Blogs

Blogs

Cyclical movements in the Latin American economy show close links to fluctuations in mineral pricing

The attention of public opinion on the price of commodities usually focuses on hydrocarbons, especially oil, because of the direct consequences on consumers. But although there are important oil producers in Latin America, minerals are a more transversal asset in the region's economy, especially in South America. This is shown by the largely parallel lines that follow the evolution of non-energy minerals and GDP growth, both in times of boom and of decline.

 

ARTICLE / Ignacio Urbasos Arbeloa [English version] [Spanish version].

Mining activity is a fundamental sector for most of the Latin American economies. The sector has a huge weight on exports and the attraction of foreign direct investment making it one of the most important sources of international currencies. Against the general perception of the non-energetic mining activities as a mature industry, the sector has demonstrated its capability to be attractive for investment and able to produce jobs and wealth. Latin American mining is the destiny of 30% of world investment in the sector, which is waiting for a rising in prices. The effect of these price fluctuations have direct consequences on the economies of the continent, some of them being deeply dependent on the exploitation and sell of its natural resources. The main goal of this analysis is to articulate a convincing explanation of the impact of price fluctuation on non-energetic minerals on national GDPs.

Firstly, it is important to explain the chronological evolution of prices in the most exploited minerals of Latin America. The general tendency of commodity prices during the last two decades has been marked by a great volatility. The so called super cycle of commodities [1] produced between 2003 and 2013, with recoil during 2008 and 2009, coincides with the golden decade of Latin America. This situation was produced thanks to an unprecedented rising of global demand, mainly of the emerging countries led by China. In fact, the rising of China has transformed the trade pattern in the region which is today the main trade partner of a large number of countries.

The mentioned evolution in commodity prices is similar to the one of the non-energetic minerals, which generally follows the tendencies of raw materials. As graph 1.1 shows, the region of Latin America and Caribbean has growth in correlation to the average evolution of the prices of gold, silver, tin, nickel, lead and copper. It is important to mention that this correlation in not an isolated one, and has to be analyzed in the context of a general rising in natural resource-based products such as hydrocarbons and agricultural goods. 

 

[The graphics have been made from World Bank Data and national statistics of Peru and Chile].

 

The Chilean case can be illustrative. The country has an economy particularly specialized on non-energetic minerals, outstanding copper as a core mineral for the country. Chile is the main producer of copper in the world and this mineral is around 50% of the national exports. The mining sector in Chile [2] represented 20% of the country's GDP during the 2000's, in 2017 it is only 9% of its economy. In graph 1.2 it is evident how the economic growth of Chile is directly linked with the different prices of copper. Even though it is one of the most complex and developed economies in the continent, with a tertiary sector [3] representing 74% of its GDP, Chilean economy is still dependent and affected by copper prices and the situation of the mining industry. 

 

 

Another interesting case is the Peruvian one, a country whose exports are in a big proportion composed by non-energetic minerals. Gold is 18% and copper is 26% of all exports [4], reaching both more than 46% of them. Similar to the case of Chile, 15% of its national GDP comes from the mining activities. Again, the correlation of mineral prices and economic growth is evident in graph 1.3, showing the huge dependence of these economies to the international prices of their exports.

 

 

This relationship is logical and has its answer in different realities. On the one hand, the quantitative value of natural resources on the Latin American economies, whose exports are mainly composed by mineral, agricultural or energetic commodities. On the other hand, the qualitative importance of the mining sector, which creates huge amounts of employs (up to 9% of the total in Chile), is the activity of some of the main companies in the region (among the 20 biggest companies in the Latin America, 5 are related to the mining activities), it is the main source of currencies and support public budgets by its particular fiscal regime. Equally, a big amount of national public debts are covered by those particular taxes, creating a situation of possible default in case of great fluctuations of prices. This menace brings back the memories of the debt crisis in the 80's, something that it is now a reality in the case of Venezuela.

Must be taken into account that Latin American countries are not a unicity or a homogeneous reality, in general it is true that the region confronts a general challenge: be able of reduce the dependence of their economies to the exploitation and sell of its natural resources. An economic structure that is problematic because of its impact on the environment, a particularly complex issue because of the resistance of indigenous groups to suffer from it. The nature of the employs created by this activity is sometimes disappointing, with low wages and bad labor conditions. Anyway, the industrial development of the region is still far from being sufficient and there is a rising awareness about the lack of economic structural reforms during the golden decade of 2003-2013 that could have changed the situation [5]. The profits derived from the mining sector are used to promote political interest or short-term goals with electoral sights.

This inefficient use of the public resources increases the vulnerability of the general welfare to the mentioned continuous shifts in prices. Even though perspectives about prices are optimistic and expect an imminent rise [6], they will not reach the levels of 2008, when they were at their historical maximum. This new context will demand a new approach to Latin American economies, which will not have access to the huge amount of money that they had during the past decade. Its economic growth will not come from an external favorable context, but from internal efforts to modernize and renovate its economic capability.

More blog entries

Publicador de contenidos

Carrera por los recursos espaciales: de la minería al control de rutas

▲ proposal of lunar base for obtaining helium, taken from ExplainingTheFuture.com [Christopher Barnatt]. GLOBAL AFFAIRS JOURNAL / Emili J. Blasco [8-page document.... ReadmoreAboutRace for space resources: from mining to route control "

Ecuador desaprovecha su salida de la OPEP y pierde producción petrolera

The country left the cartel in order to expand its pumping, but the Covid-19 crisis has cut extraction volumes by 10.8%. Construction of a variant of the pipeline that crosses the... ReadmoreAboutEcuador misses out on OPEC exit and loses oil production "

Argentina ve en Vaca Muerta una tabla de salvación, pero falta más capital para su desarrollo

The hydrocarbon field is the central axis of the Gas 2020-2023 Plan of President Alberto Fernández, which subsidizes part of the investment Activity of YPF, Argentina's state-owned oil and gas... ReadmoreAboutArgentina sees Vaca Muerta as a lifeline, but more capital is needed for its development "

El gas natural licuado cambia el juego en el hemisferio americano

U.S. LNG sales to its neighbors and exports from Latin American and Caribbean countries to Europe and Asia open new perspectives Not to depend on gas pipelines, but to be able to buy or sell... ReadmoreAboutLiquefied natural gas is a game changer in the American hemisphere "

Surinam sigue a Guyana en el ‘milagro’ petrolero

The finding of a "significant" amount of oil in off-shore wells places the former Dutch colony in the footsteps of neighboring Guyana. The intuition has proved to be right and the... ReadmoreAboutSuriname follows Guyana in the oil 'miracle' "

La minería ilegal, la otra destrucción de la Amazonía

Gold mining and oil transport pollute Amazonian rivers It is not only the fires that are negatively affecting the Amazon, which is undergoing an accelerated reduction of... ReadmoreAboutIllegal mining, the other destruction of the Amazon "

Centroamérica aprovecha sus volcanes para generación eléctrica

Geothermal energy already accounts for 7.5% of the Central American electricity mix, with installed capacity still far below the estimated potential. Volcanic activity and tectonic movement... ReadmoreAboutCentral America harnesses its volcanoes for power generation "

Jordan River Basin: Hydropolitics as an arena for regional cooperation

▲Satellite imagery of the Jordan River [NASA]. ANALYSIS / Marina Díaz Escudero Water is an essential natural resource, not only for individual survival on Earth, but also for nation-states... Read moreAboutJordan River Basin: Hydropolitics as an arena for regional cooperation "

Qué hará Bolivia con su gas natural cuando Brasil y Argentina ya no lo necesiten

The upcoming gas self-sufficiency of its two major gas-buying neighbors forces the Bolivian government to seek alternative markets Yacimientos Pretrolíferos Fiscales gas plant in... ReadmoreAboutWhat Bolivia will do with its natural gas when Brazil and Argentina no longer need it "

La nueva Guyana petrolera y su proyección internacional

One of the poorest countries in the Americas may become the world's largest oil producer per capita, disrupting the relationship with its neighbors. The promising oil discoveries... ReadmoreAboutThe new oil Guyana and its international projection "

Acuífero Guaraní: mejor que otros, pero pervivencia no asegurada

Geopolitical misgivings about perceived foreign interests should not distract beneficiary countries from implementing sustainable use. The Guarani Aquifer has given rise to a... ReadmoreAboutAquifer Guarani: better than others, but survival not assured "

El 'boom' de la quinoa

Global interest in this fashionable grain has brought additional income to Andean communities. The localization of quinoa production, especially in Peru and Bolivia (together they account for... ReadmoreAboutThe quinoa boom "

Impulso a la conexión gasística de los países de la Iniciativa de los Tres Mares

Poland-Germany struggle for influence in the European region between the Baltic, the Adriatic and the Black Sea The latest summit of the Three Seas Initiative (TMI) was attended by the... ReadmoreAboutBoosting the gas connection of the Three Seas Initiative countries "

'Guerras del agua' en Asia Central

Central Asian republics dispute scarce water resources in the Aral Sea Basin The lack of effective cooperation between the republics through which the two main water resources of the... Read moreAbout'Water Wars' in Central Asia "

The Nord Stream 2 divides the EU

The EU has backed down on the project, but Germany still gives support to the Russian initiative The project of a second set of gas pipelines through the Baltic Sea, in order to transport Russian... ReadmoreAboutThe Nord Stream 2 divides the EU "

Horizonte del consumo petrolero de América Latina

Domestic demand will increase, in contrast to more advanced regions In the coming decades, oil consumption in Latin America will continue to grow, in contrast to a trend towards... Read moreAboutLatin America's oil consumption horizon "

La batería del planeta: el litio de los salares andinos

Nearly two-thirds of the world's identified lithium reserves are located in Bolivia, Chile and Argentina. The explosion of electric vehicles using lithium-ion batteries has led to the... ReadmoreAboutThe planet's battery: lithium from the Andean salt flats "

China como potencia de recursos minerales

It generates many of the raw materials needed for global technology production. China not only has significant reserves of mineral resources, but also leads the world in the production... ReadmoreAbout China as a mineral resource powerhouse "

The 'why' of renewable energies in America

ESSAY / Martín Villegas Jordán The concept of humanity is a contemporary idea that took shape just recently. Many say that it took place after the conference of Yalta in 1945[1]. In other... ReadmoreAboutThe 'why' of renewable energies in America "

Pulso entre EE.UU. y Venezuela por el suministro de energía al Caribe

Washington's Antillean energy diversification initiative moves forward In view of the success of Venezuela's oil diplomacy in the Caribbean countries (the islands account for 13 of the 35... Read moreAboutU.S.-Venezuela energy supply pulse in the Caribbean "