Lack of security, infrastructure threaten Colombia’s mining sector

Lack of security, infrastructure threaten Colombia’s mining sector

Colombia’s mining industry must overcome significant obstacles in terms of security and infrastructure in order to tap into economic potential.

On September 4, Colombian national authorities identified 307 illegal mining operations following the government’s efforts to overhaul the industry.

The government’s focus on the sector is part of a broader strategy to attract foreign companies and capital into the country as it tries to seize the windfall from rising global demand in commodities. South America has been at the centre of this phenomenon, brought about by economic growth in Asia.

But Colombia has been playing catchup with respect to other countries in the region, such as Chile and Peru, which have been better placed to reap the economic benefits. A number of issues have weighed on the sector and continue to complicate its long-term outlook.

For one, there is an active presence of illegal armed groups in several key mining areas. A number of reports have indicated that these groups are increasingly financing their operations through direct or indirect involvement in gold and coal extraction. By keeping some areas off-limits for exploration, their activities pose an existential security threat to mining regions.

The groups’ shift from the drug business to mining has taken away substantial tax revenue and has had a negative environmental impact. The Santos government is slowly shifting its security strategy to target these groups. Nevertheless, the smaller and more adaptable character of these networks is likely to pose a considerable challenge.

Colombia’s infrastructure is still not fully prepared to deal effectively with large-scale extraction projects. The country suffers from a deficient transportation network and inefficient energy grid. The government is in the midst of modernizing key highways and waterways that connect its Pacific and Atlantic seaports to mining regions, but they could take years to complete. Meanwhile, several projects are behind schedule. Given that energy prices in Colombia are still among the highest in the region, this could further delay joint private-public ventures.

In recent years, the government has worked to streamline the regulatory framework. In addition to enacting laws, it has also created a new mining agency (Agencia Nacional de Mineria) responsible for simplifying the tendering and approval process.

But problems still exist where companies have shied away from a number of projects, citing the lack of legal clarity and insufficient institutional support. Santos’ win in the national elections guarantees that mining will continue to be a main area of focus in the government’s economic strategy. As the government tries to fast-track further reforms, it is expected that this will give greater certainty to the sector in the coming years.

The push to reduce illegal mining is an important first step that will create greater accountability and transparency in the industry. This development sends a positive signal to foreign investors who are looking towards the country’s vast mining resources. Nevertheless, the industry faces a tough road ahead that will take some time to overcome. With international demand for commodities having fallen in recent months, as this situation continues, it could further complicate the outlook for the sector.

About Author

Sergio Rojas

Sergio is a contributing analyst for several risk management consultancies in Canada and the UK. He holds a Masters degree in International Relations from the London School of Economics, and Bachelor degrees in Commerce and Political Science from the University of Alberta and Carleton University in Canada.