Latin America's Resource Boom: Opportunities and Challenges

By invitation only
Mikael Wigell Mikael Wigell
Jussi Pakkasvirta Jussi Pakkasvirta
Daniel Linsker Daniel Linsker
Barbara Hogenboom Barbara Hogenboom
Carlos Monge Carlos Monge
Markus Kröger Markus Kröger

Tue 11.3.2014 at 9:30-12:00
Auditorium of the Finnish Institute of International Affairs
Ankkurikatu 5, Helsinki

Recent years have witnessed a dramatic increase in natural resource extraction. Resourcerich
countries all over the world have aggressively started promoting extractive industries –
gas, mining and oil - so as to be able to benefit from the rise in world market prices for natural
resources. Latin America has been at the forefront of this global extraction boom. Extractive
activities have grown exponentially and lie at the heart of the region’s economic emergence
during recent years. At the same time, these big extractive projects have generated conflicts
between companies, governments and local communities. This seminar will look at some of
the opportunities and challenges surrounding Latin America’s resource boom, including its
environmental costs, the question of revenue sharing and the future prospects for extractive
industry development in the region.

Opening remarks
Dr Jussi Pakkasvirta, Head of Department, Political and Economic Studies, University of Helsinki

Keynote speakers
Mr Daniel Linsker, Vice President of Global Services for Latin America, Control Risks, Colombia
Dr Barbara Hogenboom, Associate Professor, Centre for Latin American Research and
Documentation, the Netherlands
Dr Carlos Monge, Latin American Regional Coordinator, the Revenue Watch Institute, Peru

Dr Markus Kröger, Post-Doctoral Researcher, University of Helsinki

Dr Mikael Wigell, Senior Research Fellow, the Finnish Institute of International Affairs

Summary of the seminar: 

The seminar Latin America’s Resource Boom: Opportunities and Challenges was organized by the Finnish Institute of International Affairs in cooperation with the University of Helsinki. Dr Mikael Wigell who acted as the chair of the seminar noted that the subject of the event is topical as there has been a dramatic increase of extraction in Latin American in the past few years. The issue is controversial because extraction industry improves socio-economic wellbeing and development but also may turn into a curse if resources are not used in economically, socially and environmentally sustainable ways. 

Dr Jussi Pakkasvirta from the University of Helsinki gave the opening remarks. He mentioned that the University of Helsinki recently had large research projects concerning Latin America. Dr Pakkasvirta said that there  is an abundance of natural resources in Latin America – this was already noticed in the colonial times in countries such as Peru or Chile while lately a discussion has risen for example of Brazils oil resources. Dr Pakkasvirta has taken part in a project of Swedish International Development Cooperation Agency (SIDA), which analysed global challenges and future research needs in the context of low-income countries. The project showed the challenges in the governance of natural resources, and the unknown behind the natural resource boom should be studied more. Furthermore it is fundamental to understand the old links between Africa and Latin America. In general the study illustrated that the resource boom causes the environmental and political challenges in Latin America. 

Dr Daniel Linsker concentrated in his presentation on challenges in the extractive industry. According to him opportunities for the industry are present: Latin America has an affluence of raw materials/natural resources such as mine, oil and gas. In addition due to mobility, geology is no longer critical. The industry has the potential to affect positively the development of Latin America. However, the question is how to make the most of the opportunities by finding the right balance between the communities, the state and extractive companies. 

The greatest challenges are on a state-level but also in the actions of the companies and communities is space for improvement.  Communities and companies should go from a transactional relationship to an engaged and active shareholder, make standards count and share the benefits. In the state-level companies should assume a degree of responsibility and refrain from making the situation worse or causing any damage. Broadly speaking companies should be responsible and not lie. Communities should demand more responsibility from the companies and do not be happy just with the financial profit. Furthermore they should oversight responsibility of companies and kick-out "mercenary” leaders and prevent misinformation. They should respect the law and think ahead life and consider situation without mine or oil. 

As Dr Linsker noted the biggest challenges are on the state-level but if the state takes its responsibility it has a great of potential. In order to be a responsible actor the state should be placed to the center and act between companies and communities. The key issue for the state is to re-establish power and control over local interests, including politicians and informal or criminal miners, to improve the well-being of the state. The state can make the industry worthwhile for communities and simultaneously attractive for companies and enable them to work legally. The state should also make the case for its own people. 

Dr Barbara Hogenboom concentrated on the local dimensions in her presentation under the topic: "Mineral extraction with local sustainable and equitable development in Latin America: Challenge or illusion”.  She mentioned that ENGOV (Environmental Governance in Latin America and the Caribbean) studies how the extraction industry affects the prospects of local development in rural areas. It seems that the state takes more roles over neo-extractivismo, and governments, which use resources to progress, are re-elected.  However the remarkable question is – as there are many uncontrolled processes - if the extraction industry really leads to a sustainable development. 

Dr Hogenboom stated that the local governance should protect the public interest, solve possible conflicts and have capacities to design long-term plans - in many cases the local governance is not able to do this. Extraction industry causes rapid social, economic and environmental changes. Local governments agree that it is their responsibility to deal with the changes, but they may lack the strength and the capacity to do so.  Even though companies prefer to see the local governance as a mediator, they are also in many cases willing to contribute to a local community by providing guidance and services. Companies might even advise the municipality about the central governmental projects. Hence companies do not concentrate only to their workers but also alleviate the well-being of all locals. 

In Dr Hogenboom’s opinion combined responsibility of private and public sector, which exists, is interesting but also cause concerns. Mineral extraction is welcomed at the national level as a motor for development, while local and long-term challenges are ignored. Many local problems and conflicts remain unseen hidden or repressed by companies and governments and therefore inequalities persist between company, local government and social groups. The central state is far away and cannot support the municipality, and in the local-level governance lacks the capacity or mainly deals with immediate social needs and company interests. In Latin America the environmental dimensions of extractive activities receive relatively limited attention, both in the society and in the government. In Europe the awareness of the social effects of the consuming fossil fuels and metals is limited and little is known about the local struggles and the related human rights violations, including the recent criminalization of indigenous and environmental activists in Latin America.

Dr Carlos Monge spoke about the extractive industries in the Latin America - European Union relation. For Latin America the super cycle meant an increase in investments in the hydrocarbons sector, in the mining sector, in hydrocarbons production and in minerals production. Super cycle has also led to an economic growth and poverty reduction in Latin America. The flip side of the super cycle is that it has caused macroeconomic problems such as Dutch disease – or evidence of it –and a subnational-level resource curse in addition to social problems. Latin America’s role in trade between the continent and the EU is to be a supplier of natural resources but European Foreign Direct investment in the region has increased. The Revenue Watch Institute, were Dr Monge held a position as Latin American Regional Coordinator, has compiled a list of proposals towards joint policies between the EU and CELAC on the extractive industries from a perspective of human rights, environmental sustainability and growth with welfare. These proposals include conditions for European investments in Latin America Extractive Sectors regarding the rights of local population, the protection of human rights, transparency and accountability, worker’s rights, territorial management, macro-economic health, economic diversification and energy matrix transition.

The presentations were commented by Dr Markus Kröger. He took a global perspective for the resource boom and pondered whether the boom is temporary and caused by the rise of China or is there a completely different and new economic paradigm in the World. The boom and projects related to it generate development and create GDP growth but also may cause conflicts and are not representing sustainable socio-economic development. Extremely low-cost extraction projects offer a huge expansion potential for companies seeking globalization: new Latin American and other mining companies can use their profit to acquire other companies and in such a way utilize the low cost structures to globalize. Different political views exist in Latin America on the mining boom, and it would be essential to take all views into account better to balance the boom.