder process)
Report ‘in accordance with’ the GRI sustainability guidelines and the Mining and Metals Sector Supplement
Carry out 3rd party assurance that the principles and the corporate reporting are being implemented.
This is no mean task!
Recognizing that we only constitute about half of the market capitalization of the mining sector, we have an important second goal:
Share our policies, toolkits, and good practices beyond our members, to other companies as well as to all others who are key if we are to achieve the goal of sustainable development: governments, communities and their organizations, such as indigenous peoples’ groups, labor, investors, financiers.
Sustainable development can only be achieved if we all work together….communities, companies, labor, governments, investors and so on.
Goal: Raise Standards of Performance 3

4. Resource Endowment Initiative
In 2004, ICMM in partnership with World Bank and UNCTAD commenced research to better understand the socio-economic performance of ‘mineral-dependent’ countries
Focus on identifying and promoting ways to assist mineral-rich countries across the developing world to use their mineral resources to achieve broad-based economic growth and sustainable development
Not ‘resource curse’ denial – but limitations of resource-curse literature is focus on problems rather than solutions
Resource Endowment work attempts to understand factors that contribute to more successful ‘mineral-dependence’

5. Outputs from Phases 1 and 2 (2004 - 2006)
Toolkit which provides a systematic and consistent approach to documenting impacts of individual mining projects on a local, regional and national level
Practical policy recommendations for mining companies, governments, development institutions and NGOs aimed at enhancing the socio-economic contribution of mining
Country case studies for Peru, Chile, Ghana and Tanzania:
examined the national (macro) economic impact of the mining industry as well as poverty and social indicators
reviewed economic and social impact of one large mine in-depth in each country
Synthesis Report which contrasts and compares similarities and differences, and outlines recommendations
Here in Peru, we analyzed the Antamina Mine in depth…
for those of you who are interested….All of these outputs have been published, and include a ‘Spotlight’ summary note on Peru. These are available at the Quelleveco? Anglo American? Stand {check with ER} Thanks to Antamina, the full Peru case study has been translated into spanish and both the spanish and english versions are available on ICMM’s website. 5

6. Identified 33 mineral dependent economies globally:
First step: determine some measure of ‘success’ as basis for more in-depth work
Identified 33 mineral dependent economies globally:
Ores and metals comprising 20% or more of merchandise exports on average over 38 years (1965 and 2003)
For these countries, economic and social performance measured by looking at six variables:
Economic growth - GDP per capita for 32 years [ ]
Economic diversification - non-mineral GDP growth [ ]
Poverty alleviation (4 variables - infant mortality rate, HDI, minimum dietary requirements, and access to drinking water)
Results for individual countries compared with global income group and region [e.g. Chile compared with all “upper middle” income countries and Latin America]

7. Analysis of E&S well-being of 33 mineral- dependent
Analysis of E&S well-being of 33 mineral- dependent* economies [1965 – 2003]
Economic factors: Per capita GDP growth and
non-mineral GGP growth (1980 – 2002)
Poverty alleviation: Infant mortality, human
Development Index and two selected MDGs
Poor performers
Bolivia
Central African
Republic
D. R. Congo
Liberia
Niger
Papua New G.
Philippines
Sierra Leone
Zambia
Weak performers
Gabon (E&S)
Guyana (E)
Jordan (S)
Mauritania (E)
Peru (S)
South Africa (E)
Suriname (S)
Tanzania (E)
Togo (S)
Zimbabwe (S)
Generally better
Colombia
Guinea
Jamaica
Mali
Morocco
Mozambique
Namibia
Senegal
Botswana
Chile
Ghana
Malaysia
Mexico
Tunisa
Better performers
* Minerals and ores exports exceeded 20% of total exports

8. Recent mineral dependence of LAC countries
Minerals as % of exports
( )
Minerals as % of exports
( )
Suriname
Peru
Jamaica
Guyana
Colombia
Chile
Brazil
Bolivia 10 20 30 40 50 60 70
Note: Mineral exports in Peru significantly increased in recent years (62% in 2006)

9. Macroeconomic outcomes in Chile: Higher and more stable GDP growth
Nationalisation in 1970’s followed by dominance of state ownership until later 1980s
Improved mineral legislation enacted in Chile during Pinochet years (mid-1970s). But greater political and economic stability needed before recovery of mining investment in the late ’80’s/early ’90’s
Stability enabled significant FDI from late ‘80’s/early ‘90’s ($21.7bn FDI & 14.5bn Codelco) and a 3-fold production increase (’90-’04)
Substantial recovery in mining investment appears to have contributed to improved growth performance [more notable link to improved mineral legislation in Ghana]
Non-mineral GDP growth has been positive. Over past 30 years Chile’s non-mineral GDP growth has outperformed LAC and upper-middle income countries
Copper Stabilisation Fund (since 1985) helped smooth out variations in fiscal income. This has made planning for long term spending decisions easier, for example to build human capital.

10. GDP growth in Chile (1950 - 2003) & Ghana

11. Chile – current state of mineral dependence
Over past 30 years Chile’s non-mineral GDP growth has outperformed LAC and upper-middle income countries
Mineral exports still significant, but long-term decline indicative of value of other exports [long-term GDP decline of 8% to 6.4% ’05]

12. Mining and fiscal revenues - Chile
7000
6000
15%
5000
4000
10%
US$ millions
% of fiscal revenues
3000
2000 5%
1000
2003
2004
2005
2006
Taxes paid by Codelco
Taxes paid by the 10 largest private mining enterprises
Codelco dividends
% of fiscal revenues derived from mining
Sources: UNCTAD (2007) World Investment Report. ECLAC (2007). Economic survey of LAC:

13. Social Development/Poverty Reduction: Outcomes in Chile
Reduction in poverty levels have been significant at both national and regional levels in Chile (see next slide). Region II outperformed all others on non-monetary Human Development Indicators
Proportion of people living below the poverty line has decreased from nearly 40% in 1990 to about 20% in Improvements were largely driven by increasing employment opportunities
Region II shows unusually strong linkages between mining industry and the local economy
This is partly a result of deliberate targeting and fostering of local suppliers by Escondida mine, coupled with regional government initiative promoting industry-government collaboration to support local suppliers obtaining ISO certifications
Benefits of mining sector for Chile have not mainly come from taxes

14. Chile poverty reduction by region (1990 – 2003)
Chile – Regional differences in poverty reduction

15. Employment, training & local procurement: Example of Escondida mine
In 2004, Escondida mine (Region II) employed 2,810 directly (8 expatriates) and 2,345 contractors
Induced employment estimated as 8, ,800 (or % of occupied people in Region II)
Average annual spending on training and development was approx $2,000.employee
On average, procurement from within Chile is estimated as 80%:
In 2004, of $483m of goods procured, 48% was from within Region II, 34% from elsewhere in Chile, and 18% overseas

16. Macroeconomic outcomes in Peru: greater economic stability
Nationalisation in late ’60’s and during ‘70’s followed by dominance of state ownership until early 1990’s
Fujimori administration adopted policy of privatization and encouraged FDI. After introduction of new mining legislation in 1992, $9.8bn FDI in sector (between )
Mining in Peru makes a crucial economic contribution: approximately 55% of merchandise exports and 5% of GDP in 2006
Between , Peru’s overall GDP increased by 93% whereas mining-related GDP increased by 135%
Mining contributed around 21% of Peru’s fiscal revenues in 2006 (a very large increase from around 5% in 2004)
While direct employment small ….65% of procurement from the industry in Peru is sourced in-country
Overall, sector employs 95,000 directly, but 380,000 indirectly (with mining salaries averaging 7.5 times agricultural salaries)

17. Income taxes and extractives, Peru (2000–2006)60
1800 50
1600
1400 40
1200
US$ millions
1000 30
800 20
600
400 10
200
2000
2001
2002
2003
2004
2005
2006
Income tax revenue from mining industry
Income tax revenue from oil and gas industry
% of total income tax revenue derived from extractives
Source: UNCTAD (2007) World Investment Report

18. Social Development/Poverty Reduction: Outcomes in Peru
Official statistics show that from 1960’s to 2002, 3 key social indicators - infant mortality, life expectancy and literacy rates - have generally improved
UNDP’s 2004 Report on Human Development found little progress in reducing social inequality and disparities in income and regional development
More than half population lives in poverty and nearly a quarter lives in extreme poverty – extreme poverty affects more than half of the rural population, compared to slightly less than 10% of urban
Social exclusion is deeply entrenched, many social needs are unmet, and mining companies bear brunt of expectations

19. National level governance reforms in Peru are not matched at regional/local levels….
Important recent developments:
Canon Minero: 50% of corporate income tax returned to mining areas; this is significant contribution (over $900m in 2006)
Mining Royalty: 1-3% value of production, 100% to mining areas
Voluntary Support Fund (VSF): $790 million over five years to reduce poverty and social exclusion in mining areas
But… proactive arrangements are needed where capacity of local and regional governments need strengthening
Companies can support capacity building, e.g. integrating social investment into local/regional government development plans
Peru has made great strides in national level governance reforms: these need to be matched at the regional and municipality levels…
Funding is not an issue…
Companies are ready to play their part. 19 19 19

20. Role of/impact on governance (1996 – 2006)
Voice &
Accountability
Political
Stability
Govt.
effectiveness
Regulatory
Quality
Rule of
Law
Control of
Corruption
LAC region (1996)
Chile (1996)
Peru (1996)
LAC region (2006)
Chile (2006)
Peru (2006)

21. Overall conclusions
The contribution of FDI and mining investments to socio-economic development and poverty reduction can be significant
The performance of different mineral dependent countries varies greatly, but apparent success factors include:
A stable macroeconomic climate
Mineral legislation supportive of FDI
Good governance and institutional capacity – especially at local and regional levels
Effective partnerships between companies and governments – in fostering local supply chains, for example, or improving local social provision
A mining resurgence can be associated with significant poverty reduction…. But this is by no means an automatic outcome
In all 4 countries we found that over a 50 year time period, these ‘success factors’ had contributed to both stable and higher economic growth than in the period preceding the reforms.
The long term (50 year) comparisons suggest that the resurgence of mining activity in recent years in all four cases has been accompanied by smaller problems in most aspects of the resource curse thesis, than in the years when mining was stagnant or in decline. For example in Peru and Ghana, Dutch disease problems seem to have been avoided and exchange rate policy movements largely compensated for inflationary changes
However in only two of the four countries did we find that over a 25 year period, mining had contributed to poverty reduction.
{John: If questioned on Peru, these are the findings:
The research found that the economic recovery process has not changed poverty levels significantly. More than half the population continues to live in poverty with nearly a quarter living in extreme poverty of less than one dollar per day. More than 7 million (of Peru’s 17m population), have no access to drinking water, 5 million no access to sewerage and around 7 million have no access to electricity.}

22. How can Improved Outcomes be Achieved?
Deeper governance reforms that improve broad-based access to economic opportunities are critical to: (a) help limit negative effects, and (b) capitalise on positive growth opportunities
This applies in particular to the local level. Strengthened decentralised fiscal management and empowerment of local and regional authorities are needed – capacity must be built in parallel
Caution: Explicit revenue sharing arrangements, as found in Ghana and Peru, do NOT seem to respond adequately to this. They overemphasise redistribution, but contribute little towards improving the efficiency of spending
Institutional arrangements needed that support broad-based economic activities in the medium and long term:
To fill gaps, all partners (companies, governments, social representatives and donors) need to collaborate and adapt to country specific situations.

23. Way Forward
Collaborative action is needed to capture the full potential benefits of mineral wealth and achieve enhanced and lasting outcomes
This requires partnership approaches between companies, governments, social representatives (including NGO’s) and donor agencies
Individual partners have specific responsibilities, comparative advantages, and contributions to make – but collaboration is fundamental
These principles apply to each of the five clusters of recommendations

24. Resource Endowments 5 recommendations for collaborative action focus on:
Mining and Economic Development
Mining and Poverty Reduction
Social Investment and Compensation
Dispute Resolution and Communication
Artisanal and Small-Scale Mining
The clusters in the Synthesis Report identify actions and responsibilities for (i) companies, (ii) host governments, and (iii) development organisations and the voluntary sector.
Of course, emphases differ by country.

25. For further information….
ICMM
35 Portman Square
London W1H 6LR
United Kingdom
Telephone: +44 (0)
Fax: +44 (0)

26. ICMM working to translate recommendations into reality
Example of recommendations: on dispute resolution
From recommendations to reality
Pilot projects in Ghana, Peru & Tanzania will:
Map existing partnerships in each country against initiative’s recommendations (6 areas) to identify gaps
Convene multi-stakeholder workshops to agree action plan / new partnerships so as to help fill gaps
Also in-depth study of effect of mining tax regimes on development
Additional international & national dissemination to encourage uptake of recommendations

27. Inward FDI flows to selected LAC countries
Total FDI ( )
Minerals FDI ( ) – US$4.7 bn 10
100
1,000
10,000
-10
-100
Bolivia
Brazil (9%)
Chile (9%)
Colombia (23%)
Guyana
Jamaica (16%)
Peru (8%)
Suriname
US$ millions