International Council on Mining and Metals (2007a) ‘Peru: Country Case Study. The Challenge of Mineral Wealth: using Resource Endowments to Foster Sustainable Development’

Recognizing that resource projects can have both negative and positive local economic, environmental and social effects, Precept 5 outlines the internationally accepted frameworks governing resource extraction. The report provides examples on trade offs between local and national beneficiaries, capacity constraints and the decision on whether to extract or not.

The report provides an in depth case study on the impact of mining on economic growth and poverty reduction in Peru. The country has since the 1990s had a strong economic growth rate, partly attributable to mining. However, at a more localized level, poverty and inequality have remained stagnant. Furthermore, mining companies have also found themselves in social conflicts with local populations. The report considers what prevented macroeconomic policies from achieving greater social development and poverty reduction. The answers include:

    - External constraints faced by mining companies in employing local labor and enhancing local input. Partly a result of a lack of opportunities and government support for small local enterprises.

    - The institutional and governance structures which have failed to incorporate local communities in participating in the political process.

    - The government has often failed to meet people’s expectations with regards to the provision of public services. This has meant mining companies have had to negotiate directly with communities on additional contributions, leading to unsustainable short run agreements.

    - A lack of adequate property rights. Mining companies in negotiating with government assume property rights represent the interests of the people and ensure stability when this is not the case, again resulting in grievances.

Given the large degree of challenges and negative consequences identified, the report poses the question of whether mining investments ought to even go ahead. The authors find that due to the significant macroeconomic success, continued mining is justified. However, challenges at a local level must urgently be addressed if macroeconomic success is to be sustained.

Access the report here.