ROLE OF COPPER IN CHILEAN ECONOMY

Transcription

1 ROLE OF COPPER IN CHILEAN ECONOMY Patricio Meller, Bernardo Lara & Gonzalo Valdés January

2 Basic Data: Chile 2009 Population (millions) 17 Yn/cap (US$ PPP) 14,299 GDP (billions US$) 243 Territory (km 2 ) 755,839 Total Exports (2008; billions US$) 66 Copper Exports (2008; billions US$) 33 (50%) World Copper Reserves Share (2008) 36% (1 st ) Source : WEO, Central Bank of Chile 2

3 Chilean Copper Data -Chilean World Production Share -Chilean World Reserves Share -Chilean Production by Companies -Chilean Firm Production Composition 3

4 % 45 Chilean Share of World Copper Production Fuente : World Bank (1987), World Bureau of Metal Statistics 4

5 World Copper Reserves Year 2008 Canada; 2 Reserves 2008 Kazakhstan; 2,2 Russia; 3 Zambia; 3,5 Other; 11 Chile; 36 Indonesia; 3,8 Mexico; 4 Australia; 4,3 Poland; 4,8 Peru; 12 China; 6,3 United States; 7 World Copper Reserves Year 1992 Other; 19,2 Canada; 3,8 Kazakhstan; 3,3 Chile; 26,7 Reserves 1992 Russia; 4,9 Peru; 3,9 Zambia; 5,6 United States; 14,8 Indonesia; 2,5 Mexico; 4,4 Australia; 3,8 Poland; 5,9 China; 1,3 Source: COCHILCO 5

6 Chile: Production by type of companies Source: COCHILCO 6

7 Chilean Production Share - CODELCO and Private Companies (%) CODELCO Private Companies Source: COCHILCO

8 Importance of Copper in the Chilean Economy -Copper X/Total X -Copper Share Fiscal Revenue -Annual Investment in Cu -Employment in Cu 8

9 % of Total Exports 90% Chilean Copper Exports / Exports Basket 80% 70% 60% 50% 40% 30% Source: - Central Bank, save for copper. - Copper data by Chilean Copper Commission. 9

10 25% Copper Share of Fiscal Revenue Chile, % 15% 10% 5% 0% Source: DIPRES, CSO - Monthly Bulletin of Statistics, Ministry of Finance and National Planning 10

11 4 500 Annual Mining Investment in Chile (millions US$) State companies Private firms Total Source: CODELCO & Foreign Investment Committee. 11

12 Copper Mining Employment: 1% - 1.5% Copper GDP Share: 5.5% - 7% 12

13 Importance of Copper in the Chilean Economy (2008) -Copper X/Total X 53% -Copper Share Fiscal Revenue 15% -Annual Investment in Cu US$4400 M -Employment in Cu 1.5% -Copper GDP Share 6% 13

14 Effect of Cu Price on Macro variables Net Trade Balance ++ Capital Inflows ++ Growth + Government Expenditures (US$) 0 Government Expenditures (% GDP) 0 Exchange Rate 0 Manufactured exports 0 14

15 Real Copper Price (US$/TM) Source: USG Survey (US$-1998) 15

16 Real Copper Price (US$/TM) Source: USG Survey (US$-1998)

17 Chile Net Trade Balance and Copper Price Source: Central Bank of Chile and COCHILCO. 17

18 Chile - Ratios of Copper Exports (USD) / Non-copper Inflows (USD) Foreign Investment Inflows: Sum of direct and indirect foreign investment. Non-copper Inflows: Foreign Investment Inflows plus non-copper exports. Source: Central Bank of Chile and COCHILCO. 18

19 Chile - Government Expenditure (real $) and Copper Price Source: Ministry of Finance and COCHILCO. 19

20 Government Expenditure (% GDP) Copper Pirce (cents US$/lb.) Chile Government Expenditure (% GDP) and Copper Price Gov. Expenditure Chile (% GDP) Real Copper Price (BML, US$ cents/lb.) Source: Ministry of Finance and COCHILCO. 20

21 GDP Growth and Copper Price in Chile GDP Growth and Copper Price in Chile Source: COCHILCO and Central Bank of Chile. 21

22 Chile Manufactured exports and Copper Price Source: Central Bank of Chile and COCHILCO. 22

23 Real Exchange Rate (2000=100) Copper Price (cents US$/lb.) Chile Real Exchange Rate and Copper Price Real Exchange Rate (2000=100) Real Copper Price (BML, USD cents/lb.) Source: WEO and COCHILCO. 23

24 Long Run Rules Macro Stability Central Bank autonomy Long Run Monetary Policy (p target: 2% - 4%) Fiscal Surplus Exchange Rate Regime: Clean Free Float Long Run Fiscal Policy: Structural Fiscal Surplus (0.5% GDP) Royalty Sovereign Funds 24

25 Structural Fiscal Surplus: Ministry of Finance uses L.R. g & P Cu to calculate structural revenues Fiscal Surplus (0.5% GDP) is required. Then $ Gov. Savings if present P Cu and/or g > than L.R. $ Gov. Deficits if present P Cu and/or g < than L.R. Implications Gov. expenditure smoothing Countercyclical policies 25

26 Copper mining royalties applied in selected countries Chile Country/Region Royalty Tax Basis < 20,000 TM 20,000 50,000 TM > 50,000 TM 0.5% - 1% 1.5% - 4.5% 5% Taxable income Zambia 0.5% - 2% ad valorem on net residual value (RNF) Australia Western Australia 5% Concentrate: 5% of value Metal: 2.5% of value Peru 1-3% Mobile scale based anual sales USA Michigan 2-7% Adjusted sales value Canada Saskatchewan 5-10% 5% net profits (increasing to 10% according to output levels) Source: Otto et al,

27 Total Fiscal Revenue (Millions US$) Source: COCHILCO, CSO - Monthly Bulletin of Statistics, Ministry of Finance and National Planning 27

28 Sovereign Funds in Chile Rationale (Chilean Sv abroad of Copper Surplus) Government Expenditure Stability Intertemporal Redistribution Prevention of Dutch Disease Contributions and withdrawals are regulated by a Fiscal Responsibility Law Funds among best-functioning and transparent of the world (8th Peterson Institute ranking) 28

29 Sovereign Funds in Chile Sovereign Funds allocation: US$ 25 B (15% GDP) Pension Reserve Fund: Transfers copper resources intertemporally to finance future pensions = US$ 3.5 billions Human Capital Fund: Finance graduate studies abroad. Stock US$ 6 billions. Annual flow from returns finance the studies. Economic and Social Stability Fund: Stock US$ 13.7 billions. Annual flow from returns are revenue for Fiscal Budget. In the 2008 crisis, U$ 6.9 billions were used.

30 Copper Views: XX XXI Centuries XX Century : Pessimistic View w/r Cu Why? XXI Century: Optimistic View w/r Cu Why? 30

31 XX Century: Bias Against-Cu A. Conceptual Level -- LA Prebisch : Deterioration T.T. Dependence Theory : Center Periphery Enclave Hypothesis Export Pessimism B. Political Economy -- Chile Large Cu Mining : Foreign Firms Under-development & Foreign Exchange shortage Presi Allende: Cu: master beam of development Dictatorship : Structural Trilogy 31

32 XX Century: Bias Against-Cu C. Conceptual DC Views Natural Resources Curse ( J. Sachs, 1995) 2 Sector Model Industry/NR (P. Krugman 1987) Dutch Disease (Decade 80s) Corporative Groups & Corrupt Politicians D. Democracy Pragmatism Post 1990 Chile needs Foreign Investment Comparative advantages => F.I. in Cu F.I. in Cu --- Induces F.I. & Domestic I => Boom g 90s Ǝ private and state firms in Cu : No problem 32

33 XX Century: Bias Against-Cu E. Perceptions w/r Cu at end XX 2nd Export Phase Foreign Firm: no copper tax (Disputada) DC Consumption Cu F. Synthesis Perception w/r Cu XX Cu: enclave Cu: foreign Only X Cu will not make Chile DC Investment in R & D for new uses of Cu 33

34 XXI Century: New Issues A. Chilean Discovery: Cu is important P CU = US$3/# Cu Fund: US$ millons (15% GDP) B. New Issues Development Strategy: Clusters (NNRR) CHINDIA => Cu generates + US$ futuro => Cu. Problems related to > Cu Production Energy Carbon Water 34

35 Refined copper consumption kn/capita 20 Copper Consumption Kg/Hab China Germany Japan Korea United States Source: COCHILCO 35

36 Megajoule/MTF as Shown Fuel Use per Ton of Copper Content Open Pit Underground Mine Concentrating Plant Source: COCHILCO

37 Megajoule/MTF as Shown Electricity Use per Ton of Copper Content Open Pit Underground Mine Concentrating Plant Source: COCHILCO

38 Gigajoule / TMF Projected Use of Energy Business as Usual Energy Efficiency Source: COCHILCO

39 Energy Sources 2000, North of Chile Energy Sources 2009, North of Chile Diesel; 1,6% Hydraulic; 0,6% Hydraulic; 0,4% Gas; 42,0% Diesel; 22,8% Coal; 55,8% Gas; 20,1% Coal; 56,6% Hydraulic Coal Gas Diesel Hydraulic Coal Gas Diesel Energy Sources 2020, North of Chile Geothermal; 6% Wind Power; 3.50% Hydraulic; 0.40% Gas; 2.30% Coal; 87.70% Source: COCHILCO

40 Million MT CO 2 Equivalent KMT Fine Content 18 Total Greenhouse Gas Emissions and Copper Production, Chilean Copper Mining Industry Direct Emissions (Direct Fuel Use) Indirect Emissions (Electricity Use) Copper (kmt Fine Content) Source: COCHILCO

41 Proyected Demand of Water for Copper Production in Chile Millions of m Source: COCHILCO

42 ROLE OF COPPER IN CHILEAN ECONOMY Patricio Meller, Bernardo Lara & Gonzalo Valdés January