As mining activity booms in Latin America, how is the growing middle class and the disconnect between national and local agendas affecting business?
After decades of moderate activity, most countries in Latin America have experienced a dramatic increase in mining operations due to attractive metals prices and the need to generate more government revenue. In just the last decade, the value of mining in Latin America tripled from US$90.1 billion in 2001 to $305.8 billion in 2011. While the mining boom is not limited to the region, the activity in Latin America presents a range of unique challenges and opportunities to mining companies and other stakeholders. Specifically, BSR has seen two important trends:
A growing disconnect between national governments’ promotion of mining projects and negative reactions among local/host communities
A growing middle-class that has disparate economic and social aspirations, as well as an elevated awareness of and expectations about mining companies’ social and environmental performance
Given these two significant trends, companies operating in the region must be keenly aware of the political context and navigate it in such a way that they are not caught between competing agendas. This article highlights these trends and offers BSR perspective on how companies can gain a deeper understanding of the unique stakeholder dynamics in Latin America, foster stronger partnerships at all levels to address critical social and environmental risks, and realise benefits for their business and host communities.
Competing agendas: National vs. local
According to the Observatory of Mining Conflicts in Latin America (OCMAL), 176 mining projects in the region are currently in conflict with 231 communities, and five of those conflicts are occurring across national borders.
Community frustrations with mining companies – related to allegations of poor environmental performance, lax worker safety and human rights abuses – coupled with a lack of trust in government to enforce social and environmental laws have contributed to a critical movement against mining in Latin America.
Bad news travels fast, and the widespread use of mobile phones and social media mean that a community in Chile considering a potential mining project will tap its network in other countries to inquire about the company’s performance. And even if an individual company is perceived in a positive light, the sector as a whole suffers when one company does not fulfil its social promises and legal obligations.
These challenges are exacerbated by the growing disconnect between the agendas of national governments and the needs of local communities. In places like Mexico’s San Luis Potosi state, as well as Guatemala, Peru, Ecuador and Bolivia, indigenous people are asserting their rights to land and resources, even as their national governments issue exploration permits to companies without community consultations, much less explicit consent. While each of these governments have ratified international conventions and enacted laws to reverse the centuries of social and economic exclusion of indigenous peoples, none of the governments have done much to help these communities learn about their rights and negotiate fair terms for local development. The countries experiencing the highest number of mining-related violent conflicts are usually those that lack the institutional structures to enforce laws or offer extra-legal space to negotiate terms of engagement between governments, companies, and host communities.
Until recently in Bolivia, the government promoted foreign investment in extractive activities, even as it encouraged communities to assert their rights to natural resources without effective access to remedy. This resulted in clashes between communities who felt they had the right to take extreme measures against companies (even taking company employees hostage) while the companies felt they had the legal right to be there.
In Chile, where it is a commonly held belief that “mining feeds Chile,” local communities have begun to question whether mining itself is sustainable. Conflicts with host communities range from concerns about the proximity of some of the tailing dams to towns, to the concerns of civil society at large about high water consumption, the effects of mining on glaciers, and the high use of energy. Nonetheless, the government has not sought to limit mining activities (though the percentage of GDP from mining has decreased over time). Chile may be the only country where there is greater alignment between the government’s historically pro-mining policies, and wide support by civil society, yet this is gradually changing particularly in communities near mining sites.
A new stakeholder: The middle class
The other significant trend affecting the mining industry in Latin America is the rise of a more educated middle class. Their concerns are far-reaching, from worries that new elites in the form of mine general managers may disrupt the social fabric of their communities, to concerns that reviving old mines near ski resorts and other attractions might dampen tourism. The middle class is also less attracted by the prospect of mining jobs that have typically been an important vehicle for providing benefits to communities at mine projects.
In Argentina and northwestern Mexico, many young, educated urban families have migrated to rural areas to form utopian communities that celebrate organic agriculture. To them, foreign mining companies represent the same capitalist ills they were running from in the first place.
This group has also formed highly organised and effective movements against mining and other extractive activities. Several Argentinian municipalities and provinces have mobilised to ban cyanide and other substances essential for mining, creating de facto mining bans. For the past 10 years, a group in Esquel, a town of less than 30,000 people in southern Argentina, has stopped any potential mining plans in the vicinity. This has spawned similar groups in many cities throughout Argentina and the rest of Latin America that communicate by phone, email and web to spread news of environmental accidents, proposed mining projects, and public protests. The groups oppose open pit mining, the use of freshwater resources for mining activities and the perceived lack of benefits over local social and environmental costs of mining.
In Mexico, where exploration permits to foreign mining companies have been increasing in the past decade, recent high-profile protests in the states of San Luis Potosi and Baja California Sur have put mining issues in the media. These places generate a good portion of income from tourism and ecotourism, and though this economic model has not generated benefits to many small landowners or ejidatarios who would gladly give mining a new chance in their backyards, the interests of newer middle class seem to be prevailing: Two of the potentially largest mining projects by Canadian companies have not been approved.
What this means for mining companies in Latin America
Given the growing disconnect between national and local agendas, as well as the new interests of a powerful middle class, BSR recommends companies seeking to explore or acquire mining facilities in the region conduct thorough due diligence on the local environment and deploy best-practice social performance assessment and planning, risk management and participatory engagement approaches to enhance value and extend social license.
Some specific attributes to consider in the Latin American context include:
Mining policy: How consistent are the policy signals around mining regulations and investments? Do they seem to change with presidential transitions, or do they follow long-term trends? Are there gaps in legislation regarding the ecosystems or zones where the company intends to operate? Environmental and advocacy groups will focus on these gaps to pressure companies to halt exploration even if governments permit it.
Government-community relations: What is the history between national government and province/state relations around mining projects? Is there consonance between them? What is their economic relationship? Does the province feel its local resources are being overexploited for the benefit of the country, with little benefits being reinvested in the local area?
Resource use: What is the history of resource use at proposed site level? Is there a history of mining, even if it was 100 years ago? What are the social and environmental legacy issues of such activities? Mining communities tend to have a better understanding of mining processes and timeframes, even if they were from different era.
Trust in government: Does civil society trust the permitting process for mineral exploration, or do they believe it is the product of political favors? Do communities trust government to enforce environmental laws around protected areas and pollution? Often, companies can comply with all regulations yet may lack legitimacy in the eyes of communities.
Stakeholder needs: Are there opportunities for the mining company to incorporate stakeholder perspectives into key strategy and operational decisions? How can the company ensure a diverse set of stakeholders, including representatives of the middle class, are included?
Companies need to stand firm on fundamentals – safety, environmental responsibility and local economic benefits – while tailoring approaches to the political and socioeconomic context in which they operate. In addition, it’s crucial for companies to understand the dynamics between national and local governments, as well as civil society, to avoid becoming embroiled in competing political agendas.
To mitigate risk and promote a positive legacy, companies also need to help strengthen government institutions to operate in a transparent manner and to consider how they can develop lasting social and economic opportunities for local populations beyond mining jobs. These need to reflect the concerns and aspirations of the disenfranchised communities and the middle class alike. This can be done through, for example:
Robust “local content” programs
Skills/capacity-building activities (e.g. training centers)
Social-investment partnership through foundations to address basic health, education, or infrastructure needs
Mine construction demobilisation and closure planning to support longer-term economic prosperity and to minimise boom/bust effects
The region is changing rapidly and strange bedfellows are coalescing around convergent agendas; companies need to have a firm understanding of such changing landscape and trends to operate in a sustainable manner for the long term.
Alejandra Martin is manager of Advisory Services at BSR, a global nonprofit business network and consultancy that works with business on sustainability.
BSR works with its global network of nearly 300 member companies to build a just and sustainable world. From its offices in Asia, Europe, and North and South America, BSR develops sustainable business strategies and solutions through consulting, research, and cross-sector collaboration. Visit www.bsr.org for more information about BSR’s more than 20 years of leadership in sustainability.
By: Alejandra Martin, Manager, BSR