How Extractive Industry Revenues Impact Local Development in Peru
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This document summarizes a presentation given by Sandra Carrillo Hoyos about her research on extractive industries, revenue allocation, and local development in Peru. Specifically: 1) Peru is a top global producer of various metals and minerals, but macroeconomic growth from extractives has not always translated to inclusive local prosperity. 2) Carrillo Hoyos' research examines how revenue transfers to local governments have impacted conditions for a "local resource curse" through case studies of Espinar and Huari provinces. 3) Preliminary findings show revenues have had mixed effects, with some reductions in poverty and increases in infrastructure but ongoing issues like unemployment, inequality, and lack of economic diversification. Weak institutional capacity
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How Extractive Industry Revenues Impact Local Development in Peru
- 1. EXTRACTIVE INDUSTRIES, REVENUE ALLOCATION AND LOCAL DEVELOPMENT. COMPARATIVE CASE STUDY IN PERU Sandra Carrillo Hoyos, MSc Environment and Development Candidate at the London School of Economics and Political Science (LSE) RGS-IBG ANNUAL INTERNATIONAL CONFERENCE 1 London, September 2nd, 2016
- 2. EXTRACTIVE INDUSTRIES IN LATIN AMERICA Sandra Carrillo Hoyos, MSc Environment and Development Candidate at the London School of Economics and Political Science (LSE) 1° copper 3° molybdenum 7° silver 9° nickel 11° coal 3° silver 3° copper 3° tin 3° zinc 4° lead 4° molybdenum 6° gold 3° iron 5° tin 7° nickel 12° oil CHILE BRAZIL PERU COLOMBIA Resource abundance Policies oriented to the extractive sector Boom of commodity prices 2000-2008 Performance of operations Has allowed these countries to become the top producers in the world 2
- 3. EXTRACTIVE INDUSTRIES IN LATIN AMERICA Sandra Carrillo Hoyos, MSc Environment and Development Candidate at the London School of Economics and Political Science (LSE) 1° copper 3° molybdenum 7° silver 12% of GDP 49% of exports 9° nickel 11° coal 2.4% of GDP Non/metallic minerals: 24.4% of GDP 3° silver 3° copper 3° tin 3° zinc 4° lead 4° molybdenum 6° gold 12% of GDP 57% of exports 3° iron 5° tin 7° nickel 12° oil Mining, 4% of GDP Oil, 13% OF GDP Oil and oil products, 9% of exports Metal products 7% of exports CHILE BRAZIL PERU COLOMBIA Resource abundance Policies oriented to the extractive sector Boom of commodity prices 2000-2008 Performance of operations Has allowed these countries to become the top producers in the world *Data from World Bank and USGS. 3
- 4. RESOURCE CURSE PHENOMENOM IN THE REGION? Sandra Carrillo Hoyos, MSc Environment and Development Candidate at the London School of Economics and Political Science (LSE) 4 EVOLUTION OF POVERTY AND EXTREM POVERTY IN LATIN AMERICA 1980-2015 (IN PERCENTAGE OF POPULATION) GINI COEFICIENT IN LATIN AMERICA 2002-2014 Source: ECLAC, 2016
- 5. RESOURCE CURSE – APPLIED TO THE LOCAL LEVEL Sandra Carrillo Hoyos, MSc Environment and Development Candidate at the London School of Economics and Political Science (LSE) Community of Caimanes against Los Pelambres Company Vélez and Landázuri Municipalities against coal mining Chile, Coquimbo Colombia, SantanderPerú,Arequipa Islay Province against Tia Maria Project – Southern Corporation Bolivia Indigenous groups claiming against North Energy Company Brazil, Pará 5
- 6. APPROACHING A LOCAL RESOURCE CURSE PHENOMENOM Sandra Carrillo Hoyos, MSc Environment and Development Candidate at the London School of Economics and Political Science (LSE) 6 Dissatisfaction with the low impact on local development Disappointment about revenue allocation Concerns about environmental impact on resources necessary for subsistence Low credibility on environmental regulation efficacy Lack of participatory mechanisms and communication efforts Ineffective actions to achieve social license to operate Low capacity to address social conflicts COMMON DRIVERS OF CONFLICT
- 7. THE CASE OF PERU: WHY THE MACROECONOMIC SUCCESS HAS NOT NECESSARILY DERIVED IN INCLUSIVE PROSPERITY? Sandra Carrillo Hoyos, MSc Environment and Development Candidate at the London School of Economics and Political Science (LSE) Peruvian dichotomy 7
- 8. MY RESEARCH To what extent the allocation of extractive revenues has determined conditions for the applicability of the local resource curse hypothesis in Peru? Specific questions: 1. How are manifested the channels of local resource curse? 2. Has the public investment resulted from extractive revenues contributed to beating the local resource curse? 3. Which factors may be inducing a better / worse use of funds transfered to local governments? Sandra Carrillo Hoyos, MSc Environment and Development Candidate at the London School of Economics and Political Science (LSE) 8
- 9. APPARENT SUCCESS AT THE MARCO LEVEL Sandra Carrillo Hoyos, MSc Environment and Development Candidate at the London School of Economics and Political Science (LSE) 9 Source: EY Peru
- 10. THOUGH, IS REVENUE DISTRIBUTION CREATING LOCAL DEVELOPMET? 10% 25% 40% 25% DISTRIBUTION OF CANON Distrital Municipalities where resources are exploited Provincial Municipality and Distrital Municipalities within the Province where resources are exploited Rest of Provincial Municipalities and District Municipalities in the Department where resources are exploited 80% for Regional Government and 20% for Public Universities 0 200 400 600 800 1000 1200 1400 1600 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 CanonrevenuesinUS$milliondollars Years CANON REVENUES Mining Gas Petroleum Sandra Carrillo Hoyos, MSc Environment and Development Candidate at the London School of Economics and Political Science (LSE) 10
- 11. CORRELATION BETWEEN POVERTYVARIATION AND REVENUETRANSFERS PER CAPITA (IN US$ DOLLARS) IN PERUVIAN PROVINCES FROM 2009TO 2013 -50.0 -40.0 -30.0 -20.0 -10.0 0.0 10.0 20.0 30.0 0.0 2000.0 4000.0 6000.0 8000.0 10000.0 12000.0 14000.0 16000.0 18000.0 Variationofmonetatypoverty Transfer por revenues - per capita (in US$ dollars) MONETARY POVERTYVS TRANSFER OF REVENUES 2009 - 2013 Sandra Carrillo Hoyos, MSc Environment and Development Candidate at the London School of Economics and Political Science (LSE) 11
- 12. CORRELATION BETWEEN HDIVARIATION AND REVENUE TRANSFERS PER CAPITA (IN US$ DOLLARS) IN PERUVIAN PROVINCES FROM 2009 TO 2013 -0.04 -0.03 -0.02 -0.01 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.0 2000.0 4000.0 6000.0 8000.0 10000.0 12000.0 14000.0 16000.0 18000.0 HDIvariation2009-2013 Transfer por revenues from 2009 to 2013 - per capita in US$ dollars HUMAN DEVELOPMENTVS TRANSFER OF REVENUES 2009-2013 Sandra Carrillo Hoyos, MSc Environment and Development Candidate at the London School of Economics and Political Science (LSE) 12
- 13. METHODOLOGY: QUALITATIVE RESEARCH + COMPARATIVE CASE STUDY Channels of local resource curse Monetary poverty Human development Income inequality Economic diversification Socio-environmental conflict Corruption Contribution of public investment resulted from revenues Transfer of revenues Spending of revenues Categories of public investment Relation between investment and needs Impact of public investment Factors inducing the allocation of funds Institutional background Institutional capacity Transparency mechanisms Civil society engagement Role of national and subnational institutions Overlapping of roles with extractive companies Sandra Carrillo Hoyos, MSc Environment and Development Candidate at the London School of Economics and Political Science (LSE) 13
- 14. SELECTED CASES: ESPINAR AND HUARI 69,146 people Antappacay, copper operation by Glencore Xstrata 63,057 people Antamina, polymetallic operation by BHP Billiton (33.75%), Glencore Xstrata (33.75%),Teck (22.5%) and Mitsubishi (10%)5 Sandra Carrillo Hoyos, MSc Environment and Development Candidate at the London School of Economics and Political Science (LSE) 14
- 15. MAIN FINDINGS: SYMPTOMS OF LOCAL RESOURCE CURSE 15 Sandra Carrillo Hoyos, MSc Environment and Development Candidate at the London School of Economics and Political Science (LSE) Monetary poverty Reduced but not gradually Human development Unmet social services Inequality Skills and economic activities employment dependancy on mining activities (skilled and unskilled labour) Low economic diversification Most population are involved in traditional agriculture and livestock activities. Environmental impacts Lack of trust on oficial information Socio-environmental conflicts social mobilization will depend on environmental awareness Short term aspirations might hinder potential activities Employment volatility Potential for tourisms underdeveloped Cost of living
- 16. MAIN FINDINGS: IMPACT FROM PUBLIC INVESTMENT PROJECTS 16 Espinar Huari 0.0000 0.0100 0.0200 0.0300 0.0400 0.0500 0.0600 0.0700 0.0800 0.0900 0.1000 0.0 2000.0 4000.0 6000.0 8000.0 10000.0 12000.0 HumanDevelopmentIndex2007-2012 Accumulated trasnfers from 2004 - 2012 HDI Index variationVS transfers per capita Espinar Huari Province average -40.0% -35.0% -30.0% -25.0% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 0.0 1000.0 2000.0 3000.0 4000.0 5000.0 6000.0 7000.0 Povertyvariation Transfers per capita (US$ Dolars) Poverty variationVS transfers per capita 2009-2013
- 17. MAIN FINDINGS: IMPACT FROM PUBLIC INVESTMENT PROJECTS 6% 1% 1% 11% 1% 2% 0.2% 16% 7% 8% 11% 2% 5% 11% 9% 8% 2% 6% 6% 12% 8% 0.3% 8% 22% 2% 4% 9% 2% 1% 7% 9% 3% SECURITY TRADING TOURISM AGRICULTURE FISHING ENERGY INDUSTRY TRANSPORTATION COMMUNICATIONS ENVIRONMENT SANITATION HOUSING AND URBAN DEVELOPMENT HEALTH CULTURE AND SPORTS EDUCATION SOCIAL PROTECTION CATEGORIES OF PUBLIC INVESTMENT PROJECTS Provincial Municipality of Espinar District Municipality of San Marcos 17 Majority of projects implemented had less than US$ 50 000 of budget Remain oriented to the provision or maintenance of infrastructure Increase of budget and pressing to spend it have not favored an effective investment General negative perception around derived impacts: education and water Development plan and participatory budget process do not account for spending Sandra Carrillo Hoyos, MSc Environment and Development Candidate at the London School of Economics and Political Science (LSE)
- 18. MAIN FINDINGS: DRIVERS OF REVENUE ALLOCATION Lack of previous preparation Lack of strategic planning and management Staff skills and academic background Background and institutional capacity Mistrust with authorities and justice system Perception of more revenues= more corruption Corruption Very low level of information concerning revenue allocation Obstacles for accessing and using information Weak capacities for accountability Transparency and stakeholder engagement Need for orientation and guidelines from national institutions Confusion around duties performed by public and private institutions Public and private role 18 Sandra Carrillo Hoyos, MSc Environment and Development Candidate at the London School of Economics and Political Science (LSE)
- 19. CONCLUSIONS This research has contributed to the literature by corroborating that a high level of revenue transfers to local governments without prior preparation and capacity building could be considered as a driver of local resource curse. This situation may be aggravated when the impact from public investment is not officially evaluated and there is a lack of citizen accountability. Those factors are likely to incentivize corruption and constraint development opportunities. From this exploratory research, a further assessment is required around the impacts derived from public investment projects and major drivers of local development performance did not addressed in this paper. 19 Sandra Carrillo Hoyos, MSc Environment and Development Candidate at the London School of Economics and Political Science (LSE)