Extractive Industries and Commodities in Latin America
Between 2003 and 2008, Latin America enjoyed a period of economic growth that led to an increase in domestic consumption and a reduction of poverty in the region. This was due mainly to the fact that international mineral commodity and energy prices experienced a boom during this period. Simultaneously, this boom highlighted the importance of commodities extraction and export to the national economies of Latin America, which led to a debate surrounding the type of management and legal concessions that should be used to exploit the region’s natural resources. Consequently, most Latin American countries operate hybrid industries with both public state-run companies and private concessions to multinational corporations. Likewise, along with increased activity the commodities sector, in recent decades, came preoccupations about the proper management of the soil and mitigating adverse environmental externalities.
Extractive Industries and Commodities in Latin America
In Latin America, the state government owns the subsoil and all of its resources, which it then extracts through its national company or co-produces with private corporations. By contrast, in more developed regions such as the United States, Canada, and Europe, the government normally leases through concessions the exploitation of commodities to private companies, which become owners of the resources that they produce. In the case of Latin America, regional governments, worried about the sovereignty of their natural resources, must tread a fine line in order not to discourage much needed foreign investment and technological inputs. Private multinational corporations must be confident that their venture into the region’s extractive industry will be profitable, given the high upfront costs, the volatility of international prices, the additional costs of exploration, and the inherent political risk. After a decade or more of state run monopolies in extractive industries, several Latin American countries are opening themselves in the search for foreign investment injection. For instance, in 2013, Mexico’s government legislated in favor of private sector involvement in the upstream ladder of its oil industry, which includes exploration and extraction, as well as the downstream ladder, including refining, transportation, and storage. Within the oil and gas sector in Latin America, one of the most commonly used mechanism for the state to capitalize from the production of private corporation is by charging royalties, which can be based either on the quantity of resources extracted or their price. Additionally, the multinational companies operating within each country are taxed at the corporate income level. At the same time, many governments offer multinational corporations tax breaks and other types of financial incentives to draw into and keep them operating within their country.
While the oil and gas industry in Latin America tends to be managed in close coordination with the central government and its state company, the extraction of other mineral resources is usually managed through full concessions of a determined territory and for a specific period. This is because most countries in the region do not have state-run companies for their precious metals and other earth minerals sectors, with the notable exception of the National Copper Corporation in Chile (the largest copper producer in the world).