Risks faced by
Chinese companies and Peru political situation.
publicado tambien en: https://www.slideshare.net/carlosalbertoaquinorodriguez/risks-faced-by-chinese-companies-and-peru-political-situation
Maria Osterloh[1]*
Chinese
investment in Peru is quite large. According to Chinese Ambassador in Peru,
Song Yang, there are around 200 companies from his country that have invested
30 billion dollars in Peru[2]. This
represents around 32% of the 117.8 billion dollars of stock of foreign direct
investment in Peru at the end of 2021[3].
According to another source, Peru is the second largest destination for Chinese
investment in Latin America, with an amount of 28.2 billion dollars invested in
the period 2005-2002, the first being Brazil with 76.2 billion dollars invested
in that period[4].
Most of the
Chinese investment in Peru is in the mining sector. Peru is a country rich in
natural resources, mainly in the mining sector. In 2021 Peru ranked as the
second biggest producer of copper and zinc in the world, the third in silver
and tin, and the fourth in lead and molybdenum (and the ten in gold)[5]. The mining
sector contributes with 8.5% to the Peru´s Gross Domestic Product[6].
Peru is facing
now a difficult political and social situation. Last year, President Pedro
Castillo, who assumed office in July 2021, was removed by the Congress on
December 7, 2022, after he attempted a coup d’état. His removal, the naming of
Vice president Dina Boluarte as his replacement, and Boluarte´s intent to stay
until July 2026, the time of period which Castillo would have completed his
mandate, originated social protests. For most of Peru´s population the Congress
and the government are all inefficient, corrupt, and should gone now and there
should be new elections.
The social
protests calling for new elections have originated the blocking of roads and
strikes and have also disrupted production in some areas. One of the most
affected have been some mining operations, and specially of a big Chinese
company that operate Las Bambas, a copper mine. The acquisition of Las Bambas
by a consortium of Chinese companies leaded by MMG Limited, represented the
biggest Chinese investment in Peru. In 2014 it paid 7 billion dollars for the
operation[7].
Las Bambas
output represent 2% of world copper production and accounts for 1% of Peru´s
gross domestic product[8]. Also, Las
Bambas production represent around 10% of Peru total copper production.
Additionally, its importance for Peru´s economy can be seen in the fact that
last year 2022 Las Bambas exported around 1.98 billion dollars, becoming the
sixth biggest earner of foreign currency for the country (Shougang, another
Chinese company producing iron ore, was the seventh biggest exporter, with 1.63
billion dollars)[9].
There are also
other Chinese companies that have problems with local communities in Peru that
protest that those companies activities will damage the environment or their
livelihood. These includes the Hidrovia Amazonica (Amazonian Waterway), where
the company Sinohydro Corporation Limited participates. Its operation has
stopped since 2019[10].
The other case is of a copper mine project in the north of Peru, Rio Blanco,
that was bought by a Chinese company Zijin Mining Group Limited in 2007 but
also is paralyzed by opposition from the local communities[11].
But actually,
the case of Las Bambas copper mine is the most clear example of how conflicts
with local communities are not the only problem affecting operations but also
the country political situation. Here a brief discussion about the conflict in
Las Bambas is presented and an overview of Peru political situation with its
impact in economic activities is given.
Las Bambas´s conflict
with peasant communities
Las Bambas mine is in the Apurimac Region in the
south of Peru. It depends on the South Mining Corridor (See Map 2), a national road
that ends in the port of Matarani, to export its production as well as to bring
materials for its operations.
Since it began its extractive process in 2016, it
has had problems with the peasant communities along the Mining Corridor.
Map 1:
Map of Peru (left) and Map of Communities around Las Bambas Mine and the South
Mining Corridor (right)
Source: Map on the left: https://www.tripsavvy.com/maps-of-peru-1619938, Map on
the right: Las Bambas https://elaportedelasbambas.pe/home-sobre-las-bambas-comunidades-locales-mapa-de-comunidades.html
The problem is that in 2011 when Glencore owned Las
Bambas and another copper mine “Tintaya”, there was a project to transport the
production of Las Bambas to Tintaya, where there was a mineral concentrator
plant, through a pipeline. But when Las Bambas was sold to MMG, this company built
its own concentrator plant, and it has no need to build that pipeline. Instead
it began using a road to transport the mineral by trucks and then by railway to
the port of Matarani in the Coast.
If the pipeline would have been built, around
twenty communities along it would have benefited by being paid by the company
for the right of using part of their land for the pipeline. But even if there
is no pipeline, they want to receive payment for use by Las Bambas of the road
that go through its land. But they do not receive any payment because the
government in 2016 declared that road part of a national road (The South mining
corridor). Besides that, the communities complain that as the road is not
asphalted, the trucks when passing produce dust that cause damage to their
farms and livelihood[12].
Map 2: of Peasant
Communities Around The South Mining Corridor and trajectory of the southern
mining corridor
Source: La Republica Daily https://larepublica.pe/sociedad/2019/10/13/38-comunidades-soportan-paso-de-camiones-mineros-arequipa-apurimac-cusco-lrsd
As it can be seen in the following figure, since la
Bambas started operations in 2016 it has encountered social protests and
blocking of roads that have caused a negative impact in its production.
Graph 1: Las Bambas Mine Days of blockages (in
the left) and their impact on annual production since its start of operations
(on the right, in fine metric tons)
Source: author’s elaboration with data from the
Ministry of Energy and Mines of Peru; Energiminas magazine; Las Bambas Mining
company website
Political turmoil protests
Besides problems with the local communities, Peru
political situation has an impact also in economic activities of companies like
Las Bambas. As was said before, the ousting of President Pedro Castillo and the
discredit of the National Congress have ignited social protests asking for
general elections. If there is new elections a time of uncertainty will follow
as it is not know which kind of government will be elected. Peru has no stable
political system and established political parties, and in the last 30 years,
from 1990, the ones which won the elections were most new parties formed just
before elections.
Political instability has been especially manifest
in the last five years, when 6 Presidents have occupied office, due to
infighting between the Executive and National Congress. This infighting is also
the reason why still there is no agreement on when a new election will happen,
even if most of the Peru population want that.
The problem is compounded by the fact that leftist
groups also ask for elections for a constituent assembly to elaborate a new
Constitution, to replace the one of 1993. The danger is that this could mean a
change in the economic rules that govern Peru now, in which there is a free
market economy with a minor state presence. Leftist groups want to increase the
state presence in the economy, even that the State regulate foreign investment
and it could own companies exploiting natural resources (or that the state
could have the monopoly in this economic activity).
Given this situation, is probably that now and in
the following months political instability and social protests would continue.
If a date for elections is decided, the uncertainty about which economic
policies would be adopted will last until a new government is elected. But if
there is an agreement to elect a constituent assembly to prepare for a new
Constitution, the uncertainty will last more.
22 de febrero del 2023
Annex:
Economic importance of Las Bambas:
A)
Importance
in the national production of copper and molybdenum:
In 2022, Las Bambas ranked as the fourth largest producer of copper
representing 10% share in the national production of this mineral. So far, of
the three Chinese mining companies that produces copper, Las Bambas is the
largest producer, keeping this position since it began operations as it can be
seen in the next graph. Furthermore, in 2015 national production of copper
amounted for 1,700,817 tons, but when Las Bambas started operations in 2016,
its production added 329,368 tons to national production. This, together with
Minera Chinalco production of copper, added half million tons of copper to
Peru’s production of this mineral.
Graph: Chinese
Mining Companies in Peru: Copper Production (Fine Metric Tons), 2014 – 2022
Source: Elaboration of the
author with data from the Ministry of Energy and Mines of Peru
In the case of molybdenum, Las Bambas ranked as the third largest
producer of this ore in Peru with a share of 11% of the total production.
Graph: Chinese Mining
Companies in Peru: Molybdenum Production (Fine Metric Tons), 2014 – 2022
Source: Elaboration of the
author with data from the Ministry of Energy and Mines of Peru
B)
Importance
on Peru’s foreign trade:
Las Bambas ranked in 2022 as the fifth largest exporter of the mining
sector. Its main markets were China with a share of 79%; South Korea with 10%;
Chile with 5% and Japan with 4%.
Las Bambas exports to the world accounted for 3% of the total amount
exported by Peru in 2022. Moreover, Las Bambas export amount represented 1% of
Peru’s GDP in 2021.
Finally, Las Bambas is very important for the communities around its
influence area and at the regional level. In 2022, its exports represented 98%
of total exports of the Apurimac region.
C)
Importance
on Peru’s foreign direct investment:
As mentioned before, Las Bambas mine project was purchased by the
Consortium MMG Ltd. The payment of this transaction became the largest
investment amount made by a foreign company in Peru.
Besides that, according to the embassy of the PRC in Peru, the total
amount invested by Chinese companies in Peru since they arrived in the 1990’s
was of 30 billion dollars so Las Bambas acquisition represented 23% of the
total invested by Chinese companies. Peru is the second largest receiver of
Chinese investment in South America after Brazil.
Moreover, Las Bambas annual investments in its plant, equipment,
infrastructure, etc. accounted for 219 million dollars in 2022 representing 4%
share of the total invested by mining companies in Peru.
And in its area of influence, in the Apurimac region this amount
represented 90% share of the total invested in mining.
D)
Importance
in the mining sector employment:
In 2022, the average of
workers hired in the mining sector in Peru accounted for 230,737 people. Of the
total mining workers hired in 2022, Las Bambas hired workers represented 1%. At
first glance this may be seem little but this mine represented 32% of the total
mining workers hired in the region that operates as can be seen in the next
figure. Besides, of the three Chinese mining companies that have active mine
operations in the country, Las Bambas is the one that contributes more with
employment.
Graph:
Average number of workers hired in the mining sector by region and by Chinese
mining companies in Peru in 2022
References
Cruz, E. (April, 2022). Las
Bambas: Conflicto anti-minero o lucha por ser re-incluidos. Rumbo Minero. Retreived
from https://www.rumbominero.com/peru/las-bambas-conflicto-anti-minero-o-lucha-por-ser-re-incluidos/#:~:text=En%20el%202016%20Las%20Bambas,v%C3%ADa%20llamada%20Corredor%20Minero%20Sur.
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memoria 2023. Provias Nacional. Recuperado de https://cms.pvn.gob.pe:10443/PortalWeb8UIT/Forms/frmAyudaMemoria_Ext.aspx
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Central de Reserva del Perú (BCRP). (2014 – 2021). BCRP Data. Producto Bruto
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L. (12 de marzo de 2022). China's MMG races for deal to protect copper flow from
Peru mine. Nikkei
Asia. Recuperado de https://asia.nikkei.com/Business/Materials/China-s-MMG-races-for-deal-to-protect-copper-flow-from-Peru-mine
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secures supplies to continue copper production in Peru. (10 de febrero de 2023). Nikkei
Asia. Recuperado de https://asia.nikkei.com/Business/Markets/Commodities/China-s-MMG-secures-supplies-to-continue-copper-production-in-Peru
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E. (27 de setiembre de 2022). Las Bambas ha pagado más de S/ 6,389 millones en
impuestos y regalías. Rumbo Minero. Recuperado de https://www.rumbominero.com/peru/noticias/mineria/las-bambas-impuestos-y-regalias/
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[1] Member of Centre for Asian
Studies, San Marcos National University
[2] In a speech given by Ambassador of
China to Peru, 25th November 2022:
https://mp.weixin.qq.com/s/L-dRV22hnlHwPA1q9npp3w
[3] See Annex Table 2 of UNCTAD: World Investment
Report 2022, page 216 https://unctad.org/system/files/official-document/wir2022_en.pdf
[4] Derek Scissors, 2023: “Zero
COVID” Ends, and Chinese Investment Returns, January 2023 https://www.aei.org/research-products/report/2023-zero-covid-ends-and-chinese-investment-returns/
[5] See Central Reserve Bank of Peru Annual
Report 2021 https://www.bcrp.gob.pe/eng-docs/Publications/Annual-Reports/2021/annual-report-2021.pdf
[6] See Peru Central Bank: Resumen
Informativo Semanal February 16, 2023 page 1 https://www.bcrp.gob.pe/docs/Publicaciones/Nota-Semanal/2023/resumen-informativo-2023-02-16.pdf
[7] See Reuters: Glencore
reaps 7 billion from Las Bambas mine
sale to China´s MMG, July 31, 2014 https://www.reuters.com/article/uk-glencore-mmg-lasbambas-idUKKBN0G12XN20140801
[8] See Reuters, June 2, 2022: https://www.reuters.com/world/americas/peru-cabinet-seeks-solution-las-bambas-crisis-leftists-urge-nationalization-2022-06-03/
[9] Peru Ministry of Foreign Trade and
Tourism, Trade Monthly Report, December 2022, page 10 https://cdn.www.gob.pe/uploads/document/file/4090459/RMC%20Diciembre%202022.pdf?v=1675959528
[10]Environmental
Justice Atlas: https://ejatlas.org/conflict/hidrovia-amazonica
[12] For a
detailed explanation of the problem see Cruz, E.
(April, 2022). Las
Bambas: Conflicto anti-minero o lucha por ser re-incluidos. Rumbo Minero. Retreived from https://www.rumbominero.com/peru/las-bambas-conflicto-anti-minero-o-lucha-por-ser-re-incluidos/#:~:text=En%20el%202016%20Las%20Bambas,v%C3%ADa%20llamada%20Corredor%20Minero%20Sur.
