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Beyond Ratings Weekly Digest

Your briefing on augmented financial risk analysis

N°143 ▪ 26th April 2018


Mining, social movement and environmental justice in Latin America: towards a non-extractivist development?

One year ago, El Salvador became the first country to ban metals mining, “prizing water over gold” as titled in the New York Times. El Salvador, ranked as the most water-stressed country in Central America, decided to forbid a highly water-consuming and polluting activity to preserve its water resources (according to the Colombia Water Center, about 90% of the country’s surface water is contaminated, notably because of the use of cyanide to separate gold from the rock). This decision was the fruit of a long protest movement, which mushroomed from the beginning of the 2000s, when a Canadian mining company acquired a permit in a very sensitive area, and reached a peak in 2008 when a series of demonstrations that were supported by the Catholic Church of El Salvador led to a halt in mining licence issuing. In response, the Canadian company sued the government in 2009 but finally lost the case in 2016: this judicial success led to the final ban the following year.

Mineral extraction remains a growing activity that is inseparable from current industrial development pathways (see the graph below from World Mining Congress illustrating world past extraction trend), however one could see on the other side an increasing trend of questioning the relevance of mining as an engine of economic development. More restrictive regulations and stronger environmental protections are imposed in an increasing number of countries, especially in Latin America; open-pit mining is getting banned in some places, such as in Costa Rica; other countries (like Malaysia and India) are implementing moratoriums because of strong concerns about water risks. All around the world, resistance cores against the mining sector are observed. With regard to Latin American countries, BMI research estimated in a 2017 report that this trend should very likely continue in the coming years.

World past minerals extraction trend

Sources: Beyond Ratings, World Mining Congress

Will Colombia be the next opponent to mining activity? At about the same time El Salvador was establishing its definitive ban, a vote was organized in the little Colombian town of Cajamarca in the Tolima region against a mega gold mining project planned in the municipality, run by the multinational company AGA. The vote finally gathered a vast majority of ‘no’. Contrasting with central government’s positions, local authorities recognized the validity of the vote and asked AGA to leave the region. At the national level central government first rejected the vote, stating votes could not be retroactive, however the company finally took the decision to cancel the whole project, stating that the conditions were not fulfilled considering the popular opposition.

What has followed one year later? No general ban has been adopted by the government so far, but opposition remains lively: during the summer of 2017, members of the Colombian First Nations occupied a mine to protest its illegal operations and obtained a favourable decision from the environmental authority; they also asked for action to be taken against 160 other mines that were contaminating water. A few weeks later, some indigenous leaders protested in Bogota against a coal open-pit mine expansion project that was threatening local water resources; in November, hundreds of indigenous people marched to protest against mining operations in the natural region of Sierra Nevada de Santa Maria; and another example of popular opposition took place at the end of the year, when a video showing a waterfall heavily polluted went viral and caused public uproar. It should be noted, however, that as mining activity provides economic benefits, it also gathered supporters: at the beginning of 2018, a pro-mining referendum was organized in Vetas municipality, where gold mining is the only industry. Citizens seemed however to vote predominantly against mining (Reuters).

The Environmental Justice Atlas indicates that about 120 civil conflicts related to environmental justice are documented in Colombia, with a majority of them mining-related conflicts.

Hadrien Lantremange



Sovereign Risk

Portugal’s rebound without austerity: the genesis of a fairy tale

Real GDP Growth Rate (YoY%)

Portugal is often quoted by some politicians, journalists or analysts as being the example of a country having emerged from the European sovereign debt crisis without the application of an austerity policy.

In 2010, when Portugal asked for help from the IMF and the European Union, the country accepted the application of a “Troika” plan : violent contraction of public expenditures (-10.6% between 2010 and 2013), reduction of pensions, wages, reforms of the labor market, tax reform, reform of public enterprises, etc. The collapse of domestic demand (-10.1% between 2010 and 2013) and improved cost competitiveness have unlocked an export potential. The left coalition that came to power in 2015 gives a moderate relaxation of the constraint on domestic demand (household expenditures grew by only 5.1% since 2015) by increasing the minimum wage and small pensions, without going back on the various reforms of the previous government. As we have seen, Portugal, like Spain and Greece, had to apply an austerity program. This raises questions about the lack of cooperation in the eurozone and the obligation to apply painful internal devaluation for the populations.

Sources: Beyond Ratings, National Sources


A focus on patent applications: why we should invest in R&D

Resident and Non-resident patent applications

Today, we celebrate World Intellectual Property Day. This event, organized by the World Intellectual Property Organization (WIPO), is the occasion focus on patent applications and its effects.

Patents applications increased for the 7th year running, attaining nearly 3 million applications in 2016. This constitutes an 8.3% increase compared to 2015. The same trend, in various proportions, is also present in utility models, industrial designs and trademarks applications. However, since 2009, the growth is mainly supported by Upper Middle-Income countries, like China. This is the result of a more active economy and a political will to support innovation. Low-Income and Lower Middle-Income countries show almost no patent applications. This may be due to a lower protection of property rights and a less favorable environment for innovation, as illustrated by the low “protection of property rights” score from the Fraser Institute. It is also worth noting that a causal effect of patent application increase on GDP growth can be found in the long term. This, once more, advocates for more spending in R&D and innovation to enhance future GDP growth, especially for the countries that are lagging. Of course, economic growth is not just a matter of R&D (e.g. human capital or natural resources also matter). However, it is certain that it can be a source of competitive advantages (or disadvantages) in a globalized economy.

Sources: Beyond Ratings, World Bank

Carbon/Climate Change

The EU’s Effort Sharing Regulation soon coming to complement the EU ETS

Required emission cuts in 2021-2030 as a result of the EU’s Effort Sharing Regulation

The EU has committed to cut its greenhouse gas emissions not just through the EU Emissions Trading System (-43% target for 2030 compared to 2005) but also in other sectors not covered by its ETS. This is the purpose of the Effort Sharing Regulation (ESR), politically agreed in December 2017, and to which the EU’s Parliament just gave the green light. The ESR presents a commitment to cut emissions by 30% in the 2021-2030 period (compared to 2005 emissions) based on sectors including transport, buildings, agriculture and waste, and that account for 60% of the EU’s emissions. Transport and buildings, in particular, represent respectively 35% and 25% of effort sharing emissions in this context (based on 2015 data). However, efforts are of course not the same for all countries. Today’s graph shows how they vary depending on each country, showing significantly higher relative efforts in wealthier countries, where targets are generally between 35% and 40%. This matters when analysing countries – especially as these targets are binding – even if it can also be noted that there are also quite a few flexibility mechanisms in the regulation (e.g. over time, between countries, with the EU ETS or the land use sector…) in particular to favour cost effectiveness.

Sources: Beyond Ratings, Carbon Market Watch


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Photo credit via Visualhunt/CC BY-SA or other: Front page ▪ Credit 1: CECAR – Climate and Ecosystems Change Adaptation R; Credit 2: Tony Webster; Credit 3: Kiefer.; Crédit 4: NASA Goddard Photo and Video / Research notes ▪ Credit 1: DnDavis (via; Credit 2: zhu difeng (via Fotolia); Credit 3: Mny-Jhee (via Fotolia); Credit 4: xmentoys (via Fotolia)


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