Illuminating the Arts-Policy Nexus 

By Carolina Ocampo-Maya

Juan Jaramillo, Jota to his friends, is a Colombian artisanal gold miner in Segovia, Antioquia. He starts his day before sunrise and works ten to twelve-hour days, sometimes longer. He digs in the mountains of Antioquia for weeks until he gathers enough rocks to crush and mix with mercury to obtain a few grams of gold. Jota doesn’t care about environmental regulations or safety measures. All he wants from this informal activity, a family tradition, is to provide basic food and shelter for his family, who live in poverty despite his tireless efforts.

As a miner, Jota (“J” in English) ought to benefit from a boom in commodity prices. In the last five years the price of gold nearly has tripled, to a peak of $1884 per ounce in September of 2011. With vast mineral deposits, countries like Colombia, Peru and Chile are using high commodity prices to attract foreign direct investment (FDI) and boost economic growth that allegedly will bring development and reduce poverty. But without strong political institutions, regulations, and civil society organizations, Latin America has not yet been able to translate mining into development that can improve the lives of people like Jota. 

Foreign direct investment in Latin America nearly doubled in the last ten years, rising to more than $150 billion in 2011, of which $120 billion went to South America. China, a major consumer of metals and energy, increased investments from $285 million in 2004 to $1.6 billion in 2009, almost a six-fold increase, making it the third largest direct investor in the region. Of Chinese FDI in South America, 59 percent is concentrated in metals. Today, almost 40 percent of China’s investment in mining in the world goes to Peru, Brazil and Venezuela. China’s demand for natural resources and its need to secure raw material for growth has made Latin America an attractive destination for FDI, cooperation, loans, and trade agreements. But Latin American is not ready to use mining to tackle the high poverty of the region. 

Economic inequality is more dramatic in Latin America than in Sub-Saharan Africa and East Asia. The region has a poverty rate of 28.8 percent. It has 167 million people living in poverty, and 66 million in extreme poverty, or less than $1 a day. Transparency, rule of law, and governance are not Latin America’s strengths. With the exception of Chile and Uruguay, all ranked from corrupt to highly corrupt on Transparency International’s 2012 Corruption Perception Index. Of the 20 largest Latin American countries based on population, only Chile stands out for its rule of law; the rest of the continent is overcome by poor law enforcement. This situation has strong implications for increased FDI flowing to the region, especially in a sector as controversial as mining. 

Regulatory frameworks in Latin America do not sufficiently leverage foreign investments to reduce poverty in local communities. Combined with poor law enforcement, increasing FDI will not help Jota improve his pauper quality of life. Latin American national governments must use the large mining investments to support artisanal miners like Jota, who are part of a historic economic activity that dates from before the Spanish conquest. Incentives for the inclusion of small producers in larger value chains, local employment quotas, and education opportunities that prepare communities to participate in private projects should be explicitly included in government regulations.

China’s investments bring important capital flows, but Chinese companies’ track records are not promising when it comes to using investments to improve lives and reduce poverty. Chinese mining companies are not exactly recognized for their social or environmental impacts, or for their transparency. Neither China nor any Chinese mining company is part of the two major organizations promoting better practices in mining: the International Council on Mining and Metals and the Extractive Industries Transparency Initiative. It has not signed the International Labor Organization’s 169 Convention protecting the rights of Indigenous and Tribal Peoples, the main tool used by Latin American communities to demand consultation on matters affecting their territories and way of life. China’s state-owned Assets Supervision and Administration Commission is arguably the only framework that Chinese mining companies use.

Environmental protection, labor rights and community consultation are, for many Latin American governments, seen as impediments to economic growth and development. The region does not want to risk losing large investors like Chinese companies, even though they play by their own (sometimes harmful) rules of the game. But mining-led economic growth should be about narrowing the inequality gap, and should include people like Jota. The arrival of big mining companies does not automatically generate jobs, revenue, and good environmental practices as is often assumed. Therefore, Chinese presence in Latin America is not per se a route to development. In a region with fragile institutions, poor governance and a weak rule of law, the possibilities for for Jota to increase his welfare are scarce. Latin American governments must assertively build clear and comprehensive laws guided by a long-term vision of development in which the protagonists are people like Jota, not Chinese investors.

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Carolina Ocampo-Maya is a Research Associate at the Vale Columbia Center on Sustainable International Investment, where she studies extractive indistries and sustainable development.