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Ecuador Needs Mining

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Long-term job creation is Ecuador’s best chance for eradicating poverty. And mining offers a huge potential.

BY IAN HARRIS

Ecuador’s Constitutional Assembly surprised the mining industry on April 18 when it passed its mining mandate. This mandate supersedes the mining law and international investment agreements under which mineral concessions were granted and investments made. The document lays out provisional regulations for mining activities and will remain effective for 180 days, or until a new mining law can be elaborated.

President Rafael Correa has explained that the mandate is necessary to allow the government to get its house in order and ratify new regulations so that responsible mining can proceed unimpeded.

WORRISOME MANDATE

Despite Correa’s assurance that Ecuador supports responsible mining as an essential development tool, the mandate is worrisome. Among the more serious prescriptions are the 180-day suspension of all exploration activities and the cancellation of 80 per cent of mining concessions. The concessions are to be reverted to the state without compensation, although the president has hinted that they may be returned under the new law. The mandate leaves the Ministry of Mines and Petroleum with the difficult task of implementing the confusing and ambiguous terms laid out in the document, and leaves the rattled mining industry to recover.

In the three-day period leading up to the mandate vote and its subsequent approval, Corriente Resources Inc. and Aurelian Resources Inc., two of the larger Canadian exploration companies with 100 per cent exposure in Ecuador, lost over $830 million in market capital. These companies and others are lobbying to protect their investments and to make their voices heard in the new law. The industry has held a series of meetings with the Ministry of Mines and with the President and his advisors, and is hopeful that an acceptable agreement can be reached.

This disruption has come during a difficult time for Ecuador. Ecuador and its 13 million inhabitants are no strangers to the ravages of political and economic instability.

Since its formation in 1830, Ecuador has rewritten its constitution 19 times and in 2007 elected a Constitutional Assembly to write number 20. Ecuador has lived through a series of armed conflicts with its neighbours, ceded territory, and ousted its last three democratically-elected presidents mid-term. This turmoil has made progress challenging.

MASSIVE POVERTY

Ecuador needs economic growth. According to SIISE, the national organization of economic indicators, 38.3 per cent of all Ecuadorians live below the poverty line. In rural provinces such as Zamora Chinchipe and Morona Santiago where more than $100 billion of mineral resource has been identified, the situation is worse: crushing generational poverty afflicts over 60 per cent of the population.

Moreover, economic growth is sluggish and complicated by inflation and a lack of jobs. According to the Central Bank of Ecuador, annual inflation hit 8.2 per cent in April, while the national census showed  that unemployment and under-employment reached 52 per cent. In addition, economic growth in 2007 was 1.9 per cent and total foreign investment added up to only $178 million. This situation is in stark contrast to neighbouring Peru and Colombia with nine per cent and seven per cent growth and foreign investment of $5.3 billion and $9 billion, respectively.

Recent polls show that Ecuadorians are feeling the crunch. When asked to rank the most important issues facing the country, the top three responses were "high prices" (29 per cent), "unemployment" (20 per cent), and "poverty" (13 per cent). This is a shift from the usual favorites of "corruption" and "political conflicts." It is unclear whether these traditional issues are improving, or if the social rifle is simply pointed at the wolf closest to the door. Despite escalating oil prices filling government coffers and increased social spending, popular attention is focused on economic issues.

STRONG POTENTIAL

Though Ecuador lacks industrial scale metallic mining, its potential is impressive. Mining exploration companies, the majority of which trade on the Toronto Stock Exchange (TSX), have identified more than $200 billion in mineral resources at current metals prices. This figure has been well disseminated and has been incorporated into the national discourse, including the President’s weekly radio address. It is not surprising, therefore, that Ecuadorians are looking to mining as a tool for development. In a recent poll announced on the national television show "24 Horas", 80 per cent of the population of Ecuador’s two largest cities, Quito and Guayaquil, support mining industry development.

This is consistent with a December 2007 poll by DataAnalysis that showed a nationwide mining approval rate of 74 per cent.

The current precarious circumstances present an opportunity for Canada, an international leader in renewable and non-renewable natural resource development, to collaborate with Ecuador, ease the transition to a new legal framework, and protect Canadian investment. Since the 1990s, Canadian exploration companies have invested hundreds of millions of dollars in Ecuador. According to the TSX, 49 per cent of all Canadian investors own mining stocks. The TSX and TSXV represent 57 per cent of all mining companies worldwide, of which 1,056 operate in South America.

While the Canadian Embassy in Ecuador has worked tirelessly to affect change in the mining policy –including facilitating high-level meetings between Canadian mining companies and President Rafael Correa– the impacts have been limited. What may help is a clear signal of concern and interest from Canada about the future of the mining industry and Canadian investment in Ecuador, and direct assistance in establishing a modern, responsible mining industry.

The Canadian government has the opportunity to strengthen ties, bolster investment, and promote desperately needed development. Progressive, environmentally responsible, long-term job creation is Ecuador’s best chance for eradicating poverty, improving income equality, and bettering the overall social well-being of its citizens.

Ian Harris is Senior VP of EcuaCorriente and General Manager of Ecuador Operations for Corriente Resources Inc. This column originally appereared in FOCALPoint, the publication of  the Canadian Foundation for the Americas (FOCAL). Republished with permission from FOCAL. 

 

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