1. The Chilean “mining boom”: achievements and shortcomings of an effective mining policy By Eduardo Titelman eduardo.titelman@usach.cl “Reversing the Resource Curse” Meeting, ACET and the Ford Foundation, Accra, Ghana, August 2013

2. Agenda Turning points in the history of Chilean mining The key components of current mining policy Main results of the policy Conclusions

3. Turning points in the history of Chilean mining

4. Between 16 th and 19 th centuries, during the Spanish colonial era, its main exports to the metropolis were precious minerals. In early 20 th century, industrial copper mining began with investments from the USA. In pre-colonial Chile, 500 years B.C., small scale mining already existed....history of Chilean mining...

5. 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. 1971: Nationalization of all large mining companies....history of Chilean mining... 1974: Beginning of a new mining policy, strongly relying on foreign investment.

6. The key components of current mining policy

7. The blessing of rich mining deposits; Adequate infrastructure (roads, ports, energy, water, etc.); Democracy and political stability....current mining policy Attractive general basic conditions:

8. ...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.

9. ...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.

10. ...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:

11. ...current mining policy A very dynamic private large scale mining sector 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. …attracted by:

12. The main results of Chilean mining policy

13. The rent or value of a natural resource is the income remaining after normal payment for all other inputs. Natural Resource Rent A good mining policy should capture most resource rent for the general national benefit. Criterion # 1

14. Source: Foreign Investment Committee

15. Source: Chilean Copper Commission (COCHILCO)

20. Source: Elaborated data from Foreign Investment Committee, COCHILCO and financial statements of The Mining Council and CODELCO

21. Source: Elaborated from data in the financial statements of the Mining Council and CODELCO Profits before taxes ROE before taxes Normal ROE (maximum) Current national – resource-rent given up 2005 7.21870% 20% 3.917 2006 16.983133%10.543 2007 18.561117%10.238 2008 11.19761%4.613 2009 10.87250%5.590 2010 17.13263%9.172 2011 14.51145%5.427 Total 96.47449.499 Annual Average 13.78274%7.071 Large private in mining in Chile: return on equity (ROE) and tax burden, 2005 – 2011 (Millions of US dollars)

22. Industrial mining activity may have significant impacts on sustainability and on the activity of other industries. Mining externalities A good mining policy should maximize positive externalities and minimize the negative ones. Criterion # 2

23. Mining “cluster” “Dutch disease” Employment Environment Strategic resources: Water and energy Local communities Mining externalities...

24. Countries that specialize (only) in exporting raw materials to global markets, tend to remain undiversified, underdeveloped and unequal. The natural resources curse… A good mining policy should be complemented by policies aimed at reducing dependence on exports of raw materials. Criterion # 3

25. Source: Central Bank of Chile

27. 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 Natural resources curse...

28. Conclusions

29. 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...

30. 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...

31. 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. Summing up... Thank you

32. The Chilean “mining boom”: achievements and shortcomings of an effective mining policy By Eduardo Titelman eduardo.titelman@usach.cl “Reversing the Resource Curse” Meeting, ACET and the Ford Foundation, Accra, Ghana, August 2013 Chilean Copper Commission: www.cochilco.clwww.cochilco.cl Foreign Investment Committee: www.ciechile.gob.clwww.ciechile.gob.cl Central Bank of Chile: www.bcentral.clwww.bcentral.cl The Mining Council: www.consejominero.clwww.consejominero.cl CODELCO: www.codelco.clwww.codelco.cl Web pages of the institutions quoted in the presentation: