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12/17/12

Peru: A paper on Shougang Iron provides country FDI insight (from IKN189

This paper, featured in IKN189 yesterday in the way seen below, deserves more eyeballs so it's here's on the open blog today, too. My thanks to reader CS for the headsup and here's the link you need to get your copy of the paper (or alternatively, this link).



Peru: A paper on Shougang Iron provides country FDI insight
Your author offers this link (16) (or this one to reach abstract-plus-link page (17)) to a 27 page paper entitled “Chinese Investment in Peru: A Comparative Analysis” dated December 2012 and written by Amos Irwin and Kevin P. Gallagher and published by The Working Group on Development and Environment in the Americas (thanks to reader ‘CS’ for the forward).



The main part of the investigation centres on examining whether Shougang deserves its poor reputation with its workers, local community and general public opinion in Peru and the empiricals are tested by comparing Shougang to three other large mining concerns in the country, namely Antamina, Yanacocha and Doe Run. With the investigation work done conclusions are reached and then the argument is expanded to consider other aspects of the mining industry in Peru. Below is one segment that probably most directly relates to The IKN Weekly audience, but you are strongly recommended to download and read the whole paper if the subject of political risk, community or worker relations in Peru mining is of interest to you as it’s a very good and informative report. Here’s the chosen extract.

Shougang’s Lessons for Peruvian Mining FDI
There may not be any clear lessons from Shougang that apply only to Chinese companies, but there are certainly lessons that apply to Peru’s mining FDI in general. First, the improving regulatory framework has helped to keep companies honest. Kotschwar et al. conclude that the progress of the national regulatory framework has forced companies to improve their social and environmental impact. (Kotschwar, Moran et al. 2011) Many commented on the regulatory system’s positive impact on Shougang. An NGO leader maintained that today, “new legislation and better regulation have forced the company to make adjustments to survive.” (NGO Official 2011)

Second, while the Peruvian regulatory framework has improved greatly since the 1990s, two salient labor issues are subcontractors and government resolution of union negotiations. Since MINEM and MTPE have not agreed on the appropriate use of subcontractors, their conflict leaves unions, mining communities and NGOs outraged at the widespread outsourcing of what used to be decently-paid company jobs. Second, MTPE, which is supposed to be the ultimate mediator in union-company disputes, is not an effective mediator because locals see it as being in league with the companies. In Shougang’s case, the unions point out that regional office of MTPE ignores the union’s list of demands and simply forces the company to give a slightly higher raise and onetime bonus. (Shougang Union Delegation 2011)

Finally, the underlying problem facing all mining companies in Peru is the population’s lack of confidence in the government ministries that regulate these companies. Unlike workers, nearby communities often have no stake in the mining operations. When they feel that a company is damaging the environment, they attempt to shut down its operations. These communities do not trust the environmental impact evaluations, third party audits, or other inspections that private consulting firms prepare for MINEM. At the same time, local government and community officials have no means of challenging problematic mining operations. The government must give these communities a potent legal channel through which they can air their grievances. While community accountability will result in the end of some mining concessions, it is necessary to provide this avenue inside the system rather than forcing citizens to take matters into their  own hands