World Bank outlines how Ecuador can harness mining to promote national development

Ecuador has great potential for growth and the opportunity to achieve a broad consensus to overcome its challenges, according to Oscar Calvo-González, regional director of equitable growth, finance and institutions for Latin America and the Caribbean at the World Bank.

Calvo-González was in Ecuador with other World Bank experts for the presentation of the study “Ecuador: Resilient growth for a better future”.

The study emphasizes the need for Ecuador to diversify its growth sources beyond traditional sectors, increase the role of the private sector in the economy, implement policies to boost employment and competitiveness, facilitate international trade, and ensure balanced and responsible income management.

Talking to journalists, Calvo-González noted that Ecuador's challenges are similar to those faced by other countries in the region, which has generally seen low economic growth over the last decade. He highlighted that "the countries that have fared better are those that have achieved broader consensuses on economic policies, allowing for stability and fewer fluctuations."

The World Bank identifies three key sectors to drive Ecuador's social and economic development: mining, agriculture and tourism.

ECUADOR'S MINING POTENTIAL 

Ecuador currently has two large-scale mines in production: the Fruta del Norte gold mine and the Mirador copper mine. In 2023, national mining exports reached U$3.32bn, up by around 20% year-on-year, according to the central bank.

The country currently has a portfolio of medium- and large-scale mining projects, including Cascabel, Warintza, Llurimagua, Loma Larga, Río Blanco, Cangrejos, Curipamba and La Plata, and these projects could help Ecuador capitalize on growing demand for metals in world aiming for decarbonization.

The World Bank report notes that Ecuador has great geological potential, with identified deposits containing high concentrations of minerals, making it an attractive destination for investment. 

The study projects that the mining sector could generate around 273,000 direct jobs and 80,000 indirect jobs by 2025.

However, growth in social and political opposition to mining poses a significant challenge, potentially leading to the rise of illegal mining and its associated adverse effects, such as organized crime and delinquency. 

"Institutional deficiencies limit the positive impact of formal mining on tax revenues, local communities, and the environment," the report reads.

It also highlights that local development opportunities are constrained because the mechanism to transfer mining revenues to local governments is ineffective, and these authorities lack the capacity to implement impactful projects. 

To tackle this, Calvo-González told BNamericas that Ecuador should implement a communication strategy to highlight the benefits of formal mining and the positive practices of companies as a way of improving their image, as "not doing anything has a high cost."

THE MAIN CHALLENGES FOR MINING

The study identifies several key issues for the sector:

• Indigenous territories: Indigenous lands are central to current debate over areas excluded from mining, and this issue is complicated by incomplete and controversial cartography.
• Environmental permitting: The licensing process is rigid and unrealistic, and the institutional framework for controlling mining operations is underdeveloped. This raises concerns among environmental activists and the public about the government's ability to manage environmental risks.
• Artisanal and small-scale mining: This sector accounts for 22% of national gold production but often creates precarious jobs and significant environmental damage, fueling animosity toward formal mining.
• Illegal mining: This has become intertwined with organized crime, leading to increased delinquency and the smuggling of illegal gold, mercury, explosives and firearms.

The World Bank recommends urgent measures and institutional strengthening to ensure the positive impact of mining on communities and address environmental issues. This includes broad citizen participation in drafting environmental and indigenous legislation, enhancing the special committee to control illegal mining, and implementing regulatory reforms to improve tax collection and ensure that mining revenues benefit local governments.

MAXIMIZING THE GEOLOGICAL POTENTIAL

The World Bank's recommendations include:

• Training local governments: Enhancing their capacity to design, implement and control development programs and projects to ensure communities benefit from formal mining and avoid the mismanagement of funds.
• Regulated mining: Allowing the government to control mining projects to limit violence and pollution caused by armed groups.
• Clear regulations: Define water protection zones and establish a robust institutional framework to manage and plan mining operations.
• Reducing subsidies: Redirect and reduce electricity and fuel subsidies in the mining sector, reallocating these funds to health or education.