CHILE:
Copper Boom - Cui Bono?
By Daniela Estrada
SANTIAGO, (IPS) -
According to global
forecasts, the price of
copper, Chile’s main
export, will remain high
in 2008 thanks to strong
demand from China. But
just who will benefit
from this bonanza is up
for debate.
Chile is the world’s
largest producer and
exporter of copper, with
a 35 percent market
share, and the biggest
global reserves.
According to the state
Chilean Copper
Commission (COCHILCO),
the country produced
5,361 tons of copper
concentrate in 2006,
nearly five times as
much as its closest
competitor, the United
States, which produced
1,226 tons. Peru
followed, with 1,049
tons.
The Chilean state
controls just 30 percent
of the total output,
through the National
Copper Corporation (CODELCO).
The remaining 70 percent
is in private hands.
In 1966, the government
of Christian Democrat
President Eduardo Frei
Montalva (1964-1970) "Chileanised"
copper by purchasing 51
percent of the shares in
mines worked by foreign
companies.
Then in 1971, Socialist
President Salvador
Allende (1970-1973)
expropriated the private
mining companies and
nationalised the copper
industry before he was
overthrown by a military
coup.
But under the
dictatorship of the late
General Augusto Pinochet
(1973-1990), laws were
passed to promote the
reopening of the
industry to private
companies, even though
the Chilean constitution
says that "the state has
absolute, exclusive,
inalienable and
imprescriptible domain
over all mines."
This was done by
granting concessions,
which in practice allow
private firms to treat
mines as their private
property. The system has
attracted a large number
of foreign investors,
mainly since the return
to democracy in 1990.
But for critics, the new
legislation is
unconstitutional and
signifies the
denationalisation of
copper.
Debate on these issues
has heated up because of
the high international
prices for copper seen
since 2003.
According to a COCHILCO
report, the average
price of copper for 2007
was 323 cents of a
dollar per pound on the
London Metal Exchange.
That is 5.9 percent
higher than the average
for 2006, and is the
highest nominal value in
history and the third
highest in real terms,
after 1966 and 1969 (361
and 325 cents per pound,
respectively), the
December report says.
"Some of the world’s
most respected companies
and institutions in
copper futures are
saying that copper
prices will fluctuate
between 280 and 360
cents per pound in 2008,
with an average of
approximately 325 cents,
similar to that of
2007," Gustavo Lagos,
head of the Catholic
University’s Mining
Centre, told IPS.
"In 2009, the average
price is predicted to be
under 300 cents per
pound, and in 2010 it is
expected to be around
270," said Lagos.
Despite the falling
trend, these prospects
are excellent, given
that in 2003 the price
per pound was 70 cents
of a dollar.
"There was no such
extended copper boom in
the 20th century. These
very high prices, of
over three dollars a
pound, are likely to
last for at least three
years, 2006, 2007 and
2008, which is
unprecedented," said the
engineer.
In Lagos’ view, the run
of high copper prices
can be explained by two
simultaneous global
phenomena.
These are, on one hand,
"the unexpected rise in
Chinese demand for
commodities," including
copper which is used in
building infrastructure,
and on the other hand,
"the inability of the
mining industry, in the
short term, to supply
the quantities it had
promised, because of
underinvestment" since
1998, he said.
"The long-term price of
copper will remain high,
above 130 cents, unless
there is world
over-production, such as
the transnational mining
companies in Chile
created between 1995 and
2000," economist Orlando
Caputo, head of the
Centre for Studies on
Transnationalisation,
Economics and Society (CETES),
told IPS.
Caputo’s career has been
in academia, except for
the period when he was
named general manager of
CODELCO by Allende, from
1970 to 1973.
Along with some
lawmakers belonging to
the centre-left
coalition that has
governed Chile since
1990, and subcontracted
CODELCO workers who
organised a major strike
in mid-2007, Caputo
holds the view that
copper should be
renationalised in order
to finance wage
increases, greater
social spending and
economic
diversification.
But in September, the
lower chamber of
congress rejected a
draft statement calling
on President Michelle
Bachelet to move towards
renationalisation.
Gustavo Lagos, by
contrast, says that "the
future of copper in
Chile can be splendid,
significant, or plain
irrelevant or negative,
depending on how we
handle it as a nation.
Our development does not
depend on foreign
companies, nor
imperialism, nor ghosts
from our past; it
depends on whether we do
things properly."
This, he says, means
maintaining the present
tax rates to ensure
private investment over
the coming years,
drawing greater talent
into the industry,
removing barriers so
that transnational
mining companies can
bring in technological
innovation, and
improving the management
of CODELCO to increase
its competitiveness,
"because there are signs
that it may not be
competitive in the
future."
Due to the high prices,
the industry’s
contribution to gross
domestic product (GDP),
measured at current
prices, rose from 8.3
percent in 2003 to 23
percent in 2006.
In 2006, CODELCO
contributed 9.2 billion
dollars to the state
coffers -- over 20
percent of total
revenue. And in 2007,
the state received some
16 billion dollars from
CODELCO profits and
taxes on private mining
companies.
But the state mining
company faced a series
of labour conflicts in
2007, led by
subcontracted workers
who want equal wages and
benefits to those of
company employees doing
the same jobs.
The latest tension broke
out late last year, when
the Labour Ministry,
which had completed a
review of subcontracting
practices in the mining
industry, ordered
CODELCO to directly hire
5,000 workers who are
subcontracted in
contravention of the
recent Subcontracting
Law.
CODELCO refused, and has
appealed in court.
On Jan. 3, subcontracted
mineworkers held
protests demanding that
the Labour Ministry’s
ruling be implemented.
Two hundred protestors
were arrested.
Lagos says that
subcontracting workers
is one of the reasons
for CODELCO’s loss of
productivity. Caputo, in
turn, says that the
subcontracted workers’
demands are fair,
because of their low pay
and the physically
demanding nature of work
in the mining industry.
Caputo also says that
"there is a scramble for
plunder going on within
CODELCO. Former CODELCO
employees are now owners
of contracting firms,
and some politicians are
also involved in
outsourcing."
The Mining Ministry’s
public report for 2007
says that mining
development has brought
about considerable
poverty reduction. "The
mining regions of
Tarapacá, Antofagasta
and Atacama have poverty
levels that are below
the national poverty
rate" of 13.7 percent,
it says.
Mining has generated
more and better jobs,
development of physical
infrastructure,
opportunities for
companies to supply
goods and services and
the incorporation of new
technology, among other
benefits, it says.
Among the proposals made
by political and social
sectors on how to make
the most of the boom are
improvements in
education, investing in
public capital goods
(mainly in the health
sector), supporting
small and medium-sized
businesses and spending
more on the regions.
In May, Bachelet
announced that an
additional 600 million
dollars from copper
earnings would be spent
on education in 2008,
but the government’s
economic policy is
mainly based on
investing savings
abroad.
Caputo complained that
private mining companies
made profits of nearly
20 billion dollars in
2006, which according to
his calculations were
equivalent to 17 percent
of the country’s GDP, 75
percent of the national
budget, and twice the
combined budgets of the
Health and Education
Ministries.
In his view, the
specific tax on mining
approved in 2005 is too
low. For 2007, it
brought in revenues of
approximately 670
million dollars, which
are to be spent on
technological innovation
and development.
"The Chilean state has
no national development
plan. That word (plan)
is prohibited.
Everything is left up to
the market. Everyone
talks about improving
productivity factors,
such as human capital,
and generating
conditions for higher
productivity. But that
isn’t enough," said
Caputo.
According to Lagos,
labour strife as well as
international turbulence
caused by the U.S.
mortgage crisis may
affect copper prices in
2008. |
