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Analysis: Is it true that copper is Chile’s salary?

RIO DE JANEIRO, BRAZIL – Surely more than once you have heard that old phrase that “copper is Chile’s salary.” Research was conducted on the subject to determine how true and current this statement is.

WHY IS IT SAID TO BE CHILE’S SALARY?

Determining the exact origin of this statement is difficult, but the National Archive of Chile hold the first records of discussions on the nationalization of copper, when then senators Eduardo Frei Montalva, Salvador Allende and Radomiro Tomic were leading the analysis and proposals.

Copper mining contributed 11.5% to the country’s GDP in 2020. (photo internet reproduction)

Tomic argued that copper represented 2/3 of Chile’s exports and was therefore considered the “backbone of the economy.” In fact, the Library of the National Congress shows that as early as 1941, the Christian Democrat referred to copper as the country’s “Aladdin’s lamp.” The idea would be consolidated with the nationalization of copper in 1971.

“From my perspective, the statement is based on the contribution of mining to the country’s economy and tax revenues,” says Professor Emilio Castillo of the University of Chile’s Mining Engineering Department.

According to the National Geology and Mining Service (Sernageomin) – through its Yearbook of Mining in Chile 2020 – mining has remained one of the country’s main economic pillars, with a 12.5% share in the national GDP in 2020. But copper’s contribution alone represents 11.2% of GDP.

In 1990, Chile produced 18% of the world’s mined copper with 1,600,000 tons; in 2004 it exceeded 5,400,000 tons; in 2018 the figure reached 5,800,000 tons. “No country has managed to grow at this rate in terms of mining output,” says Marcos Lima, director of the UC Research and Postgraduate Program in Mineral Economics, with figures evidenced in the report Producción Cobre de Mina Mundial y Chile (World and Chile Mine Copper Production), by the Chilean Copper Commission (COCHILCO).

In addition, Chile is ranked 1st in the world in copper production. According to the Mining Council, through its Updated Mining Figures report, by October 2021 the country produced close to 1/3 of global copper (28%) and holds 23% of global reserves.

For Lima, former CEO of Codelco, copper is Chile’s salary and he backs this up with three facts: “Copper contributed over US$108 billion to the State between 2000-2019, representing 13.1% of fiscal revenues for the period. Second, it is the main source of foreign exchange with more than US$45 billion each year in foreign sales, representing over 55% of Chile’s exports. And third, mining investment figures reach over US$21.44 billion, representing over 35% of the total to be invested in the 2021-25 period, according to the Capital Goods Corporation (CBC), excluding its multiplier effect on energy investments.”

However, a number of economists believe that the statement is incorrect. “I don’t like the definition of copper as Chile’s salary, because it implies that there is a whole process of economic development focused only on copper, and that is not the case. In fact, Chile’s best years of growth were a period in which the price of copper was very low, between 1986 and 1997,” says Center for Financial Studies at ESE Business School director Cecilia Cifuentes.

According to the Central Bank, when GDP is divided by economic activity, the main contributors – besides mining – are manufacturing industry, commerce and personal services.

Another relevant aspect behind the claim that mining is “Chile’s salary” is related to the level of employment it generates. The sector accounted for 9.3% of the total number of jobs as of August 2021, according to Mining Council data. This means that there are 214,000 people directly employed in mining and 545,000 indirectly. However, it is far from trade (1.6 million), manufacturing industry (830,000), and construction (756,000) according to employment data by branch of economic activity recorded by INE (National Statistics Institute).

But in certain locations its share is highly relevant. In the Antofagasta Region, for instance, it contributes 51.9% of GDP, generating 61% of direct or indirect jobs in the area.

“Chile without copper would be an extremely poor country. We would not have managed to reduce poverty from 40% to 9% in 30 years of democracy,” says Sergio Hernández, executive director of the Association of Industrial Mining Suppliers (APRIMIN) and COCHILCO’s former vice-president.

THE FUTURE, COPPER, AND THE ENVIRONMENT

“Copper continues to be necessary and is considered one of the pillars through which society tackles climate change and Chile has the opportunity to contribute directly to the reduction of global emissions thanks to our mineral wealth,” Emilio Castillo says.

In its latest report on the role of critical minerals in clean energy transitions, the International Energy Agency highlights copper as the cornerstone of all technologies related to clean electricity, ensuring that its demand will increase sharply in order to meet the goals proposed in the Paris Agreement.

“How can energy be generated to continue living? By abandoning coal and using clean energies such as wind, solar or green carbon, which use many more minerals than carbonized energies,” Hernández adds.

According to Minería Chilena, while a common gasoline-powered vehicle uses some 24 kilograms of copper, an electric car can use between 50 and 113 kilograms. “One of the industry’s goals is to produce ‘green copper,’ that is, to minimize its carbon footprint, and to this end it has started to reduce its dependence on coal-based energy by using desalinated water,” Lima explains.

According to Mining Council figures, in 2020, large mining extractions were using 30% of seawater as a source of supply, an increase of 5% from 2019.

Source: Pauta, School of Communication Los Andes University

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