The Cobre mine in Panama was once the world’s largest copper mine. Not anymore. In November, the Supreme Court voided a 20-year concession renewal that had just been awarded to Canada’s First Quantum Minerals. The project was responsible for as many as 8,000 jobs, while output amounted to about four percent of gross domestic product. With an open-field presidential election months away, the political class jettisoned itself from the economic and environmental debate.
The decision by the Supreme Court was ostensibly about environmental degradation. The mine is located in a biodiverse jungle near the Atlantic Ocean; the area is part of the Mesoamerican Biological Corridor. The extractive operation has been siphoning off essential water resources. Amid street protests in Panama City, the company was forced to shut operations because of a sea blockade. Leonardo DiCaprio and Greta Thurwig prominently entered the fray in support of anti-mine campaigners.
Advocating for the Mesoamerican Biological Corridor is an important earth-stewardship issue, but that point may obscure the root cause of national unrest. The street protests may have been less about the Cobre footprint and more about extreme income inequity. Panama, alongside Mozambique and Zimbabwe, has one of the highest Gini coefficients in the world. While seemingly an obscure economic measure, the indicator represents the scope of income inequality. Experts like to cite Panama’s comparatively robust per capita income figure at near $30K, roughly 20% greater than Puerto Rico. The top-line data is misleading.
One reason the true picture of the Panamanian economy is concealed is the rhythm of Panama City. Tocumen International Airport, a hub for Star Alliance member Copa Airlines, buzzes with hemispheric activity. The skyscrapers of Punta Paitilla could be in any major city worldwide. And the canal is outlandishly impressive, at least when the water levels are more normal than they are today.
The rural picture is different. That economy is driven in large part by small-scale farming for the local market. According to the UN Food and Agricultural Organization, the average farm size is about seven hectares. Roughly one-third of the national land mass is allocated to agriculture.
A statement in a recent Forbes article from the head of Panama-based Fundación Geoversity, Juan Monterrey, is telling, “Panama is a maritime and logistics powerhouse, an international banking center, the undiscovered crown jewel of natural and cultural tourism in the Americas, and a nascent hub for digital technologies.” For an economist, those points sound more like the description of an advanced industrial economy, rather than a struggling middle-income one.
Panama is struggling. The omnipresent canal generates as much as $5 billion a year for republic coffers. Because of a lingering drought, authorities now estimate they are losing as much as $100 million monthly. Under ordinary circumstances, the canal can handle about 35 vessels per day. That number is approaching 20 vessels as draft limits falter.
The Cobre mine landed in the gap between the international face of Panama and its everyday reality. History can be a guide here. Amid widespread and ongoing protests over US influence, President Carter signed over the canal through the Carter-Torrijos Treaties. The chief executive of First Quantum, Tristan Pascall, affirmed in a Financial Times interview, “We could have done a better job improving our communication engagement with stakeholders further afield, particularly in Panama City, in Colón.”
The economic irony is that the arrangement between Panama and First Quantum is set to go to international arbitration over indirect expropriation. The award could be as high as $50 billion by some estimates, representing the world’s largest-ever arbitration claim. The Investor States Dispute Settlement system affords companies the ability to shop successful claims across borders in search of assets. The future impact on the Panamanian economy could be severe.
The notion that companies in the extractive industries justify their impact by economic-development potential is increasingly off-kilter. Especially in the developing world, jobs in the tertiary and quaternary sectors are amplified for lifestyle impact. For First Quantum, the real antagonist may actually be Tigo Panamá. This mobile operator just announced a $100 million investment to improve its fiber-optic network. ■
Our Vantage Point: In Panama, we think the dialogue on the closure of the world’s largest copper mine should center on core household issues. Earth stewardship is certainly a far-reaching and relevant concern. Still, the nation has one of the highest levels of income inequality anywhere.
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Image shows anti-mine demonstration on Avenida Balboa. Credit: David at Adobe Stock.