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3 Ways Mining Can Help Venezuela

July 3, 2017

 

 

The downward spiral of political and economic crisis in Venezuela is only increasing in momentum. Could developing the country’s mining reserves be the answer to the country’s problems? President Maduro believes so, as he demonstrated by opening the country's first mining ministry last month. 

 

Economic issues are nothing new to Venezuela. The country’s unemployment rate has been as high as 20.7%. And even though its GDP is $509.97 billion, Venezuela is currently suffering from a negative growth rate of -18.6%.  While things may look bleak, developing the country’s mineral reserves could be the best opportunity for turning the economic situation around.

 

Venezuela’s reserves include diamonds, bauxite, gold, iron ore, natural gas, and petroleum. The major minerals it exports are bauxite, aluminum, and nickel which account for almost 1.2%, 1.1%, and 1.0% of global production, respectively. These exports were valued at $3.5 billion in 2010, and Venezuela is looking to increase that figure by investing $5.81 billion to further the development of its vast mineral reserves.

The most valuable mineral of course, gold, accounts for 61% of the country’s total mineral reserves. There is an estimated 365.8 Mt of gold, making Venezuela 15th in the world for largest gold reserves.

 

The key to profiting from this enormous opportunity is crafting and executing effective natural resource policies to best manage and extract these minerals.  Venezuela was in a similar situation when the government sought to develop its oil reserves. Though it initially encouraged private investment, Venezuela nationalized its oil fields in 1976.

 

With the government solely in charge of the oil reserves, Fossil fuels account for 95% of Venezuela’s exports. In fact, oil accounts for 12% of GDP, while mining only accounts for 1%. Venezuela’s national oil company was required to invest at least 10% of its budget on social programs, which amounted to $14.4 billion in 2007. The programs included medical services, food distribution to the poor, and educational initiatives. These investment initiatives were largely reflective of the government’s social agenda rather than the best economic path for the country. The majority of Venezuela’s profits from its oil industry went back into developing the oil market instead of diversifying the economy away from oil. So, Venezuela’s economic well-being is at the mercy of oil prices, which are falling.

 

How can Venezuela keep history from repeating itself?

 

Turn to mining powerhouses like Canada where the mining sector is but one part of a trillion dollar economy (of which mining accounts for close to 10%) can provide Venezuela answers.

 

The Canadian mining industry directly employs more than 373,000 workers across the country in mineral extraction, smelting, fabrication and manufacturing, and indirectly employs an additional 190,000. Proportionally, the mining industry is also the largest private sector employer of Aboriginal people in Canada and employment is poised to increase. The industry $56 billion contribution to Canada’s gross domestic product in 2015 included $24.6 billion in mineral extraction, and $30.9 billion in mineral processing and manufacturing.

 

Canada has implemented an effective and sustainable system to extract and develop mineral reserves with little environmental. This focus on sustainable development plays a key role in diversifying the economy since it rewards the gradual exploitation of resources.

 

Country’s like Canada have been successful in developing their reserves by following these principles:

 

1. Embrace Public-Private Partnerships
The private sector’s focus on cost effective technologies and production is an invaluable resource for any mineral rich country. Geological expertise is concentrated in the private sector. Entering mutually beneficial agreements with experienced private companies can help Venezuela develop its reserves sustainability. Increasing Venezuela’s global presence on the mineral market will help spark economic productivity and help the country. Plus, sustainable development will attract companies like Gold Reserve, a company from Canada that just signed a $5 billion deal with Venezuela to develop its gold mines.

 

2. Practice Sustainable Development

One of Canada’s signature approaches to sustainable development is understanding the life cycle of minerals and how each mineral requires a unique approach to its utility. One key example of this is the recycling principle: recycled mining materials can cut energy cost and relieve the pressures of new mining developments, saving the state energy and resources. Considerations of sustainability are key for countries looking to capitalize on their mineral resources. By incorporating thorough environmental impact analyses into the development of its resources, Venezuela will attract companies looking to do the same.

 

3. Commit to Economic Diversification

With the right investment strategy, the economic benefits of developing the mineral sector can support local communities. This can happen both directly and indirectly. While mining developments directly create jobs, government reinvestment of mining royalties into other sectors can extend that job creating effect into other sectors. There are countless investment methods for natural resource rich countries. Prime examples of commitments to economic diversification are the Gulf States sovereign wealth funds. Through a diverse investment strategy and partnerships with private investment firms, each Gulf State has had success in amplifying the benefits of their natural resource development and putting millions away in reserve funds.

 

Venezuela can get on a path of sustainable and beneficial development of its mineral resources committing to these three principles. The mining sector could be the key to unlocking Venezuela’s next chapter of economic growth. 

 

 

Ande Troutman has been a blog writer for CID since March 2017 and specializes in energy policy and natural resource development. She has experience working on environmental policy in both state government and the private sector. Ande is currently working as an international consultant for CID in Scotland.

 

 

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