Download Yanacocha, Peru

“ IFC is pleased to receive this independent report from Apoyo on the economic impacts
of the Yanacocha mine. The report clearly lays out the significant economic impacts of
the mine in terms of its contribution to employment, taxes, local spending and GDP.
Yanacoha's development has coincided in recent years with a period of fast growth in
the Peruvian economy to which and increased natural resource investment and
production generally has contributed. The country's overall macro-economic
management and the world economy have allowed Peru to take advantage of the
resources investment and production boom without suffering the consequences of a
"macro-economic resources curse". Over the last five years, for example, Peru's real
GDP has grown by an average of close to 7% pa.
As the report notes, and those who are familiar with the development of resources in
Peru are aware, the inter-relationships between communities and large mining and
other resource development projects is complex and can be further impacted by
ongoing changes such as urbanization and economic growth and development more
generally. Communities are affected in a variety of ways, not all positive from their
perspective, and they may appreciate some of the benefits that such developments and
their community programs bring more than others. This complexity, emphasizes the
importance of investors continuing to engage with stakeholders about their programs,
as Yanacocha does in Peru.”
Somit Varma, Director
IFC Oil, Gas, Mining and Chemicals Department
Study of the Yanacocha Mine’s Economic
Impacts: Final Report
Prepared for
the International Finance Corporation
by
Lima, September 2009
Table of Contents
EXECUTIVE SUMMARY ........................................................................................................................ I
INTRODUCTION ...................................................................................................................................... 1
METHODOLOGY ..................................................................................................................................... 4
CLASSIFICATION OF IMPACTS ................................................................................................................... 4
IMPACT ANALYSIS .................................................................................................................................... 4
Impacts at the Macroeconomic Level .................................................................................................. 4
Impacts at the Regional and Local Levels ........................................................................................... 5
Impacts at the Socioeconomic Level .................................................................................................... 6
INSTRUMENTS FOR IMPACT ANALYSIS ...................................................................................................... 7
LIMITATIONS OF THE STUDY ..................................................................................................................... 8
ANALYSIS OF THE YANACOCHA MINE’S IMPACTS .................................................................. 10
IMPACTS AT THE MACROECONOMIC LEVEL ............................................................................................ 10
Mine Production ................................................................................................................................ 10
Fiscal Contribution ............................................................................................................................ 12
Value Added ....................................................................................................................................... 14
Employment ....................................................................................................................................... 15
IMPACTS AT THE REGIONAL AND LOCAL LEVELS ................................................................................... 16
Mine Operations ................................................................................................................................ 17
Effects of the Yanacocha Mine’s Presence ........................................................................................ 25
Mining Company Social Responsibility Programs ............................................................................ 28
Generation of Fiscal Revenues .......................................................................................................... 31
SOCIOECONOMIC IMPACTS ...................................................................................................................... 34
Access to Basic Services .................................................................................................................... 35
Overcrowding Index .......................................................................................................................... 36
Quality of Housing............................................................................................................................. 36
Education ........................................................................................................................................... 37
Per Capita Income ............................................................................................................................. 37
CONCLUSIONS ....................................................................................................................................... 40
OVERALL IMPACTS ................................................................................................................................. 42
THE MINE’S DISTRIBUTIVE EFFECTS ...................................................................................................... 43
THE MINE’S EFFECT ON POVERTY IN THE REGION .................................................................................. 45
APPENDIX: BACKGROUND ON METHODOLOGIES USED ........................................................ 46
THE VALUE ADDED MULTIPLIER ............................................................................................................ 46
EMPLOYMENT MULTIPLIERS ................................................................................................................... 48
THE DOUBLE DIFFERENCE METHODOLOGY ............................................................................................ 50
REFERENCES ......................................................................................................................................... 52
EXECUTIVE SUMMARY
The economic impacts of the Yanacocha Mine are evident at the macroeconomic level,
at the regional level, and locally in the mine’s area of influence. These impacts are
transmitted by means of four main channels. The first channel is related to the mine’s
operations and refers primarily to the impacts directly generated by the nature of the
business, including its use of personnel, its procurement of goods and services, its
construction and maintenance of roads, and its use of resources such as water and
land. The second channel is the mine’s presence, which refers to long-term impacts
generated by the mine’s existence, for example, the migration driven by the economic
expectations generated by the mine, the strain on local public resources caused by the
resulting population pressure, and the boost to the local economy resulting from
expenditures by mine employees. The third impact channel refers to the mining
company’s social responsibility programs. The fourth impact channel is the generation
of fiscal revenues.
The overall economic impacts of the Yanacocha Mine are positive. At the
macroeconomic level, the mine accounts for a significant contribution to national
coffers, the demand for goods and services, and the availability of employment.
The overall impacts at the regional and local levels are also positive, although
interviews with focus groups identified some negative perceptions regarding the
nature of mining activities and the socioeconomic conditions in the mine’s area of
influence. While the mine appears to account for significant improvements in
nonmonetary indicators of well-being and the quality of life, monetary indicators show
some improvement, but this improvement is not particularly different from that in
comparable regions, possibly because Peru generally has grown relatively quickly in
the period examined.
Regional and local level impacts are transmitted through four different channels: the
mine´s operations, the mine´s presence, the mining company’s social responsibility
programs, and the generation of fiscal revenues. Overall, the channel involving the
mine’s operations is positive, given its contribution to both the quantity and quality of
work in the area and its boost to local businesses because of the mine’s expenditures
and the expenditures of its employees, who are paid significantly more than nonmine
workers. Despite the mine’s job creation, the extent of direct job creation is relatively
low in relation to the mine’s contribution to regional gross domestic product primarily
i
because of the capital-intensive nature of mining. The local population interviewed
perceives the mine’s contributions to local infrastructure positively, but has an
unfavorable view of the gap between the wages of mine workers and those of nonmine
workers. Some interviewees also allege that the mine is responsible for water pollution
and soil erosion.
In so far as the second channel of regional and local impacts, the mine’s presence, is
concerned, the mine has attracted significant migration, especially to urban areas. This
has led to some negative effects such as price increases in the city of Cajamarca
brought about by increased demand, higher spending power of mine employees, and
excessive demand for some public services plus some negative perceptions among
local residents about the effects of the influx of migrants.
The third channel refers to the social responsibility programs of the mining company,
Minera Yanacocha. While these programs have made significant contributions in terms
of roads and household water and sewage hookups, their contributions to health and
education are relatively insignificant.
The last channel of regional and local impacts refers to the generation of fiscal
revenues, in particular, the mining canon (canon minero), a transfer of 50 percent of
the income tax generated by mining operations to regional and local governments
where mining operations are located. In 2006, these revenues accounted for more than
39 percent of central government transfers to regional governments and more than 23
percent of transfers to local governments. This channel has become an important
source of resources, and if properly invested, could be a potential source of positive
impacts for the region.
In relation to the nonmonetary socioeconomic impacts, the population in the mine’s
area of influence has seen greater improvements in basic services, reductions in
household overcrowding, and enhancements in literacy rates than populations in
control districts, but lower levels of improvements in housing quality. Regarding
monetary indicators, poverty and extreme poverty in the mine’s area of influence
improved between 2001 and 2007, but no more than in comparable districts elsewhere
in the country.
ii
INTRODUCTION
Cajamarca is one of the 25 regions of Peru (figure 1) and includes part of the northern
Andes and the northern Amazon jungle. Its population is about 1.4 million people, or
4.9 percent of Peru’s total population of 28 million (2007 census). Each region is
subdivided into provinces that are in turn subdivided into districts.
Figure 1: The Regions of Peru
1
The region of Cajamarca is divided into 13 provinces that are in turn subdivided into a
total of 128 districts. One of the provinces is also named Cajamarca and has a
population of approximately 316,000 people. The capital of Cajamarca Province (and of
the region) is the city of Cajamarca, which together with the district of Cajamarca has
roughly 188,000 inhabitants.
The region of Cajamarca is the sixth poorest region in Peru: in 2007, 65 percent of the
population fell below the poverty line and 31 percent fell below the extreme poverty
line, compared with national poverty rates of 39 percent and 13.7 percent, respectively
(national household survey 2007). 1 In 2007, average annual per capita income in the
region was equivalent to approximately US$700, compared with US$1,460 nationally
(national household survey 2007). The projected infant mortality rate for 2005–10 is 37
per 1,000 births, compared with a projected national infant mortality rate of 29 per
1,000 births for the same period (Cuánto 2007). Finally, in 2007, the region had 3.5
doctors per 10,000 habitants compared with a national average of 15.2 doctors per
10,000 inhabitants (Cuánto 2008). Thus with respect to these indicators, the region of
Cajamarca falls well below national averages.
The Yanacocha Mine is a gold mine located in the Andes in the region of Cajamarca.
The mine’s concession occupies around 25,000 hectares (of which the mine site is
about 5000 hectares), including four important hydrographic basins (Cajamarquino,
Celendín, Jequetepeque, and Llaucano) located between 3,400 and 4,120 meters
above sea level. The mine’s area of influence is Cajamarca Province, specifically the
districts of Baños Del Inca, Cajamarca, and La Encañada. The city of Cajamarca is
located 2,720 meters above sea level and is the economic, tourist, industrial,
commercial, cultural, and mining hub of the Northern Sierra of Peru. 2
The investment partners of Minera Yanacocha, the Yanacocha mining company, are
Newmont Mining Corporation (51.35 percent), Compañía Minera Buenaventura (43.65
percent), and the International Finance Corporation (IFC) (5.00 percent). Currently
Newmont Peru Limited, a Peruvian subsidiary of Newmont Mining, manages the mine.
Newmont Mining began exploration in the area in 1982 and identified the first ore
deposits in 1986. Following successful viability studies, operations began at the
1
National household surveys are carried out by the National Institute of Statistics (Instituto Nacional de
Estadística e Informática).
2
In addition to regions, provinces, and districts, geographic divisions (coast, Sierra, Amazon basin) are
commonly used to compare regions. As the region of Cajamarca is located in the Northern Sierra, it is
frequently compared with other regions in this geographical area.
2
Carachugo pit in 1992. The first gold bar was produced in August 1993. 3 From that
time, the Yanacocha Mine’s production grew considerably until it became the most
important producer of gold in South America. In 1994, mining activities began at the
Maqui Maqui pit. By February 3, 1996, the mine had produced 1 million ounces of gold
ore. That same year, the Yanacocha Mine began to operate at the San José pit, and in
1997 work began at the Cerro Yanacocha pit. The mine’s location offered excellent
opportunities for exploitation, which prompted the mine company to also begin to
exploit the La Quinua pit in 2001. The two pits that are currently producing gold ore are
La Quinua and Cerro Yanacocha.
The Yanacocha Mine has performed well at a commercial and economic level, but has
nevertheless faced some negative reactions from the local community. This may
indicate that not everyone in the mine’s area of influence has benefited from the mine’s
development, and subsequently, not everyone has perceived it positively.
For this reason, IFC, which has been one of the mining company’s partners since
1993, decided to undertake a study to assess the mine’s impacts on economic
development and poverty reduction. This study includes the following specific
objectives:
•
identifying the channels through which the mining company generates impacts
nationally, regionally, and locally and determining the relative importance of
each channel;
•
evaluating whether the mine’s area of influence has undergone significant
changes as a result of the mine’s development;
•
differentiating between groups who have benefited from the presence and
operations of the mine and those who have been adversely affected.
3
Newmont Mining was the first company to develop and apply the lixiviation process to exploit
disseminated ore, whose grade is low. The Yanacocha Mine´s production during the early 1990s was
focused on applying this extraction technology. These efforts contributed to a substantial increase in
Peru’s gold production such that small-scale mining is currently replicating this technology.
3
METHODOLOGY
APOYO Consultoría estimated the impacts of the Yanacocha Mine at three different
levels using a different methodological approach for each level.
Classification of Impacts
Given the magnitude of the mine’s operations, APOYO Consultoría decided to conduct
its analysis at three levels: the macroeconomic level, the regional and local level, and
the socioeconomic level. The impacts at the macroeconomic level refer primarily to the
mine’s aggregate effects on gross domestic product (GDP) growth, national fiscal
revenues, and employment generation. The impacts at the regional and local level refer
to aggregate impacts generated in the region, province, or districts in relation to the
mining company’s operations and social responsibility actions and to the fiscal
revenues generated by the mining canon. 4 At the socioeconomic level, impact
indicators refer to long-term effects on individuals’ well-being and quality of life, for
example, access to infrastructure and services at the regional and local levels.
Impact Analysis
The following subsections explain the methodological approaches used for each level
of analysis.
Impacts at the Macroeconomic Level
4
The mining canon is the transfer from the central government of the equivalent of 50 percent of the
income tax generated by mining operations to regional, provincial, and district governments where mining
operations are located. These resources are to be spent on infrastructure projects.
4
We estimated impacts at the macroeconomic level by applying the economic multiplier
methodology. This permits quantifying the total impact generated by a given sector, in
this case, the mining sector, on the rest of the economy by identifying forward and
backward linkages created with other industries. In the case of Peru, the National
Institute of Statistics (Instituto Nacional de Estadística e Informática or INEI)
constructed multipliers in 2001 based on the input-output matrix it had developed in
1994 (INEI 2001). Despite the limitations of the input-output matrix (the main limitation
being that linkages between industries might have changed since 1994), it is currently
the only instrument available for estimating the overall impacts of the mine at the
macroeconomic level. The multipliers used for this assessment include the value added
multiplier and the employment multiplier.
The value added multiplier represents the effects that mining output has on GDP,
which may be direct, indirect, or induced. Direct effects are produced by the value
added of the mine, indirect effects correspond to the output generated by the demand
for inputs required to operate the mine, and induced effects correspond to the
economic activity generated by consumption by the mine’s employees. According to
INEI estimates and the multiplier methodology (explained in the appendix), each dollar
of production generated by the Yanacocha Mine generates US$2.33 in the economy.
The employment multiplier is based on the ratio of total jobs generated (directly,
indirectly, or induced) and jobs directly generated in the mining sector. For each job
generated by mining activity in Peru, 9.58 jobs are created at the macroeconomic level.
This estimated number of total jobs created includes not only the direct employment
generated by the mine, but also the indirect and induced jobs created in the national
economy.
Impacts at the Regional and Local Levels
The impacts of the Yanacocha Mine’s activities at the regional and local levels are
manifested through different transmission channels. Part of the research process
consisted of identifying and classifying these transmission channels. This was
accomplished by means of focus groups in the mine’s direct areas of influence, both
urban and rural, and interviews with specialists. The impact analysis was conducted by
5
identifying impact indicators for each transmission channel and comparing them with
developments in other regions to obtain an objective comparison of the results.
Impacts at the Socioeconomic Level
The main difficulty with impact evaluations is that one cannot know for sure what would
have occurred to the group of beneficiaries in the absence of the intervention; in this
case, the mine. We therefore needed to identify a group of individuals with
characteristics similar to those of the beneficiary group, but who had not been affected
by the mine. We refer to this group as the control group.
We estimated the Yanacocha Mine’s socioeconomic impacts using a methodology
known as the difference-within-difference or double difference methodology (Blundell
and Costa Dias 2002; Borland, Tseng, and Williams 2005), which is often used to
evaluate the impacts of social programs or projects on beneficiaries. This methodology
provides an objective measurement of the value generated by a project, because it
attempts to attribute specific effects to the project being evaluated by comparing
indicators for the treatment group and a control group at two points in time: before and
after the intervention.
To this end we compared residents of a number of districts directly influenced by the
mine and a number of districts with similar characteristics not influenced by the mine.
The objective was to isolate effects directly attributable to the Yanacocha Mine. The
first step of this comparison was to identify all the districts in the Cajamarca region that
belonged to the beneficiary (or treatment) group. The second step consisted of
identifying Sierra districts that had not had any mining or other comparable large-scale
projects, some of which would eventually be included in the control group. To this end,
the third step was to identify key characteristics from the 1993 census for the
beneficiary districts and the control districts (table 1). We then selected the control
districts using the propensity score matching methodology (Caliendo and Kopeinig
2005; Rosenbaum and Rubin 1983, which facilitates the identification of statistically
comparable entities.
6
Table 1: Characteristics of Beneficiary and Control Districts
Region
District
Group
Altitude of the
Percentage of
capital city
the population (meters above Percentage of
professionals
that is rural
sea level)
Employment
rate (%)
Average
years of
Population education
pscorea
Ancash
Ataquero
Control
83
2,719
49
13
1,792
3.8
0.37
Ancash
Chavin de Huantar
Control
83
3,137
14
48
9,256
4.3
0.03
Ancash
Parobamba
Control
84
3,185
16
58
6,897
4.3
0.06
Ayacucho
Santiago de Pischa Control
80
3,188
40
47
895
4.4
0.05
Cajamarca
Cajamarca
Beneficiary
26
2,720
37
44
117,509
8.4
0.08
Cajamarca
La Encañada
Beneficiary
96
3,098
44
40
22,117
4.5
0.38
Cajamarca
Los Baños del Inca Beneficiary
80
2,667
40
42
24,864
6.0
0.03
Cajamarca
San Juan
Control
83
2,311
36
35
4,332
4.6
0.37
Huancavelica Huancavelica
Control
16
3,660
28
41
36,826
8.3
0.08
Huánuco
Quisqui
Control
94
2,500
49
52
5,607
5.0
0.40
La Libertad
Quiruvilac
Control
44
4,008
22
47
13,440
6.1
0.03
Puno
Sina
Control
79
2,931
53
47
1,161
5.2
0.08
Source: 1993 census.
a. The pscore is an indicator used to identify the level of similarity between district groups. Disctricts with similar pscores can be compared.
We used the double difference methodology at the district level to assess nonmonetary
indicators of the mine’s socioeconomic impacts. However, to assess the monetary
indicators, we needed to use other comparators such as the Sierra or Northern Sierra
because of the lack of information at the district level. In these cases, the accuracy of
the analysis is limited, but it does provide some valuable insights into trends of the
impacts.
Instruments for Impact Analysis
To analyze the main economic impacts of the Yanacocha Mine we used information
provided by the mining company as well as secondary data sources, such as national
censuses; information available from the Central Bank, the Ministry of Finance, the
Ministry of Energy and Mines, and the INEI; and national household surveys. To
strengthen the analysis we developed an expenditure survey of mine workers and also
conducted several focus groups in the mine’s area of influence.
The objective of the expenditure survey was to characterize the expenditure patterns of
Yanacocha Mine workers and contractors to determine the total contribution of this
group to local consumption in the Cajamarca region. The total sample size was 383
(165 mine workers and 218 contractors), with a 5.5 percent sampling error and a 95
percent confidence level.
We conducted the focus groups to identify the main channels of transmission of
7
impacts and to ascertain people’s perceptions about different aspects of the mine and
its operations. 5 We held these focus groups in three different areas: rural communities,
semi-urban areas, and urban areas. We conducted the rural focus groups in various
rural communities in the districts of Cajamarca and La Encañada (Aliso Colorado,
Chilipampa, Hualtipampa, Huambocancha, La Ramada, Porcón, and Purhuay). We
held the semi-urban focus groups in the districts of Baños del Inca (community of
Santa Barbara) and La Encañada (community of San José). We ran the urban focus
groups with middle-income residents of the city of Cajamarca. The eight focus groups
consisted of men and women between the ages of 25 and 60.
Limitations of the Study
In an ideal scenario, the analysis of the Yanacocha Mine’s impacts on development
and poverty reduction would be based on a baseline study that would have provided
impact indicators at the beginning of the mine project for both the beneficiary group and
an adequate control group. Unfortunately, no such study was carried out, hence our
use of secondary information and focus groups.
Given study constraints, we were not able to analyze in detail the mine’s disaggregated
purchases by types of goods and services; the source of the purchases (abroad,
national, or local); and the suppliers. This means that we could not directly identify the
impacts derived from local purchases of goods and services, but have considered the
general impacts of mine spending with local companies.
The study was also limited by public data availability, particularly at the regional and
local levels. The most significant restrictions in relation to secondary information were
at the local level in that little information exists at this level. Census information
provides the only database that has information on population centers at two points in
time (1993 and 2005), but changes in census methodology and variations in the
regions’ population structure make comparing information at the regional level
impossible; however, the censuses do provide good information at the district level for
some indicators. Nevertheless, information from the censuses did not permit us to
conduct a more complete analysis of well-being variables such as people’s health,
5
Note that the information generated by the focus groups may not be representative of all residents in a
particular location.
8
household incomes, and the like. For this reason, we conducted much of the evaluation
of socioeconomic impacts at the regional level using the national household survey and
comparing the 1998 survey with the 2006 survey. 6
Given study constraints, we were not able to gather and assess quantitative
information about the mining company’s social responsibility activities at the local level
in order to analyze the individual effectiveness of such activities. For this reason we
based our analysis on figures obtained from the mining company’s annual reports and
individuals’ perceptions ascertained during focus group discussions.
Finally, one of the main channels through which the mine can bring about changes in
people’s well-being and incomes comes from the mining canon, which goes directly to
subnational governments (regional, provincial, and district) from the national
government. However, most of the canon’s impacts will depend on the quality of the
expenditures and investments by subnational governments.
6
Even though the comparability of both surveys is not optimal, they provided sufficient information for us to
obtain a good estimate of impact indicators.
9
ANALYSIS OF THE YANACOCHA MINE’S IMPACTS
Mining activity at the Yanacocha Mine began in 1993. Since that time, the mine has
become an important source of value added, employment, and fiscal revenues.
Impacts at the Macroeconomic Level
The Yanacocha Mine’s economic impact has been positive at the macroeconomic level
as evidenced by its effects on the principal macroeconomic variables.
Mine Production
The main mineral the Yanacocha Mine produces is gold. Between 1994 and 2007,
Peru produced 1,857 tons of gold, of which 42 percent, or 782 tons, was produced by
the Yanacocha Mine (figure 2). Gold production at the mine grew at an average annual
rate of 17 percent between 1993 and 2007, reaching its maximum level of 104 tons in
2005. However, the mine has reduced its production since 2006, primarily because the
reserves at its main deposits have decreased significantly.
Percentage of total production
Figure 2: National Gold Production, 1993 – 2007
100
80
60
40 91.6
80.2
20
71.4
70.3 61.1
60.0
58.0 55.9 59.9 57.9 57.3 54.9 48.6
45.8 50.2
0
1993
1995
1997
1999
2001
2003
2005
2007
Production by the Yanacocha Mine
National production excluding the Yanacocha Mine
Source: Yanacocha Mine and Central Bank data.
10
The Yanacocha Mine also produces silver as a byproduct of the gold extraction
process. It produces approximately 48 tons of silver per year, or 3.5 percent of Peru’s
total silver production.
Virtually all the mine’s production is exported, making the mine an important
component of the Peruvian mining sector’s total exports. The mine’s gold exports have
accounted for 14.5 percent of total mining exports and 7 percent of total exports.
Between 1993 and 2007, mining exports accounted for close to 54 percent of total
exports (figure 3). This constituted an important source of foreign currency inflows that
became even more valuable after 2002 with the boom in metal prices.
Figure 3: Evolution of Total and Mining Exports, 1993 – 2007
US$ billions
30
25
20
15
10
5
0
1993
1995
1997
1999
Mining exports
2001
2003
2005
2007
Total exports
Source: Yanacocha Mine and Central Bank data.
The cumulative value of the Yanacocha Mine’s exports between 1993 and 2007 was
US$10 billion (figure 4), representing 43 percent of total gold exports.
Figure 4: Evolution of Gold Exports, 1993 – 2007
5
US$ billions
4
3
2
1
0
1993
1995
1997
1999
Yanacocha Mine
2001
2003
2005
2007
All other Peruvian gold mines
Source: Yanacocha Mine and Central Bank data.
11
Fiscal Contribution
Tax payments by the mining industry as whole have grown substantially in recent
years. The Yanacocha Mine has made an important contribution in this respect. During
1994–2006, the mining company paid US$1.150 billion in income tax, customs duties,
and the National Housing Fund (Fondo Nacional de Vivienda) tax, the Solidarity
Extraordinary Tax (Impuesto Extraordinario de Solidaridad – IES), as well as US$18
million in contributions to the Social Security Scheme (table 2). The mining company’s
total tax contributions grew at an average annual rate of 47 percent during 1994–2006..
Table 2: Contributions to Fiscal Revenues by the Yanacocha Mine, 1994 – 2006
(US$ thousands)
Social Security National Housing
Scheme
Fund tax
Year
Customs duties Income tax
1994
127
10,850
127
113
1995
237
33,513
248
212
1996
182
51,234
345
297
1997
244
50,344
411
278
1998
315
18,453
536
298
1999
459
39,394
723
402
2000
910
39,715
1,406
781
2001
1,328
16,481
1,280
589
2002
623
51,522
1,772
343
2003
673
140,162
1,831
411
2004
573
181,449
2,585
278
2005
636
231,495
2,926
n.a.
2006
584
256,482
3,874
n.a.
Total
6,891 1,121,094
18,064
4,002
Source: Yanacocha Mine data.
Note: n.a. = not applicable.
a. Also including Solidarity Extraordinary Tax.
Totala
11,217
34,210
52,059
51,277
19,602
40,977
42,812
19,679
54,260
143,078
184,885
235,057
260,939
1,150,052
Corporate tax payments by the mine increased significantly from 2003 because of
increases in international metal prices. The Yanacocha Mine’s corporate tax
contribution between 2000 and 2006 averaged 28 percent of the corporate tax paid by
the entire mining sector (figure 5).
12
Figure 5: Corporate Tax Collections from the Mining Sector
5
(US$ billions)
4
3
2
1
0
1998
1999
2000
2001
2002
Yanacocha mine
2003
2004
2005
2006
Total Sector
Source: Yanacocha mine and National Tax Administration data.
During 1993–2006, the Yanacocha Mine’s workers contributed directly to the national
treasury with payments of US$$69.8 million for personal income tax (table 3), or an
average of 0.7 percent of total personal income tax collections. This is in addition to
payments of US$77 million to the Fund for Training and Job Promotion.
Table 3: Employees' Contributions to Fiscal Revenues, 1993 – 2006
(US$ thousands)
Personal income tax Fund for Training Personal income tax
(mine's own
and Job
(contractors'
employees)
Promotion
employees)
Year
Total
1993
105
0
578
683
1994
279
0
708
987
1995
898
0
861
1,759
1996
2,709
0
1,073
3,782
1997
3,088
7,638
565
11,291
1998
1,984
5,943
881
8,808
1999
2,361
4,691
1,891
8,943
2000
4,594
0
2,158
6,752
2001
4,768
0
3,702
8,470
2002
6,766
800
3,377
10,943
2003
7,928
13,199
3,425
24,552
2004
9,260
15,018
3,401
27,679
2005
11,097
19,395
3,682
34,174
2006
14,131
10,339
3,964
28,434
Total
69,968
77,023
30,266
177,257
Source: 1993-2004: Yanacocha Mine data; 2005-6: APOYO Consultoría estimates.
13
In addition, the mine’s shareholders generated direct contributions of US$38 million in
taxes withheld in years that dividends were paid.
Value Added
The Yanacocha Mine’s value added was US$6.3 billion during 1993–2006 (table 4), or
an average of 0.8 percent of Peru’s GDP, 26 percent of the Cajamarca region’s GDP,
and 15 percent of mining GDP. 7
Its total impact on GDP (including indirect and
induced effects) is substantially larger. Based on the mining sector multiplier mentioned
in the methodology section, each dollar of production generated by the Yanacocha
Mine generates, on average, US$2.33 of GDP. Hence, given that between 1993 and
2006 the gross value of the Yanacocha Mine’s production was approximately US$9.1
billion, the total value generated in the economy was approximately US$21.3 billion.
Figure 6: The Yanacocha Mine’s Contribution to GDP, 1993 – 2006
Percentage of GDP
5
4
3
2
1
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Direct effect
Indirect and induced effect
Source: Yanacocha mine and INEI data; APOYO Consultoría estimates.
7
To estimate the value added by the Yanacocha Mine, we used the structure of the sector as registered in 1994. The
value added by the mining sector represents approximately 68 percent of the gross value of production and the
remainder corresponds to intermediate consumption. According to information provided by the mine in May 2008, the
cash production cost of gold (excluding depreciation and other capital costs) was US$350 per ounce and the final
product was worth US$890 per ounce. Taking into account that production costs include payments for factors of
production and expenditures on inputs, we believe that the ratio suggested by the input-output matrix is a valid
approximation.
14
Table 4: GDP and Value Added by the Yanacocha Mine, 1993 – 2006
(Current US$ millions)
Value added by Indirect and induced
National
GDP Cajamarca
GDP metal
GDP
region
mining sector
Year
the minea
impactsb
1993
34,821.2
729.1
1,308.6
20.0
44.4
1994
44,881.2
981.1
1,721.6
80.4
179.0
1995
53,607.3
1,213.7
2,029.1
147.7
328.9
1996
55,853.8
1,326.2
2,202.7
219.8
489.3
1997
59,133.5
1,470.8
2,418.9
244.4
544.1
1998
56,763.5
1,566.6
2,437.6
272.9
607.5
1999
51,535.6
1,516.7
2,541.3
324.7
723.0
2000
53,366.1
1,597.7
2,644.1
352.1
784.0
2001
53,951.0
1,614.6
2,964.0
360.4
802.4
2002
57,051.0
1,946.5
3,367.9
503.6
1,121.2
2003
61,511.9
2,177.7
3,713.8
724.9
1,613.8
2004
69,676.8
2,445.9
4,203.8
862.2
1,919.6
2005
79,361.7
2,866.6
4,826.4
1,055.7
2,350.4
2006
93,249.8
2,984.0
5,303.4
1,116.2
2,485.2
Total
824,764.4
24,437.2
41,683.2
6,285.0
13,992.8
Source: Yanacocha Mine, INEI, and Ministry of Finance data.
a. The mine's direct impat based on the INEI's input-output matrix.
b. Indirect and induced impacts based on the INEI's input-output matrix.
Employment
The mine’s contribution to job creation has increased over time. Between 1995 and
2006, this contribution increased 10-fold. By 2006, the mine had directly generated
10,000 jobs and had accounted for a total of more than 100,000 direct, indirect, or
induced 8. jobs (table 5) This corresponded to 0.7 percent of Peru’s economically active
population.
8
This estimate uses an employment multiplier close to nine, based on the figures published by the National Institute of
Statistics (see appendix). However, some studies use lower multipliers (ICMM used an overall multiplier that ranges
between 6.5 and 8.5 when measuring the impact of Antamina’s mining operations in Peru, see “Peru: The Challenge of
Mineral Wealth).
15
Table 5: The Yanacocha Mine's Impact on Job Creation, 1995 – 2006
Total number of Total number of
Number of Number of employees at the jobs generated
mine
by the minea
employees contractors
Year
1995
225
810
1,035
9,916
1996
235
1,357
1,592
15,253
1997
316
3,042
3,358
32,173
1998
441
3,134
3,575
34,252
1999
1,118
2,496
3,614
34,626
2000
1,242
5,112
6,354
60,878
2001
1,571
3,700
5,271
50,501
2002
1,810
4,620
6,430
61,606
2003
1,866
6,931
8,797
84,284
2004
2,256
6,345
8,601
82,406
2005
2,935
7,877
10,812
103,590
2006
2,946
7,902
10,848
103,933
Total
16,961
53,326
70,287
673,418
Source: Yanacocha Mine data; APOYO Consultoría estimates.
a. Includes the total number of direct, indirect, and induced jobs generated
The total direct employment generated by the Yanacocha Mine represents 0.4 percent
of Peru’s total formal employment, almost 19 percent of formal employment in the
mining sector, and 13 percent of formal employment in the Cajamarca region. This
demonstrates the positive effect that the mine has had on employment in both the
sector and the region.
Impacts at the Regional and Local Levels
To understand the economic impact of the Yanacocha Mine at the regional and local
levels we start by identifying the channels (mechanisms) through which these impacts
are transmitted. Channels are associated with a series of indicators used to evaluate
their effects. For this purpose, we developed a typology of channels and secondary
16
channels by means of focus groups with those living in the mine’s area of influence and
in-depth interviews with specialists. Figure 7 shows the four main impact channels
identified—the mine’s operations, the mine’s presence, the mining company’s social
responsibility programs, and the generation of fiscal revenues—along with secondary
channels and indicators.
Figure 7: Impact channels
MINE OPERATIONS
MINE PRESENCE
• Direct
employment
EMPLOYMENT
DEMAND
PROCUREMENT
OF
GOODS AND
SERVICES
ROAD
CONSTRUCTION
AND
MAINTENANCE
• Mine region
salary gap
MIGRATION
• Presence of
foreign
experts
• National
purchases
PUBLIC
SERVICES
• Insufficient
service
provision
Demand for
public
investment
COMMUNITY
ROADS
• Access to
markets and
services
• Productivity
RURAL
ELECTRIFICION
GENERATION OF FISCAL REVENUES
• Public
investment
CANON
• Public
expenditure
• Quality of life
• Productivity
• Local
purchases
EXPENDITURES
BY MINE
WORKERS
Demand for
goods and
services
SANITATION
Service
coverage
quality
Lower
transaction
costs
HEALTH
AND EDUCATION
COST OF LIVING
• Available water
NATURAL
RESOURCES
• Changes in
social
structure
MINING COMPANY SOCIAL RESPONSIBILITY
PROGRAMS
• Standard of
living among
former
landowners
Impact on
living costs
of higher
wages and
higher
demand
DEVELOPMENT
Livestock and
other
industries
Source: APOYO Consultoría.
Overall impacts at the regional and local levels are positive. Nevertheless, the focus
groups revealed a perception of some potentially negative effects derived from the
nature of mining activity and the socioeconomic conditions in the mine’s area of
influence.
Mine Operations
The first channel, mine operations, refers to the mine’s productive activities, which
require a series of goods and services. In general, the effects of the mine’s operations
17
have been positive both in terms of the quantity and quality of work made directly
available and the business generated by the procurement of goods and services for the
mine. This has been reinforced by the Yanacocha Mine’s contribution to local
infrastructure, which the population looks upon favorably. Nevertheless, the focus
groups identified two potentially negative aspects: the gap between the wages paid to
mine workers and those paid to nonmine workers in the region, and the population’s
perception that the mine has contaminated rivers and caused soil erosion. The latter
might require some additional studies to determine whether this is the case and the
extent of any effects.
Employment Demand
Although mining is not intensive in terms of manual labor, the magnitude of the
Yanacocha Mine’s operations and its hiring policies have made it an important source
of employment in the mine’s area of influence. In 1995, the mine hired a total of 1,035
workers (table 5). Of these, 225 individuals were on the mine’s regular payroll and the
rest were contractors hired indirectly by third parties. By the end of 2006, the mine had
10,848 employees, including its own workers and contractors, 10 times the number in
1995.
When the Yanacocha Mine began operations in 1993, given the region’s reliance on
agriculture and livestock, it had no education facilities for training highly qualified and
specialized personnel, especially in the field of mining. Even though the region had a
history of mining exploitation, it was generally small-scale in nature. As a result, the
mine decided to hire personnel from other regions who already had experience in the
sector. The mine also hired personnel from Lima and abroad for midlevel and executive
management positions.
In recent years, the mine revised its hiring policies to hire from among the local
population. One of the goals was to progressively increase the proportion of local
personnel in the total number of employees. 9 In absolute terms, while the number of
employees from the Cajamarca region on the payroll did increase, as a percentage of
9
Likewise, the mining company requires that contractors hire a minimum number of Cajamarcan
employees for their unskilled labor positions. According to the July 2007 expenditure survey conducted by
APOYO Consultoría, 60.6 percent of the approximately 7,000 employees hired by contractors are from the
Cajamarca region.
18
the workforce, their numbers remained relatively stable (table 6).
At the end of 2006, the total number of employees on the mine’s own payroll was
2,946. Of this number, 1,411 (47.9 percent) were natives of the Cajamarca region
(table 6). This figure represents around 4.5 percent of the working-age population
(those aged 14 through 65) in the mine’s area of direct influence and 0.6 percent of the
region’s working-age population. According to the national household survey, the
Cajamarca region has 150,933 employees on companies’ payrolls, 4.1 percent of
whom work for the Yanacocha Mine.
Table 6: Number of Native Cajamarcans on the Yanacocha Mine's Payroll,
1995 – 2006
Number of
Number of
employees on Cajamarcans on
the payroll
the payroll
Year
1995
225
98
1996
235
97
1997
316
146
1998
441
213
1999
1,118
522
2000
1,242
575
2001
1,571
753
2002
1,810
862
2003
1,866
888
2004
2,256
1,121
2005
2,935
1,391
2006
2,946
1,411
Total
16,961
8,077
Source: Yanacocha Mine data.
Cajamarcans as a
percentage of all
employees
43.6
41.3
46.2
48.3
46.7
46.3
47.9
47.6
47.6
49.7
47.4
47.9
47.6
While the mining company’s employment of Cajamarcans is important, the number
appears to be relatively low compared with the mine’s contribution to the region’s GDP,
which was 37.4 percent in 2006. This is mainly because mining is capital intensive and
technology intensive, but does not require large amounts of manual labor. According to
the 1993 economic census, investment in mining activities is roughly 25 times that in
commerce and 3 times as much as the average for all sectors per job created
(figure.8).
19
Figure 8: Relative Costs of Creating a Job by Sector, 1993
100
US$ thousands
83.3
80
60
40
40
47.6
27
20
3.3
3.5
6.7
9.8
15.4
0
Source: 1993 economic cesus.
Note: Costs refer to investment in fixed assets.
Mining requires a high level of specialization, which means that salaries must be
attractive to those with the required expertise and sufficient to cover the opportunity
costs of moving to the region. Thus mine salaries and wages tend to be higher than
those paid in other sectors, which may give rise to negative perceptions in relation to
the wage gap by those not employed by the mine.
According to information provided by the mining company, the average compensation
for those hired directly by the company was US$1,970 a month in 2006, which was
about 10 times the amount of approximately US$184 per month paid to the average
worker in the Cajamarca region (2006 national household survey). Between 1998 and
2006, the average compensation of employees on companies’ payrolls grew by around
69 percent in the Cajamarca region and 51 percent in the Northern Sierra, while mine
workers’ compensation increased by 78 percent (table 7).
20
Table 7: Average Salaries Paid to Dependent Workers
by Selected Location and the Yanacocha Mine, 1998 and 2006
1998
2006
Percentage
change
Category
(S/. per month) (S/. per month)
Cajamarca
356
603
69
Northern Sierra
395
597
51
Sierra
503
576
15
Yanacocha Mine
3,618
6,437
78
Source: National household surveys; Yanacocha Mine data.
Procurement of Goods and Services
Another secondary impact channel derived from the mine’s operations is the
procurement of goods and services. These purchases affect the creation and
development of local businesses that provide relevant products, inputs, and services to
the mine.
An estimate of the impact of such procurement is derived from an analysis of the
volume and value of purchases and contracts, as well as their origin (local, national, or
foreign). Information about the composition of purchases from suppliers and the origins
of suppliers is important for understanding and quantifying the mine’s impact on the
rest of the economy in terms of its interaction with other productive sectors.
Between 1993 and 2006, the mine purchased goods and services worth a total of
US$5.1 billion in current dollars (table 8). This amount includes current and capital
expenditures and procurement within the Cajamarca region, in the rest of the country,
and imports. During the period under review, purchases in Cajamarca represented an
average of 12 percent of total purchases, or US$628.6 million in current dollars;
imports accounted for 16 percent of total purchases, and purchases from elsewhere in
Peru accounted for the remaining 72 percent.
21
Table 8: Purchases of Goods and Services by the Yanacocha Mine, 1993 – 2006
Purchases from
the Cajamarca
Purchases from
Percentage the rest of Peru Percentage
region
(current US$
(current US$
of total
of total
millions)
millions)
purchases
puchases
Year
1993
1.2
3
36.4
85
1994
3.5
5
51.5
80
1995
9.5
10
69.6
72
1996
13.7
11
98.3
78
1997
26.5
13
152.4
76
1998
29.3
12
180.4
76
1999
14.7
4
315.9
85
2000
28.9
7
328.9
75
2001
44.1
10
258.3
61
2002
46.6
10
345.7
74
2003
74.0
14
380.0
70
2004
102.8
17
415.8
68
2005
106.6
15
492.0
70
2006
127.2
17
527.0
69
Total
628.6
12
3,652.2
72
Source: Yanacocha Mine data.
Foreign
Percentage
purchases
(current US$
of total
millions)
puchases
5.5
13
9.2
14
17.1
18
13.6
11
20.8
10
27.9
12
39.7
11
81.8
19
122.3
29
77.8
17
91.5
17
96.2
16
107.5
15
114.3
15
825.2
16
Total
(current US$
millions)
43.0
64.2
96.2
125.6
199.7
237.6
370.2
439.6
424.7
470.2
545.5
614.8
706.1
768.6
5,106.0
The share of purchases from the Cajamarca region has grown in recent years, rising
from 3 percent of total purchases in 1993 to 17 percent in 2006. Note, however, that
the analysis is based on the location of suppliers and not on the place of origin of the
goods or services acquired.
The mining company’s procurement of goods and services has made a positive
contribution to the development of commercial activity and service provision in the
Cajamarca region. Even though completely isolating the effects of the mine is
impossible, as table 9 shows, between 1993 and 2006, Cajamarca was the region with
the highest growth rate in the commerce and services sectors compared with other
regions with similar characteristics.
22
Table 9: Average Annual Growth of GDP by Economic Sector,
Selected Regions, 1993 – 2006
(percent)
Region
Commerce Services Construction Manufacturing
Arequipa
3.9
5.2
5.4
6.8
Ayacucho
3.7
3.0
12.2
3.5
Cajamarca
5.2
5.7
3.3
3.3
Cusco
3.1
4.6
5.2
4.0
Huancavelica
1.3
1.0
9.3
3.2
Huanuco
3.6
5.2
8.7
4.4
Junin
3.6
2.7
7.9
4.4
Pasco
2.5
2.5
10.0
3.3
Source: INEI data.
Road Construction and Maintenance
One of the tasks that the mining company has had to undertake is building and
maintaining the roads necessary to ensure that its production can be transported from
the mine and that inputs can be transported to the mine. These roads are also useful to
local residents in that they provide connections between rural and urban areas, in
particular, the city of Cajamarca. These roads also facilitate transport between
provinces in the region and between the region and other regions.
The mining company’s construction and maintenance of roads has generated positive
impacts at an economic level and on rural communities’ perceptions. Rural
communities in the mine’s area of influence have benefited indirectly through improved
access to markets for goods and services. These communities perceive the roads as a
permanent contribution that local and regional governments will have to maintain once
the mine is no longer operating.
Use of Natural Resources
We did not analyze problems associated with the use of natural resources in the area,
but rather tried to understand the population’s perceptions about such resource use.
Mining uses two primary resources, water and land, and such use can give rise to
23
conflict between the mining company and rural communities in the mine’s area of
influence. Both are necessary for agriculture and livestock activities, which are the
population’s main sources of income, therefore rural inhabitants could perceive mining
as competing with agriculture and livestock activities for such resources.
The proximity of mining operations to the city of Cajamarca and the scope of mining
activities, which cover large tracts of land and four river basins, make the mine’s
operations complicated in terms of relations with those living in areas of direct and
indirect influence. This is exacerbated by the expansion of mining activity in general in
Peru, which may have generated a negative perception among some people who
believe that this activity may have adverse effects on their economic activities and way
of life. Much of this conflict revolves around the use of natural resources.
The focus groups indicated that the population’s discontent was due particularly to the
alleged increase in the acidity and murkiness of rivers located near mining operations
and the subsequent negative effects on trout fishing and water resources. 10 The focus
group participants also believe that the mine’s activities have negative impacts on the
ecosystem, alter river flows, and may have caused some lakes to dry up.
This negative perception is present even though some reputable studies, such as that
by Stratus Consulting (2004), 11 report that even though the mine has negatively altered
the quality and quantity of water in some locations and at certain times, these changes
have not been significant in the city of Cajamarca and have not generated
contamination at levels significant enough to cause illness or death in humans,
livestock, or crops. Nevertheless, the Stratus Consulting study recognizes the effects
on water quality and even mentions that water quality is below minimum levels
according to international standards. The study also suggests that the mine’s
operations increased soil erosion and sediment levels in streams, something that the
Yanacocha mining company considers has been completely addressed subsequent to
the Stratus report.
APOYO Consultoría strongly recommends that IFC carries out studies that will provide
a clear understanding of the effects of the mine’s operations on water quality and
10
In the case of the Yanacocha Mine, antagonism to the mine rose considerably after a mercury spill in
Choropampa District in 2000 and subsequent events.
11
This study was conducted between January and October 2003 with participation by local communities
and institutions. It was carried out after a formal complaint had been lodged with respect to environmental
damage said to be caused by the mine.
24
availability, as well as on soil erosion.
Effects of the Yanacocha Mine’s Presence
This section analyzes the effects generated by the mine’s presence in the area of
influence. In particular, it refers to effects derived from the mere existence of the mine,
including migration to the area of influence, effects on public services, increased
expenditure by mine employees, and effects on the cost of living.
Migration
The employment expectations associated with the mine’s presence, whether involving
the possibility of obtaining a job at the mine or setting up a business that could benefit
from the mine’s presence, have prompted migration to the mine’s area of influence.
Understanding the extent and effects of this influx of people is fundamental to
understand changes in the local social structure and in access to and use of public
services.
The population in the districts of Los Baños del Inca and Cajamarca, both of which are
in the mine’s area of influence, grew 27.8 and 33.5 percent, respectively, between
1993 and 2005 (table 10). These figures are well above the population growth rate in
the other districts in Cajamarca Province. Population growth in the districts of Los
Baños del Inca and Cajamarca accounted for approximately 70 percent of total
population growth in the region of Cajamarca. An interesting feature of the growth in
these two districts is that it was more pronounced in urban areas than in rural areas
(table 10).
25
Table 10: Population Growth, Selected Locations, 1993 and 2005
Rural
Urban
Locations
Districts
Los Baños del Inca
Cajamarca
La Encañada
Other
1993
2005
Percentage
change
1993
2005
Total
Percentage
change
1993
2005
Percentage
change
5,057
87,390
804
8,376
8,926
118,817
1,037
8,397
76.5
36.0
29.0
0.3
19,807
30,119
21,313
57,183
22,839
38,004
21,360
58,064
15.3
26.2
0.2
1.5
24,864
117,509
22,117
65,559
31,764
156,821
22,397
66,461
27.8
33.5
1.3
1.4
Cajamarca Province
101,627
Source: 1993 census; 2005 cecsus.
137,176
35.0
128,422
140,267
9.2
230,049
277,443
20.6
Those who participated in the focus groups had a negative view of the population
influx. They see the migrants as creating problems related to safety and civil order,
such as increases in crime, prostitution, and drug and alcohol consumption, which
affect the customs and tranquility of the area’s inhabitants; however, strong quantitative
evidence to support these claims is not available. APOYO Consultoría recommends
that IFC develop some studies to examine this issue.
Public Services
One effect of the migration is increased demand for public investment. In the region of
Cajamarca, this effect has limited access to and diminished the quality of public
services. This is due primarily to the increase in the urban population in the mine’s area
of influence in conjunction with inadequate planning for urban growth and insufficient
resources to provide the necessary infrastructure.
Thus, between 2001 and 2006, the number of households with access to potable water
provided by companies in the region of Cajamarca increased by 5.1 percent. At the
same time, however, the continuity of the water supply fell from 22 to 19 hours a day.
These figures suggest that the supply of potable water in the Cajamarca region has not
kept pace with demand as the population grew as a result of natural population growth
and inward migration by people attracted by economic opportunities, made available by
the mine and other activities.
26
In relation to households with electric lights, coverage in the region of Cajamarca grew
by more than 87 percent between 1993 and 2006; however, this change is significantly
lower than in other comparable regions, such as Huancavelica, where coverage grew
by almost 185 percent.
With respect to the density of telephone lines, the almost 95 percent growth in the
region of Cajamarca between 1998 and 2006 was significantly higher than in other
comparable regions. Information on mobile telephone penetration indicates outstanding
growth in all reviewed districts of the Cajamarca region, but the growth in this region as
a whole between 2003 and 2007 was nevertheless significantly below that in other
regions such as Ayacucho and Huancavelica.
Expenditure by Mine Workers
The proximity of the mine’s operations to the city of Cajamarca allows for closer contact
between mine workers and the rest of the population than would normally be the case
with mining activities in Peru. This means that workers can live close to the city rather
than in mining camps, thereby boosting the local economy through the creation of new
businesses that offer goods and services to meet the needs of mine workers and their
families.
In 2006, the Yanacocha mining company employed 7,902 contractors and 2,946
individuals directly. According to APOYO Consultoría’s 2007 expenditure survey,
contractors and workers on the payroll together spend a total of US$9.1 million per
month (US$109 million per year), of which approximately 61 percent is attributable to
contractors. According to this same survey, individual contractors spend an average of
US$704 a month in the area, equivalent to 86 percent of their total expenditure (and 14
percent outside the region), while mine workers on the payroll spend approximately
US$1,200 a month, 83 percent of it in the region and 17 percent elsewhere.
According to estimates by APOYO Consultoría based on the 2006 national household
survey, average household expenditure in the Cajamarca region is approximately
US$150 per month, which contrasts with the US$704 spent by the average mine
contractor and the US$1,200 spent by the average mine employee on the payroll.
27
These figures imply that the households of those employed by the mine have a better
standard of living than other households in the region. We therefore estimate that
overall, the mine’s presence generates total additional annual expenditures of US$89
million in the Cajamarca region.
Cost of Living
Migration to the mine’s direct area of influence, as well as expenditures by mine
employees and other economic activity factors, have spurred changes in the
population’s cost of living that have resulted in price increases in the city of Cajamarca.
INEI data show that between 1995 and 2006, the consumer price index grew more in
the city of Cajamarca than in other cities of the Sierra. Food, which accounts for 50
percent of the basic consumption basket in the city of Cajamarca, increased 0.6
percentage points more per year than in other cities in the Sierra (3.3 percent versus
2.7 percent). The items whose prices increased the most included fruit, vegetables,
and seafood. Housing and home maintenance, which accounts for 13 percent of the
basic consumption basket in Cajamarca, increased 2.4 percentage points more per
year than in other cities of the Sierra. Finally, in the area of transport and
communications, which accounts for 9 percent of the region’s basic consumption
basket, local transport became more expensive than in other cities of the Sierra,
increasing by 7.1 percent per year compared with 3.6 percent per year, while the cost
of interprovincial transport increased by 1.8 percentage points less than in other cities
of the Sierra. Middle-income and lower-income focus group participants confirmed the
INEI’s finding that the cost of living for residents of the city of Cajamarca had increased
significantly.
Mining Company Social Responsibility Programs
This section describes the mining company’s social responsibility programs and focus
groups’ perceptions about these programs. The mining company’s social responsibility
programs are of two types. The first is programs to develop rural infrastructure. These
programs include building and maintaining rural roads and undertaking rural
electrification projects that are developed through formal agreements between the
28
mining company and rural communities. The second type is programs to develop
production activities to improve and maximize farming and livestock activities in the
Cajamarca region, with particular emphasis on communities located in the mine’s area
of influence. These activities are conducted through the Credit Fund for Agricultural
and Forestry Development (Fondo de Crédito para el Desarrollo Agroforestal) 12 and
the Andes of Cajamarca Association (Asociación Los Andes de Cajamarca), an
organization whose purpose is to generate business capacities and institutions that will
contribute to the well-being of the population in the mine’s area of influence by
cofinancing projects.
Even though the mining company’s social responsibility programs have produced some
solid achievements, an increase in the budget for these programs has not necessarily
resulted in favorable perceptions of the mine at the community level. The focus groups
indicated that this may be due to the social tensions resulting from the mine’s
presence; the lack of a social responsibility strategy agreed on ahead of time with local
and regional governments, businesses, and civil society; and the existence of many
different agreements between the mining company and communities that did not allow
it to focus on fewer high-impact projects.
Projects to Develop Rural Infrastructure
During 2003–6, the mining company invested approximately US$52 million, or 86
percent of the total amount invested in development projects in the Cajamarca region,
in building rural roads and schools. Investment in such projects by the Yanacocha Mine
has risen significantly in recent years, rising from US$6,121 per community in 1993 to
approximately US$178,834 in 2006. This went hand-in-hand with an increase in the
number of beneficiary communities, which increased from 33 to 133.
Between 1993 and 2005, the mining company funded the construction of 63 percent, or
635 kilometers, of the 1,008 kilometers of neighborhood routes and rural roads that
were developed through agreements between the company and rural communities in
the districts of Cajamarca and La Encañada. This contributed to the increase of the
total asphalted road network in the Cajamarca region from 3,386 kilometers in 1993 to
12
A nonprofit association that was established in 2000 and undertakes development programs related to
dairy cattle in the provinces of Cajamarca, Hualgayoc, San Miguel, and San Pablo. It provides training in
grass production, fodder, animal health, milking, and artificial insemination.
29
4,394 kilometers in 2005.
Rural and urban populations appear to perceive the mining company’s investment in
rural roads as its most important contribution in terms of its development activities.
Focus group participants indicated that the rural roads have facilitated economic
exchanges between communities, which have resulted in more trade at town markets,
complementing the markets held in the city of Cajamarca. The importance of rural
roads can be measured by lower transaction costs (i.e. the cost of reaching markets
and establishing transactions in them). For instance, transaction costs are 12 pp. lower
among potato producers in Huancavelica –the poorest region in Peru– when they have
access to rural roads. 13. The participants also mentioned the reduction in their travel
time, which has enhanced their access to health and education services.
Rural electrification in the Cajamarca region rose from 3 percent of rural households in
1993 (1993 census) to 39 percent in 2007 (according to the Ministry of Mines and
Energy). A significant portion of this is due to the mining company’s efforts. Focus
group participants mentioned that the electrification of their communities had increased
their productivity and their economic activities, as they were now able to use machinery
and reduce the number of person-hours needed to complete tasks.
With regard to sanitation, the mining company contributed significantly to improved
access to water and sewage services by building latrines and providing residential
connections to potable water systems. Between 1995 and 2006, in the district of
Cajamarca, the mining company funded connections to potable water systems for
6,394 households and latrines or other waste disposal systems for 1,527 households.
In the district of La Encañada, the mining company funded connections to potable
water systems for 1,866 households and latrines or other waste disposal systems for
678 households.
The focus groups’ opinions with regard to the provision of water and sewage
connections were mixed. Some participants perceived positive changes in their
communities’ health as a result of these projects, but other participants indicated that
the provision of potable water would have been unnecessary if they did not face the
risk of their water sources being contaminated by the mine’s activities.
Finally, the mining company’s health and education programs have consisted of
13
Escobal (2005)
30
providing specific support, such as school supplies, school bus services, transport for
teachers, medical services, and investment in infrastructure and equipment, by means
of such activities as building classrooms, electrifying schools and health centers,
equipping medical posts, and installing stoves for cooking and cafeterias in schools.
Focus group participants indicated that these projects have not resulted in significant
changes in their communities’ health and education because they were not
accompanied by efforts to effectively implement health or education services. For
example, the participants mentioned cases where medical posts existed, but no
doctors or nurses were available, so people still had to travel to the closest urban
centers to receive care.
Production Development Projects
No records of the mining company’s production development projects were available
and the projects elicited neither positive nor negative comments from the focus groups.
This may suggest that these projects went unnoticed by the focus group participants,
possibly because they attached little value to them as these projects did not benefit all
households in the mine’s area of influence. In terms of evaluating the effectiveness of
the production development strategy, the focus group participants referred to the
negative effects of a perceived lack of water as the result of the mine, accentuated by
the tendency of agricultural properties to become smaller. Thus an assessment of
these latter issues might be beneficial even though they are not under the control of the
mining company.
Generation of Fiscal Revenues
The generation of fiscal revenues impact channel refers specifically to the resources
generated for the region through the mining canon paid by the mining company. As
previously explained, the mining canon is derived from the mining companies’
corporate tax and is allotted directly to districts and provinces where mines are located,
as well as the whole region. The analysis of this channel focuses on the canon’s
importance to public investment. It does not evaluate the effectiveness of the public
31
investment given the lack of appropriate data.
The mining canon assumed importance for subnational (district, provincial, and
regional) governments in 2004, when the legal framework regulating the canon was
modified. This modification stipulated that 50 percent of corporate tax was to be
transferred to the region that generated the resource for subsequent investment in
construction and infrastructure maintenance. The mining canon is distributed as
follows:
•
10 percent is equally divided among the local governments of the district in
which the mining operation is located;
•
25 percent is divided among the local governments in the province or provinces
in which the mine is located, including the districts in which the mine operates.
This percentage is distributed taking into account each province’s population,
incidence of poverty, and availability of infrastructure;
•
40 percent is distributed among the local governments in the region in which the
mine is located, including provinces and districts in which the mine operates.
This percentage is also distributed taking into account each province’s
population, incidence of poverty, and availability of infrastructure;
•
20 percent is distributed to the government of the region in which the mine
operates;
•
5 percent is distributed to public universities in the region in which the mine
operates.
The mining canon has increased significantly since its legal framework was
modified in 2004 and has also benefited from higher international prices for
minerals. Between 2004 and 2007, the total transfer of resources to district,
provincial, and regional governments from the canon amounted to US$2.57 billion.
Figure 9 shows the evolution of the mining canon from 2004 through 2007 in
Peruvian currency.
32
Figure 9: Evolution of the Mining Canon, 2004 – 7
3.0
2.7
2.8
(S/. billions)
2.5
2.0
1.5
1.5
1.0
1.8
1.1
0.3
0.8
0.5
0.1
0.0
2004
2005
District canon
2006
2007
Province canon
Source: Ministry of Finance data.
In 2006, the canon represented more than 39 percent of total transfers from the central
government to regional governments and more than 23 percent of transfers to all local
governments, including provinces and districts. Given the magnitude of these funds,
and assuming that they are properly invested, the mining canon has the potential to
significantly benefit the region of Cajamarca.
Thus the Yanacocha mining company contributes to public investment indirectly by
means of the mining canon. In 2007, the canon increased 65 percent compared with
2006 and public investment in the Cajamarca region increased by 82 percent over the
previous year (figure 10).
33
Percentage change
Figure 10: Growth of the MIning Canon and of Public Investment,
Region of Cajamarca, 2005 – 7
100
80
74
82
66
61
60
65
40
24
20
0
2005
2006
Mining canon
2007
Public investment
Source: Ministry of Finance data.
Even though local government budgets have increased substantially and projects are
under way, the population has yet to give its approval. Focus group participants
indicated that these projects are often executed without prior analysis of their
pertinence. A 2006 survey by APOYO Opinión y Mercado revealed that in 2006 in the
city of Cajamarca, 60 percent of those surveyed believed that the mining canon was
being used ineffectively. Nevertheless, it has the potential to be the main driver of
development at the regional and local level. It could also be the main impact channel
resulting from activities related to the mine given the magnitude of the funds
transferred.
Socioeconomic Impacts
The interrelations between the main channels through which the Yanacocha Mine
generates impacts at the macroeconomic, regional, and districts levels and the
secondary channels have direct effects on the population’s well-being and quality of
life, indicated through what we have termed socioeconomic impact indicators. To
analyze these impacts, we used monetary and nonmonetary indicators to obtain a
picture of the multiple dimensions of the population’s socioeconomic development. The
nonmonetary indicators refer to indicators of access to basic services, housing quality,
overcrowding, and education. For the monetary indicators we work with indexes of
34
poverty and extreme poverty. 14
The socioeconomic impacts are not necessarily attributable exclusively to the
Yanacocha Mine’s activities given the existence of other factors such as the
development of sectors other than mining. To identify effects that were specifically
attributable to the Yanacocha Mine we compared a group of districts in the mine’s
direct area of influence with another group of Sierra districts with similar characteristics
outside the mine’s area of influence. We made this comparison using the double
difference methodology previously explained.
Access to Basic Services
We constructed the index that measures access to basic services using three ordinal
variables: (a) access to a domestic water supply (for example, access to a public
network inside the home, access to a public network outside the home, access to a
well); (b) access to domestic sewer services (for instance, access to a public network
inside the home, access to a public network outside the home, use of an irrigation ditch
or canal); and (c) access to electricity within the home. We ranked each component of
this index according to the percentage of houses that have access to each service. The
results demonstrate that during 1993–2005, both the beneficiary group and the control
group had achieved significant improvements in access to basic services, but that the
improvement was greater for the beneficiary group (table 11).
14
Because of information limitations, we applied the monetary indicators at the regional level. This could
bias the results, because the impacts will tend to be concentrated in the mine’s area of influence.
35
Table 11: Indexes of Nonmonetary Impacts, 1993 and 2005
(percentage of the population)
Indexes
Access to basic
services
Group
Beneficiary
Control
Beneficiary
Control
Overcrowding
Beneficiary
Quality of housing Control
Beneficiary
Control
Illiteracy
Primary school
Beneficiary
completion
Control
University
Beneficiary
graduates
Control
Source: 1993 census; 2005 census.
1993
54.4
37.0
64.9
61.5
52.3
43.5
66.1
62.9
36.0
29.7
0.0
0.0
2005
Change
72.8
18.4
53.5
16.5
42.6
22.3
46.2
15.3
59.7
7.4
53.9
10.4
28.9
37.2
26.7
36.2
54.2
18.2
46.5
16.8
11.8
11.8
9.5
9.5
Difference between
the beneficiary and
control groups
1.9
7.0
-3.0
1.0
1.4
2.3
Overcrowding Index
According to the INEI, a household is overcrowded when, on average, more than 3.4
individuals share a room. This index takes a value of 0 in the case of no overcrowding
and 1 in the case of overcrowding. As table 11 shows, housing conditions have
improved significantly for both the beneficiary and control groups, but the improvement
was more pronounced in the mine’s direct area of influence. This is probably due to
urban growth in districts such as Los Baños del Inca, where most of the mine’s
employees live.
Quality of Housing
To analyze the changes in housing quality, we developed a compound index to capture
information about the quality of the materials used for floor, wall, and roof construction.
36
We ranked the quality of the materials from best to worst in which the best materials
had a value of 1 and the worst materials had a value of 0. We repeated this procedure
for each component of the index (roof, floor, wall). Finally, we weighted and
standardized each component using statistical weightings obtained through multivariate
analysis. As such, the index takes a value of 1 when housing is of better quality and a
value of 0 when housing uses the worst possible materials for all three elements.
Finally, the index takes intermediate values depending on the combination of materials
used in each household for each element of the index.
The housing quality index indicates that both the beneficiary group and the control
group experienced a significant improvement in housing quality, but that the
improvement was greater for the control group (table 11). This is probably due to the
effect of migration on some districts such as Cajamarca.
Education
If we analyze the percentage of the population that is literate in both groups, we find
that the literacy rate has improved (the illiteracy rate decreased) slightly more for the
beneficiary group than the control group (table 11). Overall, the literacy rate improved
significantly for both groups.
Similarly, primary school completion rates improved for both groups, with the
improvement being slightly better for the beneficiary group (table 11). Similar results
are apparent with respect to the number of university graduates (table 11).
Per Capita Income
One indication of the population’s quality of life, albeit an imperfect one, is per capita
income. Although this indicator demonstrated a nominal increase of 34.6 percent in the
Cajamarca region between 1998 and 2006 (table 12), this was lower than that
37
registered in the Northern Sierra (44.2 percent) and slightly higher than that of all Sierra
regions (32.6 percent).
Table 12: Per Capita Income by Location, 1998 and 2006
(S/. per month)
Location
1998
95% confidence interval
2006
95% confidence interval
Percentage change,
1998 - 2006
Urban
Cajamarca
Northern Sierra
Sierra
Peru
405
330
365
567
329
294
336
511
481
367
394
624
588
653
524
718
425
440
498
673
752
867
550
764
45.3
97.7
43.5
26.6
Rural
Cajamarca
Northern Sierra
Sierra
Peru
124
131
150
164
107
114
136
154
141
147
164
175
214
214
251
288
198
199
236
276
230
229
266
299
72.4
63.8
67.2
74.9
213
183
246
472
254
241
307
506
230
221
294
481
278
261
320
530
34.6
44.2
32.6
16.6
Total
Cajamarca
189
164
Northern Sierra
167
151
Sierra
232
217
Peru
433
395
Source: national household surveys 1998, 2006.
When we analyze changes in per capita incomes deflating with the consumer price
index (real per capita income), the results show a positive change of 12.9 percent in
the Cajamarca region compared with 11.7 percent in the Sierra and -2.6 percent in
Peru as a whole. Nevertheless, when evaluated within their respective confidence
intervals, these figures provide insufficient evidence that real per capita incomes have
increased.
Finally, in absolute terms, poverty in the Cajamarca region declined from 77 percent in
2001 to around 64 percent in 2006, a reduction of 13.6 percent, according to national
household surveys. Nevertheless, this reduction in poverty is less than in the region of
Cusco (23.1 percent), but is higher than in the Sierra (7.6 percent).
Extreme poverty in the Cajamarca region declined from 56 to 29 percent between 2001
and 2006, a reduction of 27 percent. This reduction is higher than that in the Sierra (9.6
percent), but lower than that in the region of Cusco (27.2 percent).
38
39
CONCLUSIONS
This consultancy’s terms of reference indicated that APOYO Consultoría should
include three of IFC’s central focuses in its conclusions: the overall impact, the mine’s
distributive effects, and the mine’s impact on poverty reduction in the area (table 13).
Table 13: Conclusions of the Study of the Yanacocha Mine's Economic Impacts
Category
Economic Impact
Impacts at the macroeconomic level
Mine's contribution to gross
0.8% direct effect on average GDP
domestic product (GDP)
2.6% total average effect on GDP
Mine's contribution to the
28% of total income taxes generated by
national budget
the mining sector
Mine's contribution to national
exports
7% on average
0.7% of the working-age population,
Mine’s contribution to job
considering direct, indirect, and induced
creation
effects on national jobs
Impacts at the regional and local level
Mine's
Employment
8.2% of the working-age population in the
operations
area of influence
1.0% of the working-age population in
Cajamarca region
Low job creation in comparison with
impact on the region’s GDP
Wages
Presence of the
mine
Procurement
of goods and
services
Road
construction
and
maintenance
Use of natural
resources
Migration
Expenditures
by employees
10 times higher than in any other location
industry generating demand-driven
dynamics in the region
Income inequality generated by salaries in
the mine
Large contribution to growth in
commercial and services sectors, which
grew more than in other regions
Access to markets and reduced
transaction costs
Perception of negative economic and
social impacts
Reduction in public water provision from
22 hours to 19 hours a day on average
Reference
period
Strong
evidence
1993-2006
+
1993-2006
+
2000-2006
+
1993-2006
+
2006
+
2006
+
2006
Evidence
+
1993-2006
1993-2006
-
+
1993-2006
-
1993-2006
+
1993-2006
+
1993-2006
-
2001-2006
-
Increase in access to telecommunications
(land lines and mobile telephones)
1998-2006
+
High standards of living of employees due
to high salaries paid by the mine
1993-2006
+
Increase in average cost of living, up to 4%
higher than in other regions
1995-2006
-
1995-2006
-
Increase in food price index, 8% more
than in other regions, which
disproportionately affects the poor, who
spend more of their income on food
Good perception of economic linkages
generated by employee expenditures
Weak evidence:
perceptions of
focus group
1993-2006
+
40
Category
Social
Responsibility
Rural
infrastructure
projects
Production
development
projects
Mining canon
Local
government's
use of the
mining canon
Economic Impact
Negative perception of income inequality
generated by high salaries in the mine
Reference
period
Strong
evidence
1993-2006
-
Increase in the number of local
communities benefiting from social
responsibility actions from 33 to 133
Social responsibility infrastructure budget
rose more than 30-fold
1994-2006
+
1994-2006
+
635 km of local road infrastructure
1993-2005
+
50% increase in number of electrified
households
8,200 households benefited from potable
water services
2,200 households benefited from sewage
services
Some participants in focus groups
consider the support from the mine
insufficient considering the damage
caused to the environment
Peasants place little value on these
projects, as they consider other negative
effects on water availability and soil
degradation as relevant issues that have
not been tackled
Represented more than 59% of transfers
to provincial governments and more than
80% of transfers to local governments
Potentially the strongest channel of
impact transmission
Evidence
Weak evidence:
perceptions of
focus group
1993-2005
+
1993-2006
+
1993-2006
+
1993-2006
-
1993-2006
-
2006
+
1996-2006
?
Socioeconomic impacts
Nonmonetary indicators
Monetary indicators
1.9% growth in access to public services
1993-2005
+
7.0% decrease in overcrowding index
-3.0% below control group in adequate
home index
1.0% growth in literacy rate over control
group
1993-2005
+
1993-2005
-
1993-2005
+
1.4% growth in primary school attainment
over control group
1993-2005
+
2.3% growth in rate of university
graduates over control group
1993-2005
+
Urban per capita income increase similar
to Sierra and lower than Northern Sierra
Rural per capita income increase higher
than Sierra and North Sierra, but not
statistically significant
1998-2006
-
1998-2006
+/?
Total per-capita income increase similar to
Sierra and than Northern Sierra
1998-2006
-
1998-2006
+/?
2001-2007
-
2001-2007
+/?
Rear per-capita income increase higher
than Sierra, but not statistically significant
Poverty reduction lower than in other
regions
Extreme poverty reduction higher than in
other regions, but not statistically
significant
Source: APOYO Consultoría.
Note: We categorize the impacts based on the availability of information gathered. Strong evidence is where the impacts are
supported by strong quantitative date. Evidence is where we find some quantitative data that support our findings; more accurate
data is unavailable. Weak evidence is from the focus groups, which are not necessarily representative of the population. The
symbol + refers to the positive impact of a fact, whereas - refers to the negative impact. ? Means that the sign of the impact
(positive or negative) is not clear.
41
Overall Impacts
The impacts of the Yanacocha Mine at the macroeconomic level are generally positive,
both in terms of the mine’s contribution to national GDP and its contribution to
employment and to fiscal revenues.
In relation to the regional and local level, each of the four impact channels has positive
impacts as well as ambiguous, or even negative, impacts whose relative weights reflect
APOYO Consultoría’s opinion based on the available information. The channels’ order
of importance according to the net benefits generated for the population is as follows:
1. the mine’s operations,
2. the mining company’s social responsibility programs,
3. the mine’s presence,
4. the generation of fiscal revenues.
The importance of the mine’s operations is due to the business generated by the
mine’s purchase of goods and services. This economic dynamic is expressed in the
significant growth of the services and trade sectors, which in turn has stimulated
regional growth. In terms of employment, while the figures indicate that the mine has
made a significant contribution to job creation, the number of jobs created appears to
be relatively low in comparison with the mine’s contribution to regional GDP, which is
attributable primarily to the capital-intensive, rather than labor-intensive, nature of
mining activity. While mine workers earn more than nonmine workers and their
expenditure in the local area is significant, some resentment is apparent among those
who have not benefited directly from the mine’s operations. Focus group interviews
indicated that perceptions of the mining company’s construction and maintenance of
roads are positive, but that attitudes toward the mine in relation to its alleged effects on
water quality and land erosion are negative.
The second most important channel is the mining company’s social responsibility
programs. Its investment in development projects increased significantly between 1993
and 2006, as did the number of beneficiary communities. While the population has
positive perceptions of the rural road construction and electrification projects because
they have enhanced their quality of life and productivity, they believe that the mining
company’s efforts in relation to health and education have not necessarily been
followed by an effort to implement the corresponding services effectively.
42
The third most important channel is the mine’s presence. It has attracted migrants as
demonstrated by the high rate of population growth in the areas of the mine’s influence,
especially urban areas. This had led to some negative perceptions with regard to safety
and cultural influences by long-time residents. It has also led to a number of problems
regarding access to and deterioration of some basic services. Nevertheless, the
benefits of this channel are significant and are related primarily to expenditures by mine
workers, who have a much higher standard of living than nonmine workers.
Expenditures by mine workers, together with the mine’s procurement of goods and
services, have driven growth in the trade and services sectors, but at the same time,
these expenditures have tended to increase the prices of goods and services in the city
of Cajamarca. While the prices of many items rose more than in other cities in the
Sierra, such as those of food, housing rentals, and hospitalization, some prices rose
less, for example, for education and energy.
The final channel of regional and local impacts is the generation of fiscal revenues. The
increase in mining production and the high international prices for gold have generated
a significant resource flow for subnational governments in the region. In particular, the
mining canon, especially following the changes to its legal framework in 2004, has
provided significant resources for public investment. However, despite the resource
flow to the region, this channel´s effectiveness depends significantly on subnational
governments’ ability to transform resources into socially and economically profitable
projects, which is low, and therefore the region has not benefited as much as it might
have from this flow of funds. To this end, the governments of the region, provinces, and
districts of Cajamarca have been attempting to improve their capacity to plan and
manage investments, as well as to enhance the transparency of fund management.
The Mine’s Distributive Effects
The mine’s employees, particularly those on the payroll, have benefited from the mine’s
operations. Profit-sharing payouts between 1993 and 2006 amounted to US$287
million, which is more than total payments for compensation during the same period
(US$285 million). In 2006 alone, the mine’s employees received an average monthly
salary equivalent to US$3,740, which is 24 times higher than the national average,
meaning that they had one of the highest standards of living in the country. Contract
43
workers have also experienced significant wage increases compared with the positions
they held prior to working for the mine. Note that most mine workers are male,
therefore men are likely to have benefited more from the mine’s presence than women.
Other entities that have benefited directly from the mine’s operations have been
national goods and services suppliers, which made sales of more than US$654 million
to the mine in 2006. Local businesses also benefited from expenditures by the mine’s
employees as evidenced by the relatively higher growth of the local trade and services
sector.
Between 1993 and 2006, the mine accounted for approximately 26 percent of regional
GDP. Yet despite the scale of the mine’s operations, it has had no significant effects
either on employment or on real per capita incomes for the bulk of the population in the
region. At the same time, the increase in the price index in the city of Cajamarca during
1995–2006 might have enlarged the gap between rich and poor, especially because of
the increase in food prices and because poorer households spend a larger proportion
of their total incomes on food.
An important mechanism for resource redistribution comes from the mining canon,
which, if used efficiently, could constitute a significant source of development for rural
areas. This mechanism has become an important source of resources for both local
and provincial governments, and in 2006 represented 39 and 23 percent, respectively,
of transfers from the central government.
The mine’s direct beneficiaries include the inhabitants of the 133 communities that
received benefits from the mining company’s social responsibility programs. This group
has benefited from rural infrastructure projects such as road construction, increased
household electrification, and increased coverage by sewage and potable water
systems. Communities not in the area of influence have benefited from the roads that
the mining company has built for its own operations, which constitute a public good that
all citizens are free to use.
The city’s residents, in particular those who do not benefit directly from the mine, have
been adversely affected by the increase in the cost of living. The change in relative
prices in Cajamarca can be attributed to the increased demand created by a small
group of workers with significant buying power. The increase in the cost of living has,
on average, been slightly higher than the increase in income.
The increase in migration to the area and the resulting population growth and
urbanization has led to some claims of increased civic disorder. Another group that
claims to be adversely affected by the Yanacocha Mine includes individuals who
44
compete with the mine for the use of natural resources, especially water, including
farmers, cattle breeders, and rural residents.
The Mine’s Effect on Poverty in the Region
In absolute terms, poverty in the Cajamarca region declined by 3.4 percent, which is
higher than in some, but not all, comparable regions. Likewise, extreme poverty in the
Cajamarca region declined by 19.5 percent, which again was higher than in some, but
not all, comparable regions. Nevertheless, in the districts located in the mine’s direct
area of influence, significant changes are evident that are higher than those in
comparable districts for indicators related to access to basic services, overcrowding,
illiteracy, and education. Figures for the quality of housing are positive, but are lower
than those for comparable districts.
An overall review of the mine’s impact on poverty reduction does not necessarily
indicate a sizable correlation between the mine’s size and its impacts at the regional
and local levels. Nevertheless, when nonmonetary indicators of poverty are analyzed,
positive changes are higher than those apparent for comparable groups.
45
APPENDIX: BACKGROUND ON METHODOLOGIES USED
The Value Added Multiplier
The Yanacocha Mine’s direct aggregate value added between 1993 and 2006 has
been estimated at US$6.3 billion. This amount represents the mine’s direct impact on
the country’s total aggregated value added during this period. The mine’s production
also generated other impacts on total aggregated value that should be taken into
consideration.
First, the mine’s operations required the use of inputs produced by other industries.
The increased production by the mine’s suppliers increased the value added in those
industries. Likewise, the suppliers of those suppliers produced more and generated
more value added. These backward linkages represent the mine’s indirect impacts on
the whole economy (figure A1).
Figure A1: The Mining Sector’s Linkages with the Economy
Public expenditures
Public expenditures
Mining sector's production value
Rest of the economy
Industry 1
Industry 2
Taxes
Taxes
Backwardlinkages
linkages
Backward
Industry 3
Use of inputs
requieredtoto
required
operate the
mine
Value added
Forward
Forward linkages
linkages
Mine’s profits
Mine’
Wages
Wages
Consumption
Consumption
Source: APOYO Consultoría.
46
Second, the value added in the mining sector generated more employee compensation
and taxes. The consequent rise in household and government consumption generated
more demand and production in other industries, which also increased their value
added. These forward linkages represent the mine’s induced impacts on the rest of the
economy (figure A1).
Obviously the mine’s indirect and induced impacts depend on the links among and the
intensity of the economic relationships in the productive chain associated with the
mine. In other words, the mine’s impacts depend on the economy’s structure.
To estimate the mine’s impact on total aggregate value, we assumed that the
economy’s structure is the same as in 1994 and as represented in the input-output
table published by National Institute of Statistics. This table quantifies how much the
mining sector needs from other sectors to produce a specific quantity of minerals.
According to the National Institute of Statistics estimates, an increase equivalent to S/.
1 in mining production (valued at 1994 prices) generates a total aggregate value
(direct, indirect, and induced) of S/. 2.22 (at 1994 prices) in the rest of the economy.
Between 1993 and 2006, the gross value of the Yanacocha Mine’s production was
approximately US$9.1 billion. However, we needed to estimate the gross value of
production in nuevos soles (at 1994 prices) to apply the multiplier and estimate the total
aggregate value generated in the economy. Using a price index for the mine’s
production, we estimated that the gross value of its production was approximately S/.
20.3 billion (at 1994 prices) during 1993–2006. Therefore the total aggregate value
generated by the Yanacocha Mine during the period was S/. 45.1 billion (at 1994
prices) (20.31 x 2.22 = 45.14).
Finally, to estimate the value of this total aggregate impact in current dollars, we used
both the price index of the Yanacocha Mine’s production and the price index of the total
gross domestic product of Peru. We applied the first to convert the direct impact from
nuevos soles (at 1994 prices) into current dollars. We applied the second to the indirect
and induced impacts. As a result, we estimate that the total aggregate value generated
by the Yanacocha Mine during 1993–2006 was US$21.3 billion. As the gross value of
the mine’s production was approximately US$9.1 billion, the implicit multiplier in current
dollars was 2.33 (9.12 x 2.33 = 21.27).
47
Employment Multipliers
The employment multiplier is similar to the value added multiplier but focuses on the
number of jobs generated in the entire economy, as a result of a specific economic
activity. In our case it measures how many new jobs are generated in the economy for
each worker directly employed in the mining sector, which can be used to estimate the
overall impact of the Yanacocha Mine in terms of jobs created. This multiplier takes into
account the linkages among several industries in the economy. For example, if the
mining sector’s production increases:
•
This industry will require more workers. Compared with other industries, this
direct impact on employment is low because mining is not labor intensive.
•
Also, there will be an increase in the demand of inputs provided by other
industries, thus firms that produce those inputs will also require more workers
and inputs, and so on. This effect is called the indirect impact on employment.
•
Finally, the new workers - resulting from both the direct and indirect impacts will consume more goods and services, and therefore the producers of these
goods and services will also require more workers and inputs. This is the
induced effect of mining production on employment.
According to the National Institute of Statistics (NIS) estimates, for each new worker
directly employed in the mining sector, approximately 9.58 new jobs are created in the
whole economy (including the new mine worker). Therefore to estimate the number of
jobs that the Yanacocha Mine has generated in the economy we multiplied the total
number of mine workers by 9.58.
In mining, the employment multiplier (total employment generated / direct employment
generated) is higher than in other industries, which means that in this sector, the
indirect and induced effects on employment are significantly higher than the direct
impact. This can be explained by the following two reasons:
•
First, as it has been mentioned before, the mining sector is less intensive in
labor than other industries. Hence for a given number of workers in the mining
sector there is more value added/spending than in many other sectors and
48
therefore incremental spending and thus indirect job creation per job in the
mining sector may be higher than in other industries.
•
Second, the wages in the mining sector are higher than the average wages in
the whole economy. This implies that the induced effect on employment can be
strong. For example, if a mine worker’s salary more than doubles the average
salary in other industries, his consumption could create more than one job in
those other industries.
It should be clear that the employment multiplier used in this study cannot be compared
directly with the value added multiplier, given that they are expressed in different units
(number of jobs and monetary units, respectively). The following formula shows how
these two multipliers are related:
Windustry   LPtotal 
EM industry = VAM industry * 
 *α
*
 Wtotal   LPindustry 
Where:
EM industry :
Employment multiplier of the analyzed industry.
VAM industry :
Value added multiplier in the analyzed industry.
Windustry :
Average wages paid in the industry.
Wtotal :
Average wages paid in the entire economy.
LPtotal :
Labor participation on the value added in the economy.
LPindustry :
Labor participation on the value added in the industry.
α:
Constant greater than one, equivalent to the inverse of the
participation of value added on the gross value of production in
the industry.
From the formula above, the cases in which the employment multiplier is higher than
the value added multiplier may be deduced: basically, this occurs when the analyzed
industry analyzed pays higher average wages (when W industry /W total is greater than one)
and is less labor intensive than the rest of the economy (when LP total /LP industry is greater
49
than one), on average. These two conditions are satisfied in the case of mining activity.
While it is believed that the NIS estimate of the multiplier is a reasonable one (allowing
for the relatively dated underlying input-output analysis), other studies have used
different numbers. For example, the International Council on Mining and Metals (ICMM)
study, “Peru The Challenge of Mineral Wealth: Using resource endowments to foster
sustainable development” June 2008, used a multiplier between 6.5 and 8.5 for its
estimate of the total impact on employment of the Antamina mine.
The Double Difference Methodology
Figure A2 illustrates the general characteristics of this methodology on the assumption
that the project aims to produce a specific impact on variable Y.
Figure A2: General Characteristics of the Double Difference Methodology
Y, impact
variable
Y 2b
Change of impact
variable on beneficiary
(Y 2b
–
(Y 2c
– Y 1c )
Y1b )
Y 1b
Y
Y
1c
Beginning
of project
2c
Change not attributed
to intervention
End of
project
Source: APOYO Consultoría.
In figure A2, b represents the beneficiary group and c represents the control group. At
the beginning of the project (period 1), both groups have an average value of Y 1 (Y 1b
for the beneficiary group and Y 1c for the control group). Note that the beneficiary group
and the control group do not need to have the same average values for impact
50
variables at the beginning of the project, although both groups should ideally have
similar characteristics in terms of the attributes that influence anticipated impacts, such
as access to public services and income. At the end of the project (period 2), the
impact variables are measured again for both groups to obtain Y 2b and Y 2c .
The impact on Y attributable to the project is estimated according to the following
formula:
IMPACT = (∆YNET ) = (Y2b − Y1b ) − (Y2 c − Y1c ) .
The estimation of the net impact (∆Y NET ) involves looking at the changes in the
beneficiary group and the control group and ascribing the difference between these to
the mine. As the control group, by definition, is not affected by the project, changes in
the control group cannot be attributable to the project. This nonattributable impact (Y 2c
– Y 1c ) is subtracted from the impact observed among the beneficiary group (Y 2b – Y 1b ).
This requires measurement of the impact variables at the beginning and end of the
project (or at another time) for both the beneficiary group and the control group.
51
REFERENCES
Blundell, R., and M. Costa Dias. 2002. “Alternative Approaches to Evaluation in
Empirical Microeconomics.” Working Paper CWP10/02, University College
London and Institute for Fiscal Studies, London
Borland, J., Y. Tseng, and R. Williams. 2005. Experimental and Quasi-Experimental
Methods of Microeconomic Program and Policy Evaluation. Melbourne,
Australia: University of Melbourne, Department of Economics.
Caliendo, M., and S. Kopeinig. 2005. “Some Practical Guidance for the Implementation
of Propensity Score Matching.” Discussion Paper 1588, Institute for the Study of
Labor, Bonn.
Cuánto. 2007. Anuario estadistico: Perú en números 2007. Lima: Cuánto. Cuánto.
2008. Anuario estadistico: Perú en números 2008. Lima: Cuánto.
Escobal, 2005. The Role of Public Infraestructure in Market Development in Rural Peru
.Wageningen University.
ICMM (International Council on Mining and Metals). 2008. Peru The Challenge of
Mineral Wealth: Using resource endowments to foster sustainable development.
INEI (Instituto Nacional de Estadística e Informática). 2001. Multiplicadores de la
economía Peruana. Lima: Dirección Nacional de Cuentas Nacionales.
Rosenbaum, P., and D. Rubin. 1983. “The Central Role of the Propensity Score in
Observational Studies for Causal Effects.” Biometrika 70: 41–50.
Stratus Consulting. 2004. Resumen de Reporte de Evaluación Independiente de la
Calidad del Agua en la Cercanía del Distrito Minero Yanacocha, Cajamarca,
Perú. Report prepared for the International Finance Corporation and the
Multilateral Investment Guarantee Agency. Washington, DC.
52