A two-man team from Chile’s mining industry visited Zambia recently and met with the Chamber of Mines, the Presidency, the Zambia Revenue Authority’s Mineral Value Chain Monitoring Project, and ZCCM-IH. What lessons can Zambia learn from Chile, the world’s largest copper producer? Mining for Zambia caught up with the visiting Chileans before they flew back home. Here’s what we learned – but first, some background.

In 1970, both Chile and Zambia were producing roughly the same amount of copper – around 680 000 tonnes a year. Today, Chile produces 5.6 million tonnes of copper, just over 30% of world output. It is home to 7 of the 10 largest copper mines in the world.

What accounts for this success? Many things, but one stands out – investment. From the 1970s through until 2012, some $30 billion was invested in the country’s mining sector.

Chile created a solid legal framework for foreign investors that guaranteed sanctity of contract, protected their assets from expropriation and allowed them to lock in agreed mining tax rates for up to 20 years. When the country transitioned to democracy and free-market economics in the late 1980s, the combination of favourable policies and politics unleashed a massive wave of private-sector investment in the mining sector throughout the 1990s. As a consequence, copper production more than doubled during that decade, even though copper prices remained muted (see graph).

Chile is home to seven of the ten largest copper mines in the world

“We see the world as a source of opportunity, rather than as a threat – 30 years ago, we were the first country in Latin America to have this vision,” says Sergio Hernandez, Executive Vice-president of the Chilean Copper Commission, in an interview at their hotel the day before the team’s departure back to Chile. Hernandez cites Chile’s exposure to the world in terms of some 65 free-trade agreements and 28 tax agreements, and makes the point that Chile has respected the terms of every single one of them; the country sets much store by sanctity of contract. “In Chile, a change of government does not produce a change in the rules. This creates stability and gives certainty to investors.”

The Chileans place great emphasis on due process, and the rule of law, when it comes to their mining industry – even where it might not be to the country’s short-term benefit. Take the issue of mining concessions, which in many countries is subject to strict use-it-or-lose it conditions. “In Chile, a mining concession is indefinite once you’ve paid your fee,” says Hernandez. “It’s yours to exploit at any time. It’s a judicial concession, not an administrative concession. This has been an important part of our success.”

Commenting on this aspect of the country’s mining code, a 2017 report by Ernst & Young on Chile’s mining industry notes that not only are mining rights permanent, but they are protected from expropriation. “Compensation in the event of expropriation includes all potential future revenues from the exploitation of current reserves, which essentially amounts to full ownership.”

Chile’s success in growing the mining industry has not been at the expense of the rest of the economy; diversification has been a central element too. “We grow the cake,” says Hernandez, “and we use two strategic principles. One – we are open to the world in terms of trade and taxation agreements; and two – we encourage small, local companies to export and to become big companies.”

UNCTAD’s World Investment Report lists Chile as the world’s 17th-largest recipient of foreign direct investment – from 2013 to 2015, for example, the annual flows were $20.3 billion, $21 billion and $20 billion respectively.

Hernandez says there was a time when the mining sector accounted for 85% of total exports; today, it is down to 50%. And even as the Chilean mining industry and the broader economy have grown, mining’s tax contribution as a proportion of overall tax revenues has fallen too – from 34% in 2006 to 6% in 2015. “Our diversification process has been very successful.”

An interesting feature of Chile’s mining industry is the presence of a successful state-owned mining company, Codelco, the world’s largest copper producer. It works side by side with the world’s largest private mining multinationals, ranging from BHP Billiton and Glencore to AngloAmerican and Freeport McMoRan. The stereotypical image of a state-owned mining company is one of inefficiency, poor management and sustained losses; yet Codelco is none of these things. Its half-year results for January to June 2017 show that the company produced 798 000 tonnes of copper and posted a $1.023 billion pre-tax profit on the back of improved metal prices.

José Herrera, Manager at the Chilean National Mining Company Enami and the second member of the Chilean team, offers possible reasons for Codelco’s success. “They have highly qualified staff; they have a professional board of directors; and they have a structure that allows them to get good results. It’s a state-owned company, but is independent enough to make decisions like a private-sector company.”

The remarkable success of this small South American country – not just in mining but in its broader economy too – makes it a worthy case study not just for Zambia, but for the rest of the world too.

See also: Behind Chile’s copper boom

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