Ecuador - Two points on mining risk

The political situation will change no matter what. The security situation won’t change without a plan to deal with illegal mining.

I spoke at the CGS Quito conference yesterday, outlining regional trends and specific above ground risks that mining companies face in Ecuador. Today’s newsletter highlights two points from my presentation.

1: Political change is inevitable. A lot of mining companies are excited about the Lasso government and for good reason. The current administration has a decent mining policy. It’s pro-business while also pushing for environmental standards and community investment that are necessary for a sustainable industry. As I told the companies in attendance, “enjoy it while you can.” Anti-mining sentiment is growing in Ecuador and a strong anti-mining candidate came within just a few points of making a second round runoff and winning the presidency during the last election. Politicians who are against mining including but not limited to Yaku Perez are likely to gain in political influence and some anti-mining president will come to power at some point in the coming decade.

Companies need to get ahead of the curve. They need to speak with the anti-mining politicians now to try to find points of compromise before those politicians reach the executive branch. And there are areas for compromise. Most candidates that are anti-mining also want to increase social spending and improve economic development for indigenous and rural communities. There is a role that mining companies can play in that effort as long as they also demonstrate that they take environmental concerns seriously. The worst thing that companies can do is sit around each election praying for a “good” result for their sector and believing they are doomed if a bad result comes in. It’s not too early to start preparing for the 2025 election.

Yesterday’s presentations from the companies included a lot of conversations about the importance of communicating with local populations and investment in local communities. That was good to hear. But it won’t be enough if regional and national level politicians aren’t also on board.

2: Illegal mining moves fast and breaks things. The speed with which illegal mining sites pop up and hundreds or even thousands of illegal miners show up can’t be overstated. Professional mining companies give presentations with fancy charts about geology, spectral analysis and drilling samples trying to get financing and permissions to dig. Meanwhile, a couple hundred impoverished illegal miners simply find sites and start digging or blasting without any of the high tech equipment or maps. When one illegal miner identifies a promising site, word spreads quickly. The lack of regulation and government presence means the illegal mining operations have huge environmental impacts that destroy ecosystems and undermine efforts to ensure legal miners do their best to keep things environmentally sustainable. 

Illegal mining overlaps with security challenges. Yesterday’s newsletter for paying subscribers discussed the overall security challenges in Ecuador, but the security challenges in mining areas are quite different from those around the Guayaquil area that have driven the national statistics for homicides higher. Organized crime descends on illegal mining sites quickly, offering some financing for operations but also extorting the miners and local communities. And if two criminal organizations decide to fight over the same mining territory, the situation becomes quite violent. Criminal organizations are also key in the laundering of gold and other minerals into legal supply chains, something every mining company must be careful to avoid.

Governments can push back against individual illegal mining activities, but the illegal groups adapt quickly and can use violence, corruption and political pressure to fight back when profits are high enough. This is a regional problem that goes well beyond Ecuador and countries need to find regional solutions that include going after the supply chain of gold laundering that helps the criminal profit.

---

Separately, World Politics Review has given me a weekly column and the first one was published yesterday. I wrote about how unpopular all the leaders are at the Summit of the Americas and the challenge for regional democracy that those low approval ratings represent. Columns will continue every Monday until they kick me out.