Presentation

Report
The Chilean “mining boom”:
achievements and shortcomings of an
effective mining policy
By Eduardo Titelman
[email protected]
“Reversing the Resource Curse” Meeting,
ACET and the Ford Foundation,
Accra, Ghana, August 2013
Agenda
• Turning points in the history of Chilean
mining
• The key components of current mining
policy
• Main results of the policy
• Conclusions
Turning points in the history of
Chilean mining
...history of Chilean mining...
• In pre-colonial Chile, 500 years B.C., small
scale mining already existed.
• Between 16th and 19th centuries, during
the Spanish colonial era, its main exports
to the metropolis were precious minerals.
• In early 20th century, industrial copper
mining began with investments from the
USA.
...history of Chilean mining...
• 1971: Nationalization of all large mining
companies.
• 1974: Beginning of a new mining policy,
strongly relying on foreign investment.
• 1990: With the return democracy, the
same mining policy is strengthened.
• 2013: Chile is the main world producer
of copper and a significant producer of
other metals and industrial minerals.
The key components of current
mining policy
...current mining policy
Attractive general basic conditions:
• The blessing of rich mining deposits;
• Adequate infrastructure
ports, energy, water, etc.);
(roads,
• Democracy and political stability.
...current mining policy
Two state mining companies
CODELCO:
• A very large, successful copper mining
company.
• Overwhelming public opinion against
its privatization.
• Investment and labor productivity
weaknesses.
• The links between CODELCO and the
political system.
...current mining policy
Two state mining companies
ENAMI:
• Provides smelter, refining and export
services to small and medium size
miners.
• Relatively small production of gold
and copper, but crucial to
employment in some regions of the
country.
...current mining policy
A very dynamic private large scale mining
sector
Based upon foreign investment
(mainly from Canada, Australia, USA
and Japan), attracted to the country
by a legal framework, and general
economic policies, very friendly
towards business and foreign
investment:
...current mining policy
A very dynamic private large scale mining
sector
…attracted by:
• subsidiary role of the state;
• cautious macroeconomic policies;
• consensual regulatory policies;
• LD 600;
• Mining Code and Constitution;
• Low-cost mining license, royalty and
tax burden.
The main results of Chilean
mining policy
Criterion # 1
Natural Resource Rent
The rent or value of a natural resource is
the income remaining after normal
payment for all other inputs.
A good mining policy should capture
most resource rent for the general
national benefit.
Foreign Investment in Mining (Law Decree 600)
(Millions of US dollars)
3.000
2.500
2.000
1.500
1.000
500
0
1974
1979
1984
1989
Minería
Source: Foreign Investment Committee
1994
1999
3 years simple moving average
2004
2009
Chilean Copper Producction
(Thousands of Metric Tons)
6000
5000
4000
3000
2000
1000
0
1950
1955
1960
1965
1970
1975
Codelco
Source: Chilean Copper Commission (COCHILCO)
1980
1985
Private Sector
1990
1995
2000
2005
2010
Chilean Copper Producction
(Thousands of Metric Tons)
6000
5000
4000
3000
2000
1000
0
1950
1955
1960
1965
1970
1975
Codelco
Source: Chilean Copper Commission (COCHILCO)
1980
1985
Private Sector
1990
1995
2000
2005
2010
Fiscal income from mining
(millions of US$)
16.000
14.000
12.000
10.000
8.000
6.000
4.000
2.000
0
1994
1997
2000
Source: Chilean Copper Commission (COCHILCO)
2003
2006
2009
2012
Share of fiscal income from mining
(%)
40%
35%
30%
25%
20%
15%
10%
5%
0%
1994
1997
2000
2003
% of fiscal income from mining
Source: Chilean Copper Commission (COCHILCO)
2006
Average 2004-2011
2009
Fiscal income from mining: CODELCO and large private mining
companies
(millions of US dollars)
9.000
8.000
7.000
6.000
5.000
4.000
3.000
2.000
1.000
0
1994
1997
2000
2003
Large private mines
Source: Chilean Copper Commission (COCHILCO)
2006
Codelco
2009
Net mining foreign investment inflow through LD600
(Millions of US dollars)
5.000
0
1974
1979
1984
1989
1994
1999
2004
2009
-5.000
-10.000
-15.000
-20.000
Source: Elaborated data from Foreign Investment Committee, COCHILCO and financial statements of The Mining Council and CODELCO
Large private in mining in Chile: return on equity (ROE) and tax
burden, 2005 – 2011
(Millions of US dollars)
Normal ROE
(maximum)
Current
national –
resource-rent
given up
Profits
before taxes
ROE before
taxes
2005
7.218
70%
3.917
2006
16.983
133%
10.543
2007
18.561
117%
10.238
2008
11.197
61%
2009
10.872
50%
5.590
2010
17.132
63%
9.172
2011
14.511
45%
5.427
Total
96.474
Annual
Average
13.782
20%
4.613
49.499
74%
Source: Elaborated from data in the financial statements of the Mining Council and CODELCO
7.071
Criterion # 2
Mining externalities
Industrial mining activity may have
significant impacts on sustainability and
on the activity of other industries.
A good mining policy should
maximize positive externalities and
minimize the negative ones.
Mining externalities...
• Mining “cluster”
• “Dutch disease”
• Employment
• Environment
• Strategic resources:
Water and energy
• Local communities
Criterion # 3
The natural resources curse…
Countries that specialize (only) in
exporting raw materials to global
markets, tend to remain undiversified,
underdeveloped and unequal.
A good mining policy should be
complemented by policies aimed at
reducing dependence on exports of
raw materials.
Chilean mining and non-mining exports
(millions of US dollars)
100%
60.000
90%
50.000
80%
70%
40.000
60%
50%
30.000
40%
20.000
30%
20%
10.000
10%
0%
1960
0
1965
1970
1975
1980
1985
Mining exports
Source: Central Bank of Chile
1990
1995
Non-mining exports
2000
2005
2010
Chilean Exports and share of mining exports
(millions of US dollars and %)
100%
60.000
90%
50.000
80%
70%
40.000
60%
50%
30.000
40%
20.000
30%
20%
10.000
10%
0%
1960
0
1965
1970
1975
1980
Share of mining in total exports
Source: Central Bank of Chile
1985
1990
1995
Mining exports
2000
2005
Non-mining exports
2010
Natural resources curse...
• Limited productive diversification
• Medium range GDP per capita
• Very unequal distribution of income
• Significant reduction in poverty
• Slow growth of human capital
• Relatively low corruption
• Advances in transparency
• Perfectible democracy
Conclusions
Summing up...
• A substantial increase in private foreign investment
was achieved, which fuelled a large increase in
copper production and exports, and in government
revenues from mining.
• Government macroeconomic policy has carefully
managed the cyclical macroeconomic effects of
mining exports, but a substantial portion of the
mining natural resource has been given away to
private investors.
Summing up...
• CODELCO, the state owned mining company has
performed satisfactorily, but should become more
energized and efficient. It has provided substantial
fiscal income during the copper boom years.
• Positive externalities of the mining boom have been
modest. Negative externalities on environment and
shortages of water and energy, should be better
managed.
Summing up...
• State and private companies have benefitted from
the fact that most mining projects take place far
from human settlements, but relations with the
community are rather tense and ambivalent.
• Country emancipation from the so called “curse of
natural resources” has not (yet) been achieved.
Thank you
The Chilean “mining boom”:
achievements and shortcomings of an
effective mining policy
By Eduardo Titelman
[email protected]
“Reversing the Resource Curse” Meeting,
ACET and the Ford Foundation,
Accra, Ghana, August 2013
Web pages of the institutions quoted in the presentation:
Chilean Copper Commission: www.cochilco.cl
Foreign Investment Committee: www.ciechile.gob.cl
Central Bank of Chile: www.bcentral.cl
The Mining Council: www.consejominero.cl
CODELCO: www.codelco.cl

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