CHAPTER 1 INTERNATIONAL DEVELOPMENTS AFFECTING THE EXPLOITATION OF NATURAL RESOURCES
| Jurisdiction | United States |
(Feb 1995)
INTERNATIONAL DEVELOPMENTS AFFECTING THE EXPLOITATION OF NATURAL RESOURCES
Argentine Permanent Representative to the United Nations
New York, New York
INTRODUCTION
The history of the modern development of mining can -in a nutshell- be divided into four different periods.1
The first one is the so-called "Colonial" period. During it, colonies essentially provided minerals to their respective metropolis. Ownership and effective control over the respective operations was held by the colonial powers themselves or by their state-owned companies or instrumentalities.
The second period is, instead, characterized by "local" investors dominating the mining scenario. In Latin America -in fact- it coincided with the consolidation of political independence of most of the most countries and continued way until the 40's. Various private domestic ventures surfaced in Argentina, Chile, Peru and Mexico. Those days even a Bolivian tin-mining empire emerged. It was the one dominated by the Patino family.
The third of these periods is, definitely, a much shorter one. For about three decades, after the end of the Second World War, foreign investors from the "industrialized" world controlled more than 75% of all mineral resources located in the developing world.
The fourth one started in the mid 70's, and has now -we believe- practically faded away. Through different nationalizations and expropriations, the States created public companies which displaced or replaced most foreign companies from the mining sector.
A new period is presently under way. It corresponds -as one could expect-to today's environment.
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When we look at the various ethnical and similar conflicts which seem to lead today's world towards fragmentation and disintegration, a contradiction with what -in fact- is happening in the economic front becomes evident.
In the open economic scenario, the world seems to -unmistakably- move in the direction of more cooperation, integration or association.
As stated above, many events and forces -of a political or cultural nature-seem, however, to be operating in a rather different framework.
This is so, since the horizontal organization which the world's economy is noticeably structuring, is strikingly at odds with the seemingly more vertical structures still prevailing in the political and cultural environments.
While internationalization has gained the private sector and is fostered, across-the-board, by the business community, national chauvinists (behind extremist, demagogic or xenophobic ideas) are, that notwithstanding, pounding the world's table.
Capital, ideas, information and people now move on a globalized basis, and at rapidly increasing speeds.
The very logic of an expanded marketplace is silently changing our habits and life-styles, while simultaneously eroding the notion of the "Nation State".
Today's world is very different than yesterday's. But the likelihood that it will prove even more different than tomorrow's world is -indeed- extremely high.
In this new and open world, governments are -all over the map- embracing market-oriented policies, thus having to dramatically reassess the role of the State in the economy.
In essence, direct state intervention in the actual production of goods and services is rapidly disappearing. Countries enhance market mechanisms, deregulate, use prices to fairly reflect cost structures and speed-up to privatize government-held monopolies.
Moreover, there is growing perception among developing countries that a new element -expanded trade- is required to both attract foreign investors and be able to build and operate scale economies.
Consequently, in order to increase their respective trade flows, individual countries are cooperating with their neighbors to reduce both tariffs and non-tariffs barriers. Partnerships based on integration and market-driven economies have surfaced in every corner of the world.
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However, free trade -it must be understood- means more than simply removing tariffs, harmonizing some regulatory policies and eliminating restrictions on cross-border trade and investment.
It also requires the lasting adoption of sound macro-economic policies and their coherent maintenance over time, as well as the progressive implementation of comprehensive and well functioning integration structures.
In fact, as Europe has shown, integration is a process that begins with trade issues, but rapidly envolves well beyond them, requiring the harmonization of many additional policies, like the fiscal, monetary, labor, environmental and other ones.
As a consequence of this new and open scenario, mining companies have —once again- returned to the developing world, where a wide variety of competitive investment opportunities has surfaced and continues to surface.
Mining -it must be recalled- differs from other productive activities.
It is, first and foremost, capital intensive. On the other hand it, requires —more and more- the availability of sophisticated technologies. By definition, it further needs a long "lead time" and contains a high "risk-factor".
Further, mining products are frequently confronted with a cyclical market where, because of existing inelasticities, prices tend to fluctuate, following alternative periods of over-supply or shortages.2
Keeping all this in mind, the resilience and performance of the private mining sector has been -some casualties notwithstanding- rather impressive. Particularly, when compared with the manner in which State-owned enterprises emerged from the very harsh days of the 80's.
The name of today's game for host countries, seems to be how to best "seduce" or "lure" foreign investors. For this common and competitive objective, developing countries have thus embarked on the enactment of new and modern mining legislation, undertaking structural reforms, devicing attractive fiscal regimes and structuring coherent overall policies, with the aim of promoting efficiency on an across-the-board basis.
Each one with its own strategy and individual recipe. But with strong and obvious coincidences, when it comes to defining the standard basic prescriptions.
States are, therefore, involved in promoting mineral investments, as opposed to directly participating in mining ventures themselves.
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Their main goals are shared: earn export dollars, maximize tax and similar revenues, increase employment, foster local business through the well known multiplying effect of the mining projects, and obtain the necessary expertise, without which mining ventures simply do not take-off.3
The logic of this process has kept it going, as shibboleth after shibboleth from yesterday's environment, have -one by one- being thrown from the policy window.
The various reasons for this change in direction are multiple, and well known: the effects of the foreign debt burden accumulated in the early 80's; the collapse of the socialist utopian option; a "follow your neighbor" attitude and the free fall of the prices of certain commodities. This last problem made governments particularly aware of the risks "of public investments".4
It is also true that the multinational and international financial agencies —which after the shock of the debt crisis of 1982-in view of the subsequent drying of commercial lending practices, became very active have successfully encouraged such policies. Again and again.
PRESENT TRENDS IN FOREIGN INVESTMENT.
The...
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