19, June, 2012

Mining in Latin America: Attracting Quantity and Quality in FDI

How can countries attract foreign direct investment in mining, while at the same time ensure environmentally and socially sustainable economic growth? The Latin American experience offers some answers.

Latin American mining investment is led by the private sector.  The key policy question that Latin American countries are addressing, then, is how to ensure that foreign direct investment (FDI) promotes socially and environmentally sustainable economic development.  Mining investment enhances gross domestic product (GDP) growth, but does not necessarily address challenges like environmental governance, employment generation or local-level community development.  However, the Latin American experience shows how some countries are attracting the kinds of foreign investment that can address these challenges, with a focus not only on the quantity of FDI, but also on quality, in terms of meeting the social and environmental standards of the international mining industry. Governments have also implemented fiscal arrangements to increase state capture of extractive rent and to promote local level benefits.  This brief describes these challenges in the Latin American context, and provides an overview of the investment policies and incentive packages countries are using to attract responsible FDI and turn foreign investment into concrete and sustainable development.

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Key Lessons:

  • Latin American countries have been successful in attracting not only quantity in FDI, but quality as well, as evidenced by the large number of environmentally and socially responsible companies investing in the region.
  • Maximisation of fiscal revenues still remains a challenge. Economic incentives for attracting private investment, such as tax schemes, differ from one country to another. It is important to tailor the choices of such incentives to each country’s context.
  • (Español) Maximizar los ingresos fiscales sigue siendo un desafío. Los incentivos económicos para atraer inversión privada difieren de un país a otro. Es importante adaptar dichos incentivos al contexto de cada país.

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