Engineering & Mining Journal

JUL 2013

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R E S O U R C E N AT I O N A L I S M while, Venezuela's vast mining potential— like so much else in its state-run economy—withered in the background; South America's less developed, but secondlargest coal reserves were no exception. Yet the sweeping nationalizations of oil, mining and other businesses themselves precipitated a full-blown exodus from the country itself, with the skills, capital and investment mandatory to keep all extractives afloat. Venezuela's further descent into chaos—fueled by a multibillion dollar cocaine trade and Chavez's deliberate culture of political violence—made a difference, too. Robert Amsterdam, an attorney representing companies facing state takeovers internationally, equates Venezuela with Vladimir Putin's Russia. In both countries "the state has become the principal instrument by predatory business groups," which employ the authority of the courts, regulatory agencies and police to seize assets and enrich themselves at the people's expense," he wrote in a 2009 Washington Post article. "It is grounded in the insecurity of the populace," he added. "What is not accomplished by faux legalism is carried out through government-backed neighborhood militias or extreme nationalist youth groups." Empowering the Poor, Disenfranchising Mining The country's long-profitable metals industry is now in the worst shape in 30 years. A Chinese cash and infrastructure injection pending a 2011 deal now lies in limbo since Chavez's death. "One can drive a car without doing maintenance until it decomposes—ditto with the metals companies of Venezuela," an aluminum trader told Reuters. "We have reached the breaking point." A significant example of pressures on such industries was a 200,000-unit housing program—key to the October victory that allowed Chavez a fourth term of six years—so poorly managed it flattened nationwide demand for metals, according to analysts. The reason is simple. "The industry has been required to produce without investment in equipment or parts," the trader said. Similarly damaging was the establishment by the corrupt and mismanaged state-appropriated oil company Petroleos de Venezuela (PDVSA) of non-petroleum www.e-mj.com Colombia and Venezuela: Tilting the Scales in Mining Business and Nationalism Just as Venezuela's economy and its mining sector have plunged into near-total ruin under Hugo Chavez since 1999, another tectonic shift has been under way in next-door Colombia—ahead of one of the potentially largest, most diversified mining booms on earth. Once a byword for cocaine kingpins, civil war and regional instability, South America's fourth-largest nation is now enjoying a relative peace dividend, an economic renaissance and—thanks in part to its vast mineral wealth—more foreign direct investment (FDI) than anywhere else in the Western hemisphere. In addition to being on-and-off adversaries—at times militarily—the divergent fates of Colombia's and Venezuela's mining industries are even more closely intertwined than they might seem at first blush—and resource nationalism isn't the only reason. Colombia, to be sure, endures lingering instability that peaked in the early 1990s: Ongoing bloodshed among paramilitaries, drug traffickers and Venezuela-backed Marxist guerrillas— underwritten in part by some 30,000 wildcat miners—persist alongside government corruption. Latin America's No. 5 economy remains its most unequal, too, with a 12% unemployment rate and 20 million people mired in poverty. A Study in Contrasts Yet unlike its eastern neighbor, Colombia is doing plenty right in business terms, according to a broad international consensus. The World Bank, for instance, has ranked Colombia a top-10 performing economy and the safest Latin American nation to do business in. The Fraser Institute, a Canadian think tank, has listed it the region's third-most attractive investment destination—and the third of 79 jurisdictions in mining potential—and Canada's mining companies are accordingly leading the mining charge. The differences with Venezuela, of course, couldn't be starker: Since assuming power 14 years ago with a sweeping populist mandate, strongman Hugo Chavez nationalized more than 1,000 private sector businesses—often at random. And the country's sizeable gold and coal deposits—South America's secondbiggest—lie in tatters. But in ways, it's also one of the biggest ironies of Chavez's one-man tenure: Venezuela's tremendous oil riches have both subsidized Chavez's chaotic nationalism—while allowing for sweeping mining expropriation that has left the country's other significant natural resource at 1% of GDP. International observers have long since taken note. The World Bank's 2013 Doing Business report ranks Venezuela at 180 out of 185. The study, co-authored by the International Finance Corp. (IFC), reflects a one-point decrease for the country from 2012. Back in Colombia, once known as the Switzerland of Latin America, a more culturally ingrained attitude prevails. With a sophisticated business class and well-educated population, Latin America's oldest democracy is also home to its strongest political institutions and remains the only South American nation never to have defaulted on a major loan; Bogota has yet to expropriate a foreign company. In recent years, Free Trade Agreements with the U.S. and Canada and regulatory reform have been crucial to luring explorers, miners and investors, according to analysts, priming mining exports to 27%, while employing 300,000 Colombians. But this creeping switch came at the crosswinds of something perhaps less obvious: a $7-billion U.S. aid package to Colombia's military that lifted the nation of 46 million to more fertile ground. Socialism and the Cocaine Equation In 2002, Colombia was a far different place. With much of the country seemingly poised to unravel, not even the inauguration of hardline conservative President Alvaro Uribe was spared: Artillery rained down from slums occupied by insurgents known as the Revolutionary Armed Forces of Colombia (FARC) with dozens injured. These days, countryside instability remains—including an apparent March (Continued on p. 62) JULY 2013 • E&MJ; 61

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