“ IFC is pleased to receive this independent report from Apoyo on the economic impacts of the Yanacocha mine. The report clearly lays out the significant economic impacts of the mine in terms of its contribution to employment, taxes, local spending and GDP. Yanacoha's development has coincided in recent years with a period of fast growth in the Peruvian economy to which and increased natural resource investment and production generally has contributed. The country's overall macro-economic management and the world economy have allowed Peru to take advantage of the resources investment and production boom without suffering the consequences of a "macro-economic resources curse". Over the last five years, for example, Peru's real GDP has grown by an average of close to 7% pa. As the report notes, and those who are familiar with the development of resources in Peru are aware, the inter-relationships between communities and large mining and other resource development projects is complex and can be further impacted by ongoing changes such as urbanization and economic growth and development more generally. Communities are affected in a variety of ways, not all positive from their perspective, and they may appreciate some of the benefits that such developments and their community programs bring more than others. This complexity, emphasizes the importance of investors continuing to engage with stakeholders about their programs, as Yanacocha does in Peru.”

Somit Varma, Director IFC Oil, Gas, Mining and Chemicals Department

Study of the Yanacocha Mine’s Economic

Impacts: Final Report

Prepared for

the International Finance Corporation

by

Lima, September 2009

Table of Contents

EXECUTIVE SUMMARY ........................................................................................................................ I

INTRODUCTION ...................................................................................................................................... 1

METHODOLOGY ..................................................................................................................................... 4

CLASSIFICATION OF IMPACTS ................................................................................................................... 4IMPACT ANALYSIS .................................................................................................................................... 4

Impacts at the Macroeconomic Level .................................................................................................. 4Impacts at the Regional and Local Levels ........................................................................................... 5Impacts at the Socioeconomic Level .................................................................................................... 6

INSTRUMENTS FOR IMPACT ANALYSIS ...................................................................................................... 7LIMITATIONS OF THE STUDY ..................................................................................................................... 8

ANALYSIS OF THE YANACOCHA MINE’S IMPACTS .................................................................. 10

IMPACTS AT THE MACROECONOMIC LEVEL ............................................................................................ 10Mine Production ................................................................................................................................ 10Fiscal Contribution ............................................................................................................................ 12Value Added ....................................................................................................................................... 14Employment ....................................................................................................................................... 15

IMPACTS AT THE REGIONAL AND LOCAL LEVELS ................................................................................... 16Mine Operations ................................................................................................................................ 17Effects of the Yanacocha Mine’s Presence ........................................................................................ 25Mining Company Social Responsibility Programs ............................................................................ 28Generation of Fiscal Revenues .......................................................................................................... 31

SOCIOECONOMIC IMPACTS ...................................................................................................................... 34Access to Basic Services .................................................................................................................... 35Overcrowding Index .......................................................................................................................... 36Quality of Housing ............................................................................................................................. 36Education ........................................................................................................................................... 37Per Capita Income ............................................................................................................................. 37

CONCLUSIONS ....................................................................................................................................... 40

OVERALL IMPACTS ................................................................................................................................. 42THE MINE’S DISTRIBUTIVE EFFECTS ...................................................................................................... 43THE MINE’S EFFECT ON POVERTY IN THE REGION .................................................................................. 45

APPENDIX: BACKGROUND ON METHODOLOGIES USED ........................................................ 46

THE VALUE ADDED MULTIPLIER ............................................................................................................ 46EMPLOYMENT MULTIPLIERS ................................................................................................................... 48THE DOUBLE DIFFERENCE METHODOLOGY ............................................................................................ 50

REFERENCES ......................................................................................................................................... 52

i

EXECUTIVE SUMMARY

The economic impacts of the Yanacocha Mine are evident at the macroeconomic level,

at the regional level, and locally in the mine’s area of influence. These impacts are

transmitted by means of four main channels. The first channel is related to the mine’s

operations and refers primarily to the impacts directly generated by the nature of the

business, including its use of personnel, its procurement of goods and services, its

construction and maintenance of roads, and its use of resources such as water and

land. The second channel is the mine’s presence, which refers to long-term impacts

generated by the mine’s existence, for example, the migration driven by the economic

expectations generated by the mine, the strain on local public resources caused by the

resulting population pressure, and the boost to the local economy resulting from

expenditures by mine employees. The third impact channel refers to the mining

company’s social responsibility programs. The fourth impact channel is the generation

of fiscal revenues.

The overall economic impacts of the Yanacocha Mine are positive. At the

macroeconomic level, the mine accounts for a significant contribution to national

coffers, the demand for goods and services, and the availability of employment.

The overall impacts at the regional and local levels are also positive, although

interviews with focus groups identified some negative perceptions regarding the

nature of mining activities and the socioeconomic conditions in the mine’s area of

influence. While the mine appears to account for significant improvements in

nonmonetary indicators of well-being and the quality of life, monetary indicators show

some improvement, but this improvement is not particularly different from that in

comparable regions, possibly because Peru generally has grown relatively quickly in

the period examined.

Regional and local level impacts are transmitted through four different channels: the

mine´s operations, the mine´s presence, the mining company’s social responsibility

programs, and the generation of fiscal revenues. Overall, the channel involving the

mine’s operations is positive, given its contribution to both the quantity and quality of

work in the area and its boost to local businesses because of the mine’s expenditures

and the expenditures of its employees, who are paid significantly more than nonmine

workers. Despite the mine’s job creation, the extent of direct job creation is relatively

low in relation to the mine’s contribution to regional gross domestic product primarily

ii

because of the capital-intensive nature of mining. The local population interviewed

perceives the mine’s contributions to local infrastructure positively, but has an

unfavorable view of the gap between the wages of mine workers and those of nonmine

workers. Some interviewees also allege that the mine is responsible for water pollution

and soil erosion.

In so far as the second channel of regional and local impacts, the mine’s presence, is

concerned, the mine has attracted significant migration, especially to urban areas. This

has led to some negative effects such as price increases in the city of Cajamarca

brought about by increased demand, higher spending power of mine employees, and

excessive demand for some public services plus some negative perceptions among

local residents about the effects of the influx of migrants.

The third channel refers to the social responsibility programs of the mining company,

Minera Yanacocha. While these programs have made significant contributions in terms

of roads and household water and sewage hookups, their contributions to health and

education are relatively insignificant.

The last channel of regional and local impacts refers to the generation of fiscal

revenues, in particular, the mining canon (canon minero), a transfer of 50 percent of

the income tax generated by mining operations to regional and local governments

where mining operations are located. In 2006, these revenues accounted for more than

39 percent of central government transfers to regional governments and more than 23

percent of transfers to local governments. This channel has become an important

source of resources, and if properly invested, could be a potential source of positive

impacts for the region.

In relation to the nonmonetary socioeconomic impacts, the population in the mine’s

area of influence has seen greater improvements in basic services, reductions in

household overcrowding, and enhancements in literacy rates than populations in

control districts, but lower levels of improvements in housing quality. Regarding

monetary indicators, poverty and extreme poverty in the mine’s area of influence

improved between 2001 and 2007, but no more than in comparable districts elsewhere

in the country.

1

INTRODUCTION

Cajamarca is one of the 25 regions of Peru (figure 1) and includes part of the northern

Andes and the northern Amazon jungle. Its population is about 1.4 million people, or

4.9 percent of Peru’s total population of 28 million (2007 census). Each region is

subdivided into provinces that are in turn subdivided into districts.

Figure 1: The Regions of Peru

2

The region of Cajamarca is divided into 13 provinces that are in turn subdivided into a

total of 128 districts. One of the provinces is also named Cajamarca and has a

population of approximately 316,000 people. The capital of Cajamarca Province (and of

the region) is the city of Cajamarca, which together with the district of Cajamarca has

roughly 188,000 inhabitants.

The region of Cajamarca is the sixth poorest region in Peru: in 2007, 65 percent of the

population fell below the poverty line and 31 percent fell below the extreme poverty

line, compared with national poverty rates of 39 percent and 13.7 percent, respectively

(national household survey 2007).1

The Yanacocha Mine is a gold mine located in the Andes in the region of Cajamarca.

The mine’s concession occupies around 25,000 hectares (of which the mine site is

about 5000 hectares), including four important hydrographic basins (Cajamarquino,

Celendín, Jequetepeque, and Llaucano) located between 3,400 and 4,120 meters

above sea level. The mine’s area of influence is Cajamarca Province, specifically the

districts of Baños Del Inca, Cajamarca, and La Encañada. The city of Cajamarca is

located 2,720 meters above sea level and is the economic, tourist, industrial,

commercial, cultural, and mining hub of the Northern Sierra of Peru.

In 2007, average annual per capita income in the

region was equivalent to approximately US$700, compared with US$1,460 nationally

(national household survey 2007). The projected infant mortality rate for 2005–10 is 37

per 1,000 births, compared with a projected national infant mortality rate of 29 per

1,000 births for the same period (Cuánto 2007). Finally, in 2007, the region had 3.5

doctors per 10,000 habitants compared with a national average of 15.2 doctors per

10,000 inhabitants (Cuánto 2008). Thus with respect to these indicators, the region of

Cajamarca falls well below national averages.

2

The investment partners of Minera Yanacocha, the Yanacocha mining company, are

Newmont Mining Corporation (51.35 percent), Compañía Minera Buenaventura (43.65

percent), and the International Finance Corporation (IFC) (5.00 percent). Currently

Newmont Peru Limited, a Peruvian subsidiary of Newmont Mining, manages the mine.

Newmont Mining began exploration in the area in 1982 and identified the first ore

deposits in 1986. Following successful viability studies, operations began at the

1 National household surveys are carried out by the National Institute of Statistics (Instituto Nacional de Estadística e Informática). 2 In addition to regions, provinces, and districts, geographic divisions (coast, Sierra, Amazon basin) are commonly used to compare regions. As the region of Cajamarca is located in the Northern Sierra, it is frequently compared with other regions in this geographical area.

3

Carachugo pit in 1992. The first gold bar was produced in August 1993.3

The Yanacocha Mine has performed well at a commercial and economic level, but has

nevertheless faced some negative reactions from the local community. This may

indicate that not everyone in the mine’s area of influence has benefited from the mine’s

development, and subsequently, not everyone has perceived it positively.

From that

time, the Yanacocha Mine’s production grew considerably until it became the most

important producer of gold in South America. In 1994, mining activities began at the

Maqui Maqui pit. By February 3, 1996, the mine had produced 1 million ounces of gold

ore. That same year, the Yanacocha Mine began to operate at the San José pit, and in

1997 work began at the Cerro Yanacocha pit. The mine’s location offered excellent

opportunities for exploitation, which prompted the mine company to also begin to

exploit the La Quinua pit in 2001. The two pits that are currently producing gold ore are

La Quinua and Cerro Yanacocha.

For this reason, IFC, which has been one of the mining company’s partners since

1993, decided to undertake a study to assess the mine’s impacts on economic

development and poverty reduction. This study includes the following specific

objectives:

• identifying the channels through which the mining company generates impacts

nationally, regionally, and locally and determining the relative importance of

each channel;

• evaluating whether the mine’s area of influence has undergone significant

changes as a result of the mine’s development;

• differentiating between groups who have benefited from the presence and

operations of the mine and those who have been adversely affected.

3 Newmont Mining was the first company to develop and apply the lixiviation process to exploit disseminated ore, whose grade is low. The Yanacocha Mine´s production during the early 1990s was focused on applying this extraction technology. These efforts contributed to a substantial increase in Peru’s gold production such that small-scale mining is currently replicating this technology.

4

METHODOLOGY

APOYO Consultoría estimated the impacts of the Yanacocha Mine at three different

levels using a different methodological approach for each level.

Classification of Impacts

Given the magnitude of the mine’s operations, APOYO Consultoría decided to conduct

its analysis at three levels: the macroeconomic level, the regional and local level, and

the socioeconomic level. The impacts at the macroeconomic level refer primarily to the

mine’s aggregate effects on gross domestic product (GDP) growth, national fiscal

revenues, and employment generation. The impacts at the regional and local level refer

to aggregate impacts generated in the region, province, or districts in relation to the

mining company’s operations and social responsibility actions and to the fiscal

revenues generated by the mining canon.4

At the socioeconomic level, impact

indicators refer to long-term effects on individuals’ well-being and quality of life, for

example, access to infrastructure and services at the regional and local levels.

Impact Analysis

The following subsections explain the methodological approaches used for each level

of analysis.

Impacts at the Macroeconomic Level

4 The mining canon is the transfer from the central government of the equivalent of 50 percent of the income tax generated by mining operations to regional, provincial, and district governments where mining operations are located. These resources are to be spent on infrastructure projects.

5

We estimated impacts at the macroeconomic level by applying the economic multiplier

methodology. This permits quantifying the total impact generated by a given sector, in

this case, the mining sector, on the rest of the economy by identifying forward and

backward linkages created with other industries. In the case of Peru, the National

Institute of Statistics (Instituto Nacional de Estadística e Informática or INEI)

constructed multipliers in 2001 based on the input-output matrix it had developed in

1994 (INEI 2001). Despite the limitations of the input-output matrix (the main limitation

being that linkages between industries might have changed since 1994), it is currently

the only instrument available for estimating the overall impacts of the mine at the

macroeconomic level. The multipliers used for this assessment include the value added

multiplier and the employment multiplier.

The value added multiplier represents the effects that mining output has on GDP,

which may be direct, indirect, or induced. Direct effects are produced by the value

added of the mine, indirect effects correspond to the output generated by the demand

for inputs required to operate the mine, and induced effects correspond to the

economic activity generated by consumption by the mine’s employees. According to

INEI estimates and the multiplier methodology (explained in the appendix), each dollar

of production generated by the Yanacocha Mine generates US$2.33 in the economy.

The employment multiplier is based on the ratio of total jobs generated (directly,

indirectly, or induced) and jobs directly generated in the mining sector. For each job

generated by mining activity in Peru, 9.58 jobs are created at the macroeconomic level.

This estimated number of total jobs created includes not only the direct employment

generated by the mine, but also the indirect and induced jobs created in the national

economy.

Impacts at the Regional and Local Levels

The impacts of the Yanacocha Mine’s activities at the regional and local levels are

manifested through different transmission channels. Part of the research process

consisted of identifying and classifying these transmission channels. This was

accomplished by means of focus groups in the mine’s direct areas of influence, both

urban and rural, and interviews with specialists. The impact analysis was conducted by

6

identifying impact indicators for each transmission channel and comparing them with

developments in other regions to obtain an objective comparison of the results.

Impacts at the Socioeconomic Level

The main difficulty with impact evaluations is that one cannot know for sure what would

have occurred to the group of beneficiaries in the absence of the intervention; in this

case, the mine. We therefore needed to identify a group of individuals with

characteristics similar to those of the beneficiary group, but who had not been affected

by the mine. We refer to this group as the control group.

We estimated the Yanacocha Mine’s socioeconomic impacts using a methodology

known as the difference-within-difference or double difference methodology (Blundell

and Costa Dias 2002; Borland, Tseng, and Williams 2005), which is often used to

evaluate the impacts of social programs or projects on beneficiaries. This methodology

provides an objective measurement of the value generated by a project, because it

attempts to attribute specific effects to the project being evaluated by comparing

indicators for the treatment group and a control group at two points in time: before and

after the intervention.

To this end we compared residents of a number of districts directly influenced by the

mine and a number of districts with similar characteristics not influenced by the mine.

The objective was to isolate effects directly attributable to the Yanacocha Mine. The

first step of this comparison was to identify all the districts in the Cajamarca region that

belonged to the beneficiary (or treatment) group. The second step consisted of

identifying Sierra districts that had not had any mining or other comparable large-scale

projects, some of which would eventually be included in the control group. To this end,

the third step was to identify key characteristics from the 1993 census for the

beneficiary districts and the control districts (table 1). We then selected the control

districts using the propensity score matching methodology (Caliendo and Kopeinig

2005; Rosenbaum and Rubin 1983, which facilitates the identification of statistically

comparable entities.

7

Table 1: Characteristics of Beneficiary and Control Districts

We used the double difference methodology at the district level to assess nonmonetary

indicators of the mine’s socioeconomic impacts. However, to assess the monetary

indicators, we needed to use other comparators such as the Sierra or Northern Sierra

because of the lack of information at the district level. In these cases, the accuracy of

the analysis is limited, but it does provide some valuable insights into trends of the

impacts.

Instruments for Impact Analysis

To analyze the main economic impacts of the Yanacocha Mine we used information

provided by the mining company as well as secondary data sources, such as national

censuses; information available from the Central Bank, the Ministry of Finance, the

Ministry of Energy and Mines, and the INEI; and national household surveys. To

strengthen the analysis we developed an expenditure survey of mine workers and also

conducted several focus groups in the mine’s area of influence.

The objective of the expenditure survey was to characterize the expenditure patterns of

Yanacocha Mine workers and contractors to determine the total contribution of this

group to local consumption in the Cajamarca region. The total sample size was 383

(165 mine workers and 218 contractors), with a 5.5 percent sampling error and a 95

percent confidence level.

We conducted the focus groups to identify the main channels of transmission of

Region District Group

Percentage of the population

that is rural

Altitude of the capital city

(meters above sea level)

Percentage of professionals

Employment rate (%) Population

Average years of

education pscorea

Ancash Ataquero Control 83 2,719 49 13 1,792 3.8 0.37Ancash Chavin de Huantar Control 83 3,137 14 48 9,256 4.3 0.03Ancash Parobamba Control 84 3,185 16 58 6,897 4.3 0.06Ayacucho Santiago de Pischa Control 80 3,188 40 47 895 4.4 0.05Cajamarca Cajamarca Beneficiary 26 2,720 37 44 117,509 8.4 0.08Cajamarca La Encañada Beneficiary 96 3,098 44 40 22,117 4.5 0.38Cajamarca Los Baños del Inca Beneficiary 80 2,667 40 42 24,864 6.0 0.03Cajamarca San Juan Control 83 2,311 36 35 4,332 4.6 0.37Huancavelica Huancavelica Control 16 3,660 28 41 36,826 8.3 0.08Huánuco Quisqui Control 94 2,500 49 52 5,607 5.0 0.40La Libertad Quiruvilac Control 44 4,008 22 47 13,440 6.1 0.03Puno Sina Control 79 2,931 53 47 1,161 5.2 0.08Source: 1993 census.a. The pscore is an indicator used to identify the level of similarity between district groups. Disctricts with similar pscores can be compared.

8

impacts and to ascertain people’s perceptions about different aspects of the mine and

its operations.5

We held these focus groups in three different areas: rural communities,

semi-urban areas, and urban areas. We conducted the rural focus groups in various

rural communities in the districts of Cajamarca and La Encañada (Aliso Colorado,

Chilipampa, Hualtipampa, Huambocancha, La Ramada, Porcón, and Purhuay). We

held the semi-urban focus groups in the districts of Baños del Inca (community of

Santa Barbara) and La Encañada (community of San José). We ran the urban focus

groups with middle-income residents of the city of Cajamarca. The eight focus groups

consisted of men and women between the ages of 25 and 60.

Limitations of the Study

In an ideal scenario, the analysis of the Yanacocha Mine’s impacts on development

and poverty reduction would be based on a baseline study that would have provided

impact indicators at the beginning of the mine project for both the beneficiary group and

an adequate control group. Unfortunately, no such study was carried out, hence our

use of secondary information and focus groups.

Given study constraints, we were not able to analyze in detail the mine’s disaggregated

purchases by types of goods and services; the source of the purchases (abroad,

national, or local); and the suppliers. This means that we could not directly identify the

impacts derived from local purchases of goods and services, but have considered the

general impacts of mine spending with local companies.

The study was also limited by public data availability, particularly at the regional and

local levels. The most significant restrictions in relation to secondary information were

at the local level in that little information exists at this level. Census information

provides the only database that has information on population centers at two points in

time (1993 and 2005), but changes in census methodology and variations in the

regions’ population structure make comparing information at the regional level

impossible; however, the censuses do provide good information at the district level for

some indicators. Nevertheless, information from the censuses did not permit us to

conduct a more complete analysis of well-being variables such as people’s health, 5 Note that the information generated by the focus groups may not be representative of all residents in a particular location.

9

household incomes, and the like. For this reason, we conducted much of the evaluation

of socioeconomic impacts at the regional level using the national household survey and

comparing the 1998 survey with the 2006 survey.6

Given study constraints, we were not able to gather and assess quantitative

information about the mining company’s social responsibility activities at the local level

in order to analyze the individual effectiveness of such activities. For this reason we

based our analysis on figures obtained from the mining company’s annual reports and

individuals’ perceptions ascertained during focus group discussions.

Finally, one of the main channels through which the mine can bring about changes in

people’s well-being and incomes comes from the mining canon, which goes directly to

subnational governments (regional, provincial, and district) from the national

government. However, most of the canon’s impacts will depend on the quality of the

expenditures and investments by subnational governments.

6 Even though the comparability of both surveys is not optimal, they provided sufficient information for us to obtain a good estimate of impact indicators.

10

ANALYSIS OF THE YANACOCHA MINE’S IMPACTS

Mining activity at the Yanacocha Mine began in 1993. Since that time, the mine has

become an important source of value added, employment, and fiscal revenues.

Impacts at the Macroeconomic Level

The Yanacocha Mine’s economic impact has been positive at the macroeconomic level

as evidenced by its effects on the principal macroeconomic variables.

Mine Production

The main mineral the Yanacocha Mine produces is gold. Between 1994 and 2007,

Peru produced 1,857 tons of gold, of which 42 percent, or 782 tons, was produced by

the Yanacocha Mine (figure 2). Gold production at the mine grew at an average annual

rate of 17 percent between 1993 and 2007, reaching its maximum level of 104 tons in

2005. However, the mine has reduced its production since 2006, primarily because the

reserves at its main deposits have decreased significantly.

91.6 80.2 70.3 61.1 58.0 55.9 59.9 57.9 57.3 54.9 48.6 45.8 50.2 60.0 71.4

0

20

40

60

80 100

1993 1995 1997 1999 2001 2003 2005 2007

Production by the Yanacocha Mine

National production excluding the Yanacocha Mine

Source: Yanacocha Mine and Central Bank data.

Figure 2: National Gold Production, 1993 – 2007

Per

cent

age

of to

tal p

rodu

ctio

n

11

The Yanacocha Mine also produces silver as a byproduct of the gold extraction

process. It produces approximately 48 tons of silver per year, or 3.5 percent of Peru’s

total silver production.

Virtually all the mine’s production is exported, making the mine an important

component of the Peruvian mining sector’s total exports. The mine’s gold exports have

accounted for 14.5 percent of total mining exports and 7 percent of total exports.

Between 1993 and 2007, mining exports accounted for close to 54 percent of total

exports (figure 3). This constituted an important source of foreign currency inflows that

became even more valuable after 2002 with the boom in metal prices.

The cumulative value of the Yanacocha Mine’s exports between 1993 and 2007 was

US$10 billion (figure 4), representing 43 percent of total gold exports.

US

$ bi

llion

s

0

1

2

3

4

5

1993 1995 1997 1999 2001 2003 2005 2007

Yanacocha Mine All other Peruvian gold mines

Source: Yanacocha Mine and Central Bank data.

Figure 4: Evolution of Gold Exports, 1993 – 2007

0 5

10

15 20 25 30

1993 1995 1997 1999 2001 2003 2005 2007

Mining exports Total exports

Source: Yanacocha Mine and Central Bank data.

US

$ bi

llion

s

Figure 3: Evolution of Total and Mining Exports, 1993 – 2007

12

Fiscal Contribution

Tax payments by the mining industry as whole have grown substantially in recent

years. The Yanacocha Mine has made an important contribution in this respect. During

1994–2006, the mining company paid US$1.150 billion in income tax, customs duties,

and the National Housing Fund (Fondo Nacional de Vivienda) tax, the Solidarity

Extraordinary Tax (Impuesto Extraordinario de Solidaridad – IES), as well as US$18

million in contributions to the Social Security Scheme (table 2). The mining company’s

total tax contributions grew at an average annual rate of 47 percent during 1994–2006..

Table 2: Contributions to Fiscal Revenues by the Yanacocha Mine, 1994 – 2006 (US$ thousands)

Corporate tax payments by the mine increased significantly from 2003 because of

increases in international metal prices. The Yanacocha Mine’s corporate tax

contribution between 2000 and 2006 averaged 28 percent of the corporate tax paid by

the entire mining sector (figure 5).

Year Customs duties Income taxSocial Security

SchemeNational Housing

Fund tax Totala

1994 127 10,850 127 113 11,2171995 237 33,513 248 212 34,2101996 182 51,234 345 297 52,0591997 244 50,344 411 278 51,2771998 315 18,453 536 298 19,6021999 459 39,394 723 402 40,9772000 910 39,715 1,406 781 42,8122001 1,328 16,481 1,280 589 19,6792002 623 51,522 1,772 343 54,2602003 673 140,162 1,831 411 143,0782004 573 181,449 2,585 278 184,8852005 636 231,495 2,926 n.a. 235,0572006 584 256,482 3,874 n.a. 260,939Total 6,891 1,121,094 18,064 4,002 1,150,052

Source: Yanacocha Mine data.Note: n.a. = not applicable.a. Also including Solidarity Extraordinary Tax.

13

During 1993–2006, the Yanacocha Mine’s workers contributed directly to the national

treasury with payments of US$$69.8 million for personal income tax (table 3), or an

average of 0.7 percent of total personal income tax collections. This is in addition to

payments of US$77 million to the Fund for Training and Job Promotion.

Table 3: Employees' Contributions to Fiscal Revenues, 1993 – 2006 (US$ thousands)

Year

Personal income tax (mine's own employees)

Fund for Training and Job

Promotion

Personal income tax (contractors' employees) Total

1993 105 0 578 6831994 279 0 708 9871995 898 0 861 1,7591996 2,709 0 1,073 3,7821997 3,088 7,638 565 11,2911998 1,984 5,943 881 8,8081999 2,361 4,691 1,891 8,9432000 4,594 0 2,158 6,7522001 4,768 0 3,702 8,4702002 6,766 800 3,377 10,9432003 7,928 13,199 3,425 24,5522004 9,260 15,018 3,401 27,6792005 11,097 19,395 3,682 34,1742006 14,131 10,339 3,964 28,434Total 69,968 77,023 30,266 177,257

Source: 1993-2004: Yanacocha Mine data; 2005-6: APOYO Consultoría estimates.

Figure 5: Corporate Tax Collections from the Mining Sector

0 1 2 3 4 5

1998 1999 2000 2001 2002 2003 2004 2005 2006

Yanacocha mine Total Sector

Source: Yanacocha mine and National Tax Administration data.

(US

$ bi

llion

s)

14

In addition, the mine’s shareholders generated direct contributions of US$38 million in taxes withheld in years that dividends were paid.

Value Added

The Yanacocha Mine’s value added was US$6.3 billion during 1993–2006 (table 4), or

an average of 0.8 percent of Peru’s GDP, 26 percent of the Cajamarca region’s GDP,

and 15 percent of mining GDP.7

Its total impact on GDP (including indirect and

induced effects) is substantially larger. Based on the mining sector multiplier mentioned

in the methodology section, each dollar of production generated by the Yanacocha

Mine generates, on average, US$2.33 of GDP. Hence, given that between 1993 and

2006 the gross value of the Yanacocha Mine’s production was approximately US$9.1

billion, the total value generated in the economy was approximately US$21.3 billion.

7 To estimate the value added by the Yanacocha Mine, we used the structure of the sector as registered in 1994. The value added by the mining sector represents approximately 68 percent of the gross value of production and the remainder corresponds to intermediate consumption. According to information provided by the mine in May 2008, the cash production cost of gold (excluding depreciation and other capital costs) was US$350 per ounce and the final product was worth US$890 per ounce. Taking into account that production costs include payments for factors of production and expenditures on inputs, we believe that the ratio suggested by the input-output matrix is a valid approximation.

Figure 6: The Yanacocha Mine’s Contribution to GDP, 1993 – 2006

Per

cent

age

of G

DP

0 1 2 3

4 5

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Direct effect Indirect and induced effect

Source: Yanacocha mine and INEI data; APOYO Consultoría estimates.

15

Table 4: GDP and Value Added by the Yanacocha Mine, 1993 – 2006 (Current US$ millions)

Employment

The mine’s contribution to job creation has increased over time. Between 1995 and

2006, this contribution increased 10-fold. By 2006, the mine had directly generated

10,000 jobs and had accounted for a total of more than 100,000 direct, indirect, or

induced8

. jobs (table 5) This corresponded to 0.7 percent of Peru’s economically active

population.

8 This estimate uses an employment multiplier close to nine, based on the figures published by the National Institute of Statistics (see appendix). However, some studies use lower multipliers (ICMM used an overall multiplier that ranges between 6.5 and 8.5 when measuring the impact of Antamina’s mining operations in Peru, see “Peru: The Challenge of Mineral Wealth).

YearNational

GDPGDP Cajamarca

regionGDP metal

mining sector

Value added by

the minea

Indirect and induced

impactsb

1993 34,821.2 729.1 1,308.6 20.0 44.41994 44,881.2 981.1 1,721.6 80.4 179.01995 53,607.3 1,213.7 2,029.1 147.7 328.91996 55,853.8 1,326.2 2,202.7 219.8 489.31997 59,133.5 1,470.8 2,418.9 244.4 544.11998 56,763.5 1,566.6 2,437.6 272.9 607.51999 51,535.6 1,516.7 2,541.3 324.7 723.02000 53,366.1 1,597.7 2,644.1 352.1 784.02001 53,951.0 1,614.6 2,964.0 360.4 802.42002 57,051.0 1,946.5 3,367.9 503.6 1,121.22003 61,511.9 2,177.7 3,713.8 724.9 1,613.82004 69,676.8 2,445.9 4,203.8 862.2 1,919.62005 79,361.7 2,866.6 4,826.4 1,055.7 2,350.42006 93,249.8 2,984.0 5,303.4 1,116.2 2,485.2Total 824,764.4 24,437.2 41,683.2 6,285.0 13,992.8

Source: Yanacocha Mine, INEI, and Ministry of Finance data.a. The mine's direct impat based on the INEI's input-output matrix.b. Indirect and induced impacts based on the INEI's input-output matrix.

16

Table 5: The Yanacocha Mine's Impact on Job Creation, 1995 – 2006

The total direct employment generated by the Yanacocha Mine represents 0.4 percent

of Peru’s total formal employment, almost 19 percent of formal employment in the

mining sector, and 13 percent of formal employment in the Cajamarca region. This

demonstrates the positive effect that the mine has had on employment in both the

sector and the region.

Impacts at the Regional and Local Levels

To understand the economic impact of the Yanacocha Mine at the regional and local

levels we start by identifying the channels (mechanisms) through which these impacts

are transmitted. Channels are associated with a series of indicators used to evaluate

their effects. For this purpose, we developed a typology of channels and secondary

YearNumber of employees

Number of contractors

Total number of employees at the

mine

Total number of jobs generated

by the minea

1995 225 810 1,035 9,9161996 235 1,357 1,592 15,2531997 316 3,042 3,358 32,1731998 441 3,134 3,575 34,2521999 1,118 2,496 3,614 34,6262000 1,242 5,112 6,354 60,8782001 1,571 3,700 5,271 50,5012002 1,810 4,620 6,430 61,6062003 1,866 6,931 8,797 84,2842004 2,256 6,345 8,601 82,4062005 2,935 7,877 10,812 103,5902006 2,946 7,902 10,848 103,933Total 16,961 53,326 70,287 673,418

Source: Yanacocha Mine data; APOYO Consultoría estimates.a. Includes the total number of direct, indirect, and induced jobs generated

17

channels by means of focus groups with those living in the mine’s area of influence and

in-depth interviews with specialists. Figure 7 shows the four main impact channels

identified—the mine’s operations, the mine’s presence, the mining company’s social

responsibility programs, and the generation of fiscal revenues—along with secondary

channels and indicators.

Figure 7: Impact channels

Overall impacts at the regional and local levels are positive. Nevertheless, the focus

groups revealed a perception of some potentially negative effects derived from the

nature of mining activity and the socioeconomic conditions in the mine’s area of

influence.

Mine Operations

The first channel, mine operations, refers to the mine’s productive activities, which

require a series of goods and services. In general, the effects of the mine’s operations

Source: APOYO Consultoría.

MINE OPERATIONS

EMPLOYMENT DEMAND

PROCUREMENT OF GOODS AND SERVICES

COST OF LIVING

EXPENDITURES

BY MINE WORKERS

MINE PRESENCE

NATURAL RESOURCES

ROAD CONSTRUCTION AND MAINTENANCE

MIGRATION

CANON

GENERATION OF FISCAL REVENUES

• Available water • Standard of

living among former landowners

Lower transaction costs

Impact on living costs of higher wages and higher demand

Demand for goods and services

• Changes in social structure

• Insufficient service provision

• National purchases

• Local purchases

• Quality of life

• Productivity

Livestock and other industries

Service coverage quality

• Access to markets and services

• Productivity

• Public investment

• Public expenditure

• Direct employment

• Mine region salary gap

• Presence of foreign experts

COMMUNITY ROADS

DEVELOPMENT

SANITATION

MINING COMPANY SOCIAL RESPONSIBILITY PROGRAMS

RURAL ELECTRIFICION

HEALTH AND EDUCATION

PUBLIC

SERVICES

Demand for public investment

18

have been positive both in terms of the quantity and quality of work made directly

available and the business generated by the procurement of goods and services for the

mine. This has been reinforced by the Yanacocha Mine’s contribution to local

infrastructure, which the population looks upon favorably. Nevertheless, the focus

groups identified two potentially negative aspects: the gap between the wages paid to

mine workers and those paid to nonmine workers in the region, and the population’s

perception that the mine has contaminated rivers and caused soil erosion. The latter

might require some additional studies to determine whether this is the case and the

extent of any effects.

Employment Demand

Although mining is not intensive in terms of manual labor, the magnitude of the

Yanacocha Mine’s operations and its hiring policies have made it an important source

of employment in the mine’s area of influence. In 1995, the mine hired a total of 1,035

workers (table 5). Of these, 225 individuals were on the mine’s regular payroll and the

rest were contractors hired indirectly by third parties. By the end of 2006, the mine had

10,848 employees, including its own workers and contractors, 10 times the number in

1995.

When the Yanacocha Mine began operations in 1993, given the region’s reliance on

agriculture and livestock, it had no education facilities for training highly qualified and

specialized personnel, especially in the field of mining. Even though the region had a

history of mining exploitation, it was generally small-scale in nature. As a result, the

mine decided to hire personnel from other regions who already had experience in the

sector. The mine also hired personnel from Lima and abroad for midlevel and executive

management positions.

In recent years, the mine revised its hiring policies to hire from among the local

population. One of the goals was to progressively increase the proportion of local

personnel in the total number of employees.9

9 Likewise, the mining company requires that contractors hire a minimum number of Cajamarcan employees for their unskilled labor positions. According to the July 2007 expenditure survey conducted by APOYO Consultoría, 60.6 percent of the approximately 7,000 employees hired by contractors are from the Cajamarca region.

In absolute terms, while the number of

employees from the Cajamarca region on the payroll did increase, as a percentage of

19

the workforce, their numbers remained relatively stable (table 6).

At the end of 2006, the total number of employees on the mine’s own payroll was

2,946. Of this number, 1,411 (47.9 percent) were natives of the Cajamarca region

(table 6). This figure represents around 4.5 percent of the working-age population

(those aged 14 through 65) in the mine’s area of direct influence and 0.6 percent of the

region’s working-age population. According to the national household survey, the

Cajamarca region has 150,933 employees on companies’ payrolls, 4.1 percent of

whom work for the Yanacocha Mine.

Table 6: Number of Native Cajamarcans on the Yanacocha Mine's Payroll, 1995 – 2006

While the mining company’s employment of Cajamarcans is important, the number

appears to be relatively low compared with the mine’s contribution to the region’s GDP,

which was 37.4 percent in 2006. This is mainly because mining is capital intensive and

technology intensive, but does not require large amounts of manual labor. According to

the 1993 economic census, investment in mining activities is roughly 25 times that in

commerce and 3 times as much as the average for all sectors per job created

(figure.8).

Year

Number of employees on

the payroll

Number of Cajamarcans on

the payroll

Cajamarcans as a percentage of all

employees1995 225 98 43.61996 235 97 41.31997 316 146 46.21998 441 213 48.31999 1,118 522 46.72000 1,242 575 46.32001 1,571 753 47.92002 1,810 862 47.62003 1,866 888 47.62004 2,256 1,121 49.72005 2,935 1,391 47.42006 2,946 1,411 47.9Total 16,961 8,077 47.6

Source: Yanacocha Mine data.

20

Mining requires a high level of specialization, which means that salaries must be

attractive to those with the required expertise and sufficient to cover the opportunity

costs of moving to the region. Thus mine salaries and wages tend to be higher than

those paid in other sectors, which may give rise to negative perceptions in relation to

the wage gap by those not employed by the mine.

According to information provided by the mining company, the average compensation

for those hired directly by the company was US$1,970 a month in 2006, which was

about 10 times the amount of approximately US$184 per month paid to the average

worker in the Cajamarca region (2006 national household survey). Between 1998 and

2006, the average compensation of employees on companies’ payrolls grew by around

69 percent in the Cajamarca region and 51 percent in the Northern Sierra, while mine

workers’ compensation increased by 78 percent (table 7).

3.3 3.5 6.7 9.815.4

27

4047.6

83.3

0

20

40

60

80

100

US$

thou

sand

s

Figure 8: Relative Costs of Creating a Job by Sector, 1993

Source: 1993 economic cesus.Note: Costs refer to investment in fixed assets.

21

Table 7: Average Salaries Paid to Dependent Workers by Selected Location and the Yanacocha Mine, 1998 and 2006

Procurement of Goods and Services

Another secondary impact channel derived from the mine’s operations is the

procurement of goods and services. These purchases affect the creation and

development of local businesses that provide relevant products, inputs, and services to

the mine.

An estimate of the impact of such procurement is derived from an analysis of the

volume and value of purchases and contracts, as well as their origin (local, national, or

foreign). Information about the composition of purchases from suppliers and the origins

of suppliers is important for understanding and quantifying the mine’s impact on the

rest of the economy in terms of its interaction with other productive sectors.

Between 1993 and 2006, the mine purchased goods and services worth a total of

US$5.1 billion in current dollars (table 8). This amount includes current and capital

expenditures and procurement within the Cajamarca region, in the rest of the country,

and imports. During the period under review, purchases in Cajamarca represented an

average of 12 percent of total purchases, or US$628.6 million in current dollars;

imports accounted for 16 percent of total purchases, and purchases from elsewhere in

Peru accounted for the remaining 72 percent.

1998 2006(S/. per month) (S/. per month)

Cajamarca 356 603 69Northern Sierra 395 597 51Sierra 503 576 15Yanacocha Mine 3,618 6,437 78Source: National household surveys; Yanacocha Mine data.

CategoryPercentage

change

22

Table 8: Purchases of Goods and Services by the Yanacocha Mine, 1993 – 2006

The share of purchases from the Cajamarca region has grown in recent years, rising

from 3 percent of total purchases in 1993 to 17 percent in 2006. Note, however, that

the analysis is based on the location of suppliers and not on the place of origin of the

goods or services acquired.

The mining company’s procurement of goods and services has made a positive

contribution to the development of commercial activity and service provision in the

Cajamarca region. Even though completely isolating the effects of the mine is

impossible, as table 9 shows, between 1993 and 2006, Cajamarca was the region with

the highest growth rate in the commerce and services sectors compared with other

regions with similar characteristics.

Purchases from the Cajamarca

regionPurchases from the rest of Peru

Foreign purchases Total

(current US$ millions)

(current US$ millions)

(current US$ millions)

(current US$ millions)

1993 1.2 3 36.4 85 5.5 13 43.01994 3.5 5 51.5 80 9.2 14 64.21995 9.5 10 69.6 72 17.1 18 96.21996 13.7 11 98.3 78 13.6 11 125.61997 26.5 13 152.4 76 20.8 10 199.71998 29.3 12 180.4 76 27.9 12 237.61999 14.7 4 315.9 85 39.7 11 370.22000 28.9 7 328.9 75 81.8 19 439.62001 44.1 10 258.3 61 122.3 29 424.72002 46.6 10 345.7 74 77.8 17 470.22003 74.0 14 380.0 70 91.5 17 545.52004 102.8 17 415.8 68 96.2 16 614.82005 106.6 15 492.0 70 107.5 15 706.12006 127.2 17 527.0 69 114.3 15 768.6Total 628.6 12 3,652.2 72 825.2 16 5,106.0

Source: Yanacocha Mine data.

Year

Percentage of total

purchases

Percentage of total

puchases

Percentage of total

puchases

23

Table 9: Average Annual Growth of GDP by Economic Sector, Selected Regions, 1993 – 2006

(percent)

Road Construction and Maintenance

One of the tasks that the mining company has had to undertake is building and

maintaining the roads necessary to ensure that its production can be transported from

the mine and that inputs can be transported to the mine. These roads are also useful to

local residents in that they provide connections between rural and urban areas, in

particular, the city of Cajamarca. These roads also facilitate transport between

provinces in the region and between the region and other regions.

The mining company’s construction and maintenance of roads has generated positive

impacts at an economic level and on rural communities’ perceptions. Rural

communities in the mine’s area of influence have benefited indirectly through improved

access to markets for goods and services. These communities perceive the roads as a

permanent contribution that local and regional governments will have to maintain once

the mine is no longer operating.

Use of Natural Resources

We did not analyze problems associated with the use of natural resources in the area,

but rather tried to understand the population’s perceptions about such resource use.

Mining uses two primary resources, water and land, and such use can give rise to

Region Commerce Services Construction ManufacturingArequipa 3.9 5.2 5.4 6.8Ayacucho 3.7 3.0 12.2 3.5Cajamarca 5.2 5.7 3.3 3.3Cusco 3.1 4.6 5.2 4.0Huancavelica 1.3 1.0 9.3 3.2Huanuco 3.6 5.2 8.7 4.4Junin 3.6 2.7 7.9 4.4Pasco 2.5 2.5 10.0 3.3Source: INEI data.

24

conflict between the mining company and rural communities in the mine’s area of

influence. Both are necessary for agriculture and livestock activities, which are the

population’s main sources of income, therefore rural inhabitants could perceive mining

as competing with agriculture and livestock activities for such resources.

The proximity of mining operations to the city of Cajamarca and the scope of mining

activities, which cover large tracts of land and four river basins, make the mine’s

operations complicated in terms of relations with those living in areas of direct and

indirect influence. This is exacerbated by the expansion of mining activity in general in

Peru, which may have generated a negative perception among some people who

believe that this activity may have adverse effects on their economic activities and way

of life. Much of this conflict revolves around the use of natural resources.

The focus groups indicated that the population’s discontent was due particularly to the

alleged increase in the acidity and murkiness of rivers located near mining operations

and the subsequent negative effects on trout fishing and water resources.10

This negative perception is present even though some reputable studies, such as that

by Stratus Consulting (2004),

The focus

group participants also believe that the mine’s activities have negative impacts on the

ecosystem, alter river flows, and may have caused some lakes to dry up.

11

APOYO Consultoría strongly recommends that IFC carries out studies that will provide

a clear understanding of the effects of the mine’s operations on water quality and

report that even though the mine has negatively altered

the quality and quantity of water in some locations and at certain times, these changes

have not been significant in the city of Cajamarca and have not generated

contamination at levels significant enough to cause illness or death in humans,

livestock, or crops. Nevertheless, the Stratus Consulting study recognizes the effects

on water quality and even mentions that water quality is below minimum levels

according to international standards. The study also suggests that the mine’s

operations increased soil erosion and sediment levels in streams, something that the

Yanacocha mining company considers has been completely addressed subsequent to

the Stratus report.

10 In the case of the Yanacocha Mine, antagonism to the mine rose considerably after a mercury spill in Choropampa District in 2000 and subsequent events. 11 This study was conducted between January and October 2003 with participation by local communities and institutions. It was carried out after a formal complaint had been lodged with respect to environmental damage said to be caused by the mine.

25

availability, as well as on soil erosion.

Effects of the Yanacocha Mine’s Presence

This section analyzes the effects generated by the mine’s presence in the area of

influence. In particular, it refers to effects derived from the mere existence of the mine,

including migration to the area of influence, effects on public services, increased

expenditure by mine employees, and effects on the cost of living.

Migration

The employment expectations associated with the mine’s presence, whether involving

the possibility of obtaining a job at the mine or setting up a business that could benefit

from the mine’s presence, have prompted migration to the mine’s area of influence.

Understanding the extent and effects of this influx of people is fundamental to

understand changes in the local social structure and in access to and use of public

services.

The population in the districts of Los Baños del Inca and Cajamarca, both of which are

in the mine’s area of influence, grew 27.8 and 33.5 percent, respectively, between

1993 and 2005 (table 10). These figures are well above the population growth rate in

the other districts in Cajamarca Province. Population growth in the districts of Los

Baños del Inca and Cajamarca accounted for approximately 70 percent of total

population growth in the region of Cajamarca. An interesting feature of the growth in

these two districts is that it was more pronounced in urban areas than in rural areas

(table 10).

26

Table 10: Population Growth, Selected Locations, 1993 and 2005

Those who participated in the focus groups had a negative view of the population

influx. They see the migrants as creating problems related to safety and civil order,

such as increases in crime, prostitution, and drug and alcohol consumption, which

affect the customs and tranquility of the area’s inhabitants; however, strong quantitative

evidence to support these claims is not available. APOYO Consultoría recommends

that IFC develop some studies to examine this issue.

Public Services

One effect of the migration is increased demand for public investment. In the region of

Cajamarca, this effect has limited access to and diminished the quality of public

services. This is due primarily to the increase in the urban population in the mine’s area

of influence in conjunction with inadequate planning for urban growth and insufficient

resources to provide the necessary infrastructure.

Thus, between 2001 and 2006, the number of households with access to potable water

provided by companies in the region of Cajamarca increased by 5.1 percent. At the

same time, however, the continuity of the water supply fell from 22 to 19 hours a day.

These figures suggest that the supply of potable water in the Cajamarca region has not

kept pace with demand as the population grew as a result of natural population growth

and inward migration by people attracted by economic opportunities, made available by

the mine and other activities.

1993 2005Percentage

change 1993 2005Percentage

change 1993 2005Percentage

change

DistrictsLos Baños del Inca 5,057 8,926 76.5 19,807 22,839 15.3 24,864 31,764 27.8Cajamarca 87,390 118,817 36.0 30,119 38,004 26.2 117,509 156,821 33.5La Encañada 804 1,037 29.0 21,313 21,360 0.2 22,117 22,397 1.3Other 8,376 8,397 0.3 57,183 58,064 1.5 65,559 66,461 1.4

Cajamarca Province 101,627 137,176 35.0 128,422 140,267 9.2 230,049 277,443 20.6Source: 1993 census; 2005 cecsus.

Locations

Urban Rural Total

27

In relation to households with electric lights, coverage in the region of Cajamarca grew

by more than 87 percent between 1993 and 2006; however, this change is significantly

lower than in other comparable regions, such as Huancavelica, where coverage grew

by almost 185 percent.

With respect to the density of telephone lines, the almost 95 percent growth in the

region of Cajamarca between 1998 and 2006 was significantly higher than in other

comparable regions. Information on mobile telephone penetration indicates outstanding

growth in all reviewed districts of the Cajamarca region, but the growth in this region as

a whole between 2003 and 2007 was nevertheless significantly below that in other

regions such as Ayacucho and Huancavelica.

Expenditure by Mine Workers

The proximity of the mine’s operations to the city of Cajamarca allows for closer contact

between mine workers and the rest of the population than would normally be the case

with mining activities in Peru. This means that workers can live close to the city rather

than in mining camps, thereby boosting the local economy through the creation of new

businesses that offer goods and services to meet the needs of mine workers and their

families.

In 2006, the Yanacocha mining company employed 7,902 contractors and 2,946

individuals directly. According to APOYO Consultoría’s 2007 expenditure survey,

contractors and workers on the payroll together spend a total of US$9.1 million per

month (US$109 million per year), of which approximately 61 percent is attributable to

contractors. According to this same survey, individual contractors spend an average of

US$704 a month in the area, equivalent to 86 percent of their total expenditure (and 14

percent outside the region), while mine workers on the payroll spend approximately

US$1,200 a month, 83 percent of it in the region and 17 percent elsewhere.

According to estimates by APOYO Consultoría based on the 2006 national household

survey, average household expenditure in the Cajamarca region is approximately

US$150 per month, which contrasts with the US$704 spent by the average mine

contractor and the US$1,200 spent by the average mine employee on the payroll.

28

These figures imply that the households of those employed by the mine have a better

standard of living than other households in the region. We therefore estimate that

overall, the mine’s presence generates total additional annual expenditures of US$89

million in the Cajamarca region.

Cost of Living

Migration to the mine’s direct area of influence, as well as expenditures by mine

employees and other economic activity factors, have spurred changes in the

population’s cost of living that have resulted in price increases in the city of Cajamarca.

INEI data show that between 1995 and 2006, the consumer price index grew more in

the city of Cajamarca than in other cities of the Sierra. Food, which accounts for 50

percent of the basic consumption basket in the city of Cajamarca, increased 0.6

percentage points more per year than in other cities in the Sierra (3.3 percent versus

2.7 percent). The items whose prices increased the most included fruit, vegetables,

and seafood. Housing and home maintenance, which accounts for 13 percent of the

basic consumption basket in Cajamarca, increased 2.4 percentage points more per

year than in other cities of the Sierra. Finally, in the area of transport and

communications, which accounts for 9 percent of the region’s basic consumption

basket, local transport became more expensive than in other cities of the Sierra,

increasing by 7.1 percent per year compared with 3.6 percent per year, while the cost

of interprovincial transport increased by 1.8 percentage points less than in other cities

of the Sierra. Middle-income and lower-income focus group participants confirmed the

INEI’s finding that the cost of living for residents of the city of Cajamarca had increased

significantly.

Mining Company Social Responsibility Programs

This section describes the mining company’s social responsibility programs and focus

groups’ perceptions about these programs. The mining company’s social responsibility

programs are of two types. The first is programs to develop rural infrastructure. These

programs include building and maintaining rural roads and undertaking rural

electrification projects that are developed through formal agreements between the

29

mining company and rural communities. The second type is programs to develop

production activities to improve and maximize farming and livestock activities in the

Cajamarca region, with particular emphasis on communities located in the mine’s area

of influence. These activities are conducted through the Credit Fund for Agricultural

and Forestry Development (Fondo de Crédito para el Desarrollo Agroforestal)12

Even though the mining company’s social responsibility programs have produced some

solid achievements, an increase in the budget for these programs has not necessarily

resulted in favorable perceptions of the mine at the community level. The focus groups

indicated that this may be due to the social tensions resulting from the mine’s

presence; the lack of a social responsibility strategy agreed on ahead of time with local

and regional governments, businesses, and civil society; and the existence of many

different agreements between the mining company and communities that did not allow

it to focus on fewer high-impact projects.

and

the Andes of Cajamarca Association (Asociación Los Andes de Cajamarca), an

organization whose purpose is to generate business capacities and institutions that will

contribute to the well-being of the population in the mine’s area of influence by

cofinancing projects.

Projects to Develop Rural Infrastructure

During 2003–6, the mining company invested approximately US$52 million, or 86

percent of the total amount invested in development projects in the Cajamarca region,

in building rural roads and schools. Investment in such projects by the Yanacocha Mine

has risen significantly in recent years, rising from US$6,121 per community in 1993 to

approximately US$178,834 in 2006. This went hand-in-hand with an increase in the

number of beneficiary communities, which increased from 33 to 133.

Between 1993 and 2005, the mining company funded the construction of 63 percent, or

635 kilometers, of the 1,008 kilometers of neighborhood routes and rural roads that

were developed through agreements between the company and rural communities in

the districts of Cajamarca and La Encañada. This contributed to the increase of the

total asphalted road network in the Cajamarca region from 3,386 kilometers in 1993 to 12 A nonprofit association that was established in 2000 and undertakes development programs related to dairy cattle in the provinces of Cajamarca, Hualgayoc, San Miguel, and San Pablo. It provides training in grass production, fodder, animal health, milking, and artificial insemination.

30

4,394 kilometers in 2005.

Rural and urban populations appear to perceive the mining company’s investment in

rural roads as its most important contribution in terms of its development activities.

Focus group participants indicated that the rural roads have facilitated economic

exchanges between communities, which have resulted in more trade at town markets,

complementing the markets held in the city of Cajamarca. The importance of rural

roads can be measured by lower transaction costs (i.e. the cost of reaching markets

and establishing transactions in them). For instance, transaction costs are 12 pp. lower

among potato producers in Huancavelica –the poorest region in Peru– when they have

access to rural roads.13

Rural electrification in the Cajamarca region rose from 3 percent of rural households in

1993 (1993 census) to 39 percent in 2007 (according to the Ministry of Mines and

Energy). A significant portion of this is due to the mining company’s efforts. Focus

group participants mentioned that the electrification of their communities had increased

their productivity and their economic activities, as they were now able to use machinery

and reduce the number of person-hours needed to complete tasks.

. The participants also mentioned the reduction in their travel

time, which has enhanced their access to health and education services.

With regard to sanitation, the mining company contributed significantly to improved

access to water and sewage services by building latrines and providing residential

connections to potable water systems. Between 1995 and 2006, in the district of

Cajamarca, the mining company funded connections to potable water systems for

6,394 households and latrines or other waste disposal systems for 1,527 households.

In the district of La Encañada, the mining company funded connections to potable

water systems for 1,866 households and latrines or other waste disposal systems for

678 households.

The focus groups’ opinions with regard to the provision of water and sewage

connections were mixed. Some participants perceived positive changes in their

communities’ health as a result of these projects, but other participants indicated that

the provision of potable water would have been unnecessary if they did not face the

risk of their water sources being contaminated by the mine’s activities.

Finally, the mining company’s health and education programs have consisted of

13 Escobal (2005)

31

providing specific support, such as school supplies, school bus services, transport for

teachers, medical services, and investment in infrastructure and equipment, by means

of such activities as building classrooms, electrifying schools and health centers,

equipping medical posts, and installing stoves for cooking and cafeterias in schools.

Focus group participants indicated that these projects have not resulted in significant

changes in their communities’ health and education because they were not

accompanied by efforts to effectively implement health or education services. For

example, the participants mentioned cases where medical posts existed, but no

doctors or nurses were available, so people still had to travel to the closest urban

centers to receive care.

Production Development Projects

No records of the mining company’s production development projects were available

and the projects elicited neither positive nor negative comments from the focus groups.

This may suggest that these projects went unnoticed by the focus group participants,

possibly because they attached little value to them as these projects did not benefit all

households in the mine’s area of influence. In terms of evaluating the effectiveness of

the production development strategy, the focus group participants referred to the

negative effects of a perceived lack of water as the result of the mine, accentuated by

the tendency of agricultural properties to become smaller. Thus an assessment of

these latter issues might be beneficial even though they are not under the control of the

mining company.

Generation of Fiscal Revenues

The generation of fiscal revenues impact channel refers specifically to the resources

generated for the region through the mining canon paid by the mining company. As

previously explained, the mining canon is derived from the mining companies’

corporate tax and is allotted directly to districts and provinces where mines are located,

as well as the whole region. The analysis of this channel focuses on the canon’s

importance to public investment. It does not evaluate the effectiveness of the public

32

investment given the lack of appropriate data.

The mining canon assumed importance for subnational (district, provincial, and

regional) governments in 2004, when the legal framework regulating the canon was

modified. This modification stipulated that 50 percent of corporate tax was to be

transferred to the region that generated the resource for subsequent investment in

construction and infrastructure maintenance. The mining canon is distributed as

follows:

• 10 percent is equally divided among the local governments of the district in

which the mining operation is located;

• 25 percent is divided among the local governments in the province or provinces

in which the mine is located, including the districts in which the mine operates.

This percentage is distributed taking into account each province’s population,

incidence of poverty, and availability of infrastructure;

• 40 percent is distributed among the local governments in the region in which the

mine is located, including provinces and districts in which the mine operates.

This percentage is also distributed taking into account each province’s

population, incidence of poverty, and availability of infrastructure;

• 20 percent is distributed to the government of the region in which the mine

operates;

• 5 percent is distributed to public universities in the region in which the mine

operates.

The mining canon has increased significantly since its legal framework was

modified in 2004 and has also benefited from higher international prices for

minerals. Between 2004 and 2007, the total transfer of resources to district,

provincial, and regional governments from the canon amounted to US$2.57 billion.

Figure 9 shows the evolution of the mining canon from 2004 through 2007 in

Peruvian currency.

33

In 2006, the canon represented more than 39 percent of total transfers from the central

government to regional governments and more than 23 percent of transfers to all local

governments, including provinces and districts. Given the magnitude of these funds,

and assuming that they are properly invested, the mining canon has the potential to

significantly benefit the region of Cajamarca.

Thus the Yanacocha mining company contributes to public investment indirectly by

means of the mining canon. In 2007, the canon increased 65 percent compared with

2006 and public investment in the Cajamarca region increased by 82 percent over the

previous year (figure 10).

Figure 9: Evolution of the Mining Canon, 2004 – 7

(S/.

billi

ons)

2.7

1.8

2.8

1.1 0.3

0.8

1.5

0.1 0.0

0.5

1.0

1.5

2.0

2.5

3.0

2004 2005 2006 2007

District canon Province canon

Source: Ministry of Finance data.

34

Even though local government budgets have increased substantially and projects are

under way, the population has yet to give its approval. Focus group participants

indicated that these projects are often executed without prior analysis of their

pertinence. A 2006 survey by APOYO Opinión y Mercado revealed that in 2006 in the

city of Cajamarca, 60 percent of those surveyed believed that the mining canon was

being used ineffectively. Nevertheless, it has the potential to be the main driver of

development at the regional and local level. It could also be the main impact channel

resulting from activities related to the mine given the magnitude of the funds

transferred.

Socioeconomic Impacts

The interrelations between the main channels through which the Yanacocha Mine

generates impacts at the macroeconomic, regional, and districts levels and the

secondary channels have direct effects on the population’s well-being and quality of

life, indicated through what we have termed socioeconomic impact indicators. To

analyze these impacts, we used monetary and nonmonetary indicators to obtain a

picture of the multiple dimensions of the population’s socioeconomic development. The

nonmonetary indicators refer to indicators of access to basic services, housing quality,

overcrowding, and education. For the monetary indicators we work with indexes of

74

24

65 66 61

82

0

20

40

60

80

100

2005 2006 2007

Mining canon Public investment

Source: Ministry of Finance data.

Figure 10: Growth of the MIning Canon and of Public Investment, Region of Cajamarca, 2005 – 7

Per

cent

age

chan

ge

35

poverty and extreme poverty.14

The socioeconomic impacts are not necessarily attributable exclusively to the

Yanacocha Mine’s activities given the existence of other factors such as the

development of sectors other than mining. To identify effects that were specifically

attributable to the Yanacocha Mine we compared a group of districts in the mine’s

direct area of influence with another group of Sierra districts with similar characteristics

outside the mine’s area of influence. We made this comparison using the double

difference methodology previously explained.

Access to Basic Services

We constructed the index that measures access to basic services using three ordinal

variables: (a) access to a domestic water supply (for example, access to a public

network inside the home, access to a public network outside the home, access to a

well); (b) access to domestic sewer services (for instance, access to a public network

inside the home, access to a public network outside the home, use of an irrigation ditch

or canal); and (c) access to electricity within the home. We ranked each component of

this index according to the percentage of houses that have access to each service. The

results demonstrate that during 1993–2005, both the beneficiary group and the control

group had achieved significant improvements in access to basic services, but that the

improvement was greater for the beneficiary group (table 11).

14 Because of information limitations, we applied the monetary indicators at the regional level. This could bias the results, because the impacts will tend to be concentrated in the mine’s area of influence.

36

Table 11: Indexes of Nonmonetary Impacts, 1993 and 2005 (percentage of the population)

Overcrowding Index

According to the INEI, a household is overcrowded when, on average, more than 3.4

individuals share a room. This index takes a value of 0 in the case of no overcrowding

and 1 in the case of overcrowding. As table 11 shows, housing conditions have

improved significantly for both the beneficiary and control groups, but the improvement

was more pronounced in the mine’s direct area of influence. This is probably due to

urban growth in districts such as Los Baños del Inca, where most of the mine’s

employees live.

Quality of Housing

To analyze the changes in housing quality, we developed a compound index to capture

information about the quality of the materials used for floor, wall, and roof construction.

Indexes Group 1993 2005 Change

Difference between the beneficiary and

control groups54.4 72.8 18.437.0 53.5 16.564.9 42.6 22.361.5 46.2 15.352.3 59.7 7.443.5 53.9 10.466.1 28.9 37.262.9 26.7 36.236.0 54.2 18.229.7 46.5 16.8

0.0 11.8 11.80.0 9.5 9.5

Source: 1993 census; 2005 census.

1.4

2.3University graduates

Beneficiary ControlBeneficiary ControlBeneficiary ControlBeneficiary ControlBeneficiary ControlBeneficiary Control

Access to basic services

Overcrowding

Quality of housing

IlliteracyPrimary school completion

1.9

7.0

-3.0

1.0

37

We ranked the quality of the materials from best to worst in which the best materials

had a value of 1 and the worst materials had a value of 0. We repeated this procedure

for each component of the index (roof, floor, wall). Finally, we weighted and

standardized each component using statistical weightings obtained through multivariate

analysis. As such, the index takes a value of 1 when housing is of better quality and a

value of 0 when housing uses the worst possible materials for all three elements.

Finally, the index takes intermediate values depending on the combination of materials

used in each household for each element of the index.

The housing quality index indicates that both the beneficiary group and the control

group experienced a significant improvement in housing quality, but that the

improvement was greater for the control group (table 11). This is probably due to the

effect of migration on some districts such as Cajamarca.

Education

If we analyze the percentage of the population that is literate in both groups, we find

that the literacy rate has improved (the illiteracy rate decreased) slightly more for the

beneficiary group than the control group (table 11). Overall, the literacy rate improved

significantly for both groups.

Similarly, primary school completion rates improved for both groups, with the

improvement being slightly better for the beneficiary group (table 11). Similar results

are apparent with respect to the number of university graduates (table 11).

Per Capita Income

One indication of the population’s quality of life, albeit an imperfect one, is per capita

income. Although this indicator demonstrated a nominal increase of 34.6 percent in the

Cajamarca region between 1998 and 2006 (table 12), this was lower than that

38

registered in the Northern Sierra (44.2 percent) and slightly higher than that of all Sierra

regions (32.6 percent).

Table 12: Per Capita Income by Location, 1998 and 2006 (S/. per month)

When we analyze changes in per capita incomes deflating with the consumer price

index (real per capita income), the results show a positive change of 12.9 percent in

the Cajamarca region compared with 11.7 percent in the Sierra and -2.6 percent in

Peru as a whole. Nevertheless, when evaluated within their respective confidence

intervals, these figures provide insufficient evidence that real per capita incomes have

increased.

Finally, in absolute terms, poverty in the Cajamarca region declined from 77 percent in

2001 to around 64 percent in 2006, a reduction of 13.6 percent, according to national

household surveys. Nevertheless, this reduction in poverty is less than in the region of

Cusco (23.1 percent), but is higher than in the Sierra (7.6 percent).

Extreme poverty in the Cajamarca region declined from 56 to 29 percent between 2001

and 2006, a reduction of 27 percent. This reduction is higher than that in the Sierra (9.6

percent), but lower than that in the region of Cusco (27.2 percent).

Location 1998 2006Percentage change,

1998 - 2006

UrbanCajamarca 405 329 481 588 425 752 45.3Northern Sierra 330 294 367 653 440 867 97.7Sierra 365 336 394 524 498 550 43.5Peru 567 511 624 718 673 764 26.6

RuralCajamarca 124 107 141 214 198 230 72.4Northern Sierra 131 114 147 214 199 229 63.8Sierra 150 136 164 251 236 266 67.2Peru 164 154 175 288 276 299 74.9

TotalCajamarca 189 164 213 254 230 278 34.6Northern Sierra 167 151 183 241 221 261 44.2Sierra 232 217 246 307 294 320 32.6Peru 433 395 472 506 481 530 16.6Source: national household surveys 1998, 2006.

95% confidence interval 95% confidence interval

39

40

CONCLUSIONS

This consultancy’s terms of reference indicated that APOYO Consultoría should

include three of IFC’s central focuses in its conclusions: the overall impact, the mine’s

distributive effects, and the mine’s impact on poverty reduction in the area (table 13).

Table 13: Conclusions of the Study of the Yanacocha Mine's Economic Impacts

Category Economic Impact Reference

period Strong

evidence Evidence

Weak evidence: perceptions of

focus group

Impacts at the macroeconomic level Mine's contribution to gross domestic product (GDP)

0.8% direct effect on average GDP 1993-2006 +

2.6% total average effect on GDP 1993-2006 + Mine's contribution to the national budget

28% of total income taxes generated by the mining sector 2000-2006 +

Mine's contribution to national exports 7% on average 1993-2006 +

Mine’s contribution to job creation

0.7% of the working-age population, considering direct, indirect, and induced effects on national jobs 2006 +

Impacts at the regional and local level Mine's operations

Employment 8.2% of the working-age population in the area of influence 2006 + 1.0% of the working-age population in Cajamarca region 2006 + Low job creation in comparison with impact on the region’s GDP 1993-2006 -

Wages 10 times higher than in any other location industry generating demand-driven dynamics in the region 1993-2006 + Income inequality generated by salaries in the mine 1993-2006 -

Procurement of goods and services

Large contribution to growth in commercial and services sectors, which grew more than in other regions 1993-2006 +

Road construction and maintenance

Access to markets and reduced transaction costs

1993-2006 + Use of natural resources

Perception of negative economic and social impacts 1993-2006 -

Presence of the mine

Migration Reduction in public water provision from 22 hours to 19 hours a day on average 2001-2006 - Increase in access to telecommunications (land lines and mobile telephones) 1998-2006 +

Expenditures by employees

High standards of living of employees due to high salaries paid by the mine 1993-2006 + Increase in average cost of living, up to 4% higher than in other regions 1995-2006 - Increase in food price index, 8% more than in other regions, which disproportionately affects the poor, who spend more of their income on food 1995-2006 - Good perception of economic linkages generated by employee expenditures 1993-2006 +

41

Category Economic Impact Reference

period Strong

evidence Evidence

Weak evidence: perceptions of

focus group Negative perception of income inequality generated by high salaries in the mine 1993-2006 -

Social Responsibility

Rural infrastructure projects

Increase in the number of local communities benefiting from social responsibility actions from 33 to 133 1994-2006 + Social responsibility infrastructure budget rose more than 30-fold 1994-2006 + 635 km of local road infrastructure 1993-2005 + 50% increase in number of electrified households 1993-2005 + 8,200 households benefited from potable water services 1993-2006 + 2,200 households benefited from sewage services 1993-2006 + Some participants in focus groups consider the support from the mine insufficient considering the damage caused to the environment 1993-2006 -

Production development projects

Peasants place little value on these projects, as they consider other negative effects on water availability and soil degradation as relevant issues that have not been tackled 1993-2006 -

Mining canon Local government's use of the mining canon

Represented more than 59% of transfers to provincial governments and more than 80% of transfers to local governments 2006 + Potentially the strongest channel of impact transmission 1996-2006 ?

Socioeconomic impacts

Nonmonetary indicators 1.9% growth in access to public services 1993-2005 +

7.0% decrease in overcrowding index 1993-2005 + -3.0% below control group in adequate home index 1993-2005 - 1.0% growth in literacy rate over control group 1993-2005 +

1.4% growth in primary school attainment over control group 1993-2005 +

2.3% growth in rate of university graduates over control group 1993-2005 +

Monetary indicators Urban per capita income increase similar to Sierra and lower than Northern Sierra 1998-2006 - Rural per capita income increase higher than Sierra and North Sierra, but not statistically significant 1998-2006 +/?

Total per-capita income increase similar to Sierra and than Northern Sierra 1998-2006 -

Rear per-capita income increase higher than Sierra, but not statistically significant 1998-2006 +/? Poverty reduction lower than in other regions 2001-2007 -

Extreme poverty reduction higher than in other regions, but not statistically significant 2001-2007 +/?

Source: APOYO Consultoría.

Note: We categorize the impacts based on the availability of information gathered. Strong evidence is where the impacts are supported by strong quantitative date. Evidence is where we find some quantitative data that support our findings; more accurate data is unavailable. Weak evidence is from the focus groups, which are not necessarily representative of the population. The symbol + refers to the positive impact of a fact, whereas - refers to the negative impact. ? Means that the sign of the impact (positive or negative) is not clear.

42

Overall Impacts

The impacts of the Yanacocha Mine at the macroeconomic level are generally positive,

both in terms of the mine’s contribution to national GDP and its contribution to

employment and to fiscal revenues.

In relation to the regional and local level, each of the four impact channels has positive

impacts as well as ambiguous, or even negative, impacts whose relative weights reflect

APOYO Consultoría’s opinion based on the available information. The channels’ order

of importance according to the net benefits generated for the population is as follows:

1. the mine’s operations,

2. the mining company’s social responsibility programs,

3. the mine’s presence,

4. the generation of fiscal revenues.

The importance of the mine’s operations is due to the business generated by the

mine’s purchase of goods and services. This economic dynamic is expressed in the

significant growth of the services and trade sectors, which in turn has stimulated

regional growth. In terms of employment, while the figures indicate that the mine has

made a significant contribution to job creation, the number of jobs created appears to

be relatively low in comparison with the mine’s contribution to regional GDP, which is

attributable primarily to the capital-intensive, rather than labor-intensive, nature of

mining activity. While mine workers earn more than nonmine workers and their

expenditure in the local area is significant, some resentment is apparent among those

who have not benefited directly from the mine’s operations. Focus group interviews

indicated that perceptions of the mining company’s construction and maintenance of

roads are positive, but that attitudes toward the mine in relation to its alleged effects on

water quality and land erosion are negative.

The second most important channel is the mining company’s social responsibility

programs. Its investment in development projects increased significantly between 1993

and 2006, as did the number of beneficiary communities. While the population has

positive perceptions of the rural road construction and electrification projects because

they have enhanced their quality of life and productivity, they believe that the mining

company’s efforts in relation to health and education have not necessarily been

followed by an effort to implement the corresponding services effectively.

43

The third most important channel is the mine’s presence. It has attracted migrants as

demonstrated by the high rate of population growth in the areas of the mine’s influence,

especially urban areas. This had led to some negative perceptions with regard to safety

and cultural influences by long-time residents. It has also led to a number of problems

regarding access to and deterioration of some basic services. Nevertheless, the

benefits of this channel are significant and are related primarily to expenditures by mine

workers, who have a much higher standard of living than nonmine workers.

Expenditures by mine workers, together with the mine’s procurement of goods and

services, have driven growth in the trade and services sectors, but at the same time,

these expenditures have tended to increase the prices of goods and services in the city

of Cajamarca. While the prices of many items rose more than in other cities in the

Sierra, such as those of food, housing rentals, and hospitalization, some prices rose

less, for example, for education and energy.

The final channel of regional and local impacts is the generation of fiscal revenues. The

increase in mining production and the high international prices for gold have generated

a significant resource flow for subnational governments in the region. In particular, the

mining canon, especially following the changes to its legal framework in 2004, has

provided significant resources for public investment. However, despite the resource

flow to the region, this channel´s effectiveness depends significantly on subnational

governments’ ability to transform resources into socially and economically profitable

projects, which is low, and therefore the region has not benefited as much as it might

have from this flow of funds. To this end, the governments of the region, provinces, and

districts of Cajamarca have been attempting to improve their capacity to plan and

manage investments, as well as to enhance the transparency of fund management.

The Mine’s Distributive Effects

The mine’s employees, particularly those on the payroll, have benefited from the mine’s

operations. Profit-sharing payouts between 1993 and 2006 amounted to US$287

million, which is more than total payments for compensation during the same period

(US$285 million). In 2006 alone, the mine’s employees received an average monthly

salary equivalent to US$3,740, which is 24 times higher than the national average,

meaning that they had one of the highest standards of living in the country. Contract

44

workers have also experienced significant wage increases compared with the positions

they held prior to working for the mine. Note that most mine workers are male,

therefore men are likely to have benefited more from the mine’s presence than women.

Other entities that have benefited directly from the mine’s operations have been

national goods and services suppliers, which made sales of more than US$654 million

to the mine in 2006. Local businesses also benefited from expenditures by the mine’s

employees as evidenced by the relatively higher growth of the local trade and services

sector.

Between 1993 and 2006, the mine accounted for approximately 26 percent of regional

GDP. Yet despite the scale of the mine’s operations, it has had no significant effects

either on employment or on real per capita incomes for the bulk of the population in the

region. At the same time, the increase in the price index in the city of Cajamarca during

1995–2006 might have enlarged the gap between rich and poor, especially because of

the increase in food prices and because poorer households spend a larger proportion

of their total incomes on food.

An important mechanism for resource redistribution comes from the mining canon,

which, if used efficiently, could constitute a significant source of development for rural

areas. This mechanism has become an important source of resources for both local

and provincial governments, and in 2006 represented 39 and 23 percent, respectively,

of transfers from the central government.

The mine’s direct beneficiaries include the inhabitants of the 133 communities that

received benefits from the mining company’s social responsibility programs. This group

has benefited from rural infrastructure projects such as road construction, increased

household electrification, and increased coverage by sewage and potable water

systems. Communities not in the area of influence have benefited from the roads that

the mining company has built for its own operations, which constitute a public good that

all citizens are free to use.

The city’s residents, in particular those who do not benefit directly from the mine, have

been adversely affected by the increase in the cost of living. The change in relative

prices in Cajamarca can be attributed to the increased demand created by a small

group of workers with significant buying power. The increase in the cost of living has,

on average, been slightly higher than the increase in income.

The increase in migration to the area and the resulting population growth and

urbanization has led to some claims of increased civic disorder. Another group that

claims to be adversely affected by the Yanacocha Mine includes individuals who

45

compete with the mine for the use of natural resources, especially water, including

farmers, cattle breeders, and rural residents.

The Mine’s Effect on Poverty in the Region

In absolute terms, poverty in the Cajamarca region declined by 3.4 percent, which is

higher than in some, but not all, comparable regions. Likewise, extreme poverty in the

Cajamarca region declined by 19.5 percent, which again was higher than in some, but

not all, comparable regions. Nevertheless, in the districts located in the mine’s direct

area of influence, significant changes are evident that are higher than those in

comparable districts for indicators related to access to basic services, overcrowding,

illiteracy, and education. Figures for the quality of housing are positive, but are lower

than those for comparable districts.

An overall review of the mine’s impact on poverty reduction does not necessarily

indicate a sizable correlation between the mine’s size and its impacts at the regional

and local levels. Nevertheless, when nonmonetary indicators of poverty are analyzed,

positive changes are higher than those apparent for comparable groups.

46

APPENDIX: BACKGROUND ON METHODOLOGIES USED

The Value Added Multiplier

The Yanacocha Mine’s direct aggregate value added between 1993 and 2006 has

been estimated at US$6.3 billion. This amount represents the mine’s direct impact on

the country’s total aggregated value added during this period. The mine’s production

also generated other impacts on total aggregated value that should be taken into

consideration.

First, the mine’s operations required the use of inputs produced by other industries.

The increased production by the mine’s suppliers increased the value added in those

industries. Likewise, the suppliers of those suppliers produced more and generated

more value added. These backward linkages represent the mine’s indirect impacts on

the whole economy (figure A1).

Figure A1: The Mining Sector’s Linkages with the Economy

Source: APOYO Consultoría.

Use of inputs requiered to operate the

mine Value added

Mining sector's production value

Taxes

Mine ’

Wages

Backward linkages Forward linkages

Consumption

Public expenditures

Use of inputs required to operate the

mine Value added

Mining sector's production value

Taxes

Mine’s profits

Wages

Industry 1

Industry 2

Industry 3

Rest of the economy

Forward linkages

Consumption

Backward linkages

Public expenditures

47

Second, the value added in the mining sector generated more employee compensation

and taxes. The consequent rise in household and government consumption generated

more demand and production in other industries, which also increased their value

added. These forward linkages represent the mine’s induced impacts on the rest of the

economy (figure A1).

Obviously the mine’s indirect and induced impacts depend on the links among and the

intensity of the economic relationships in the productive chain associated with the

mine. In other words, the mine’s impacts depend on the economy’s structure.

To estimate the mine’s impact on total aggregate value, we assumed that the

economy’s structure is the same as in 1994 and as represented in the input-output

table published by National Institute of Statistics. This table quantifies how much the

mining sector needs from other sectors to produce a specific quantity of minerals.

According to the National Institute of Statistics estimates, an increase equivalent to S/.

1 in mining production (valued at 1994 prices) generates a total aggregate value

(direct, indirect, and induced) of S/. 2.22 (at 1994 prices) in the rest of the economy.

Between 1993 and 2006, the gross value of the Yanacocha Mine’s production was

approximately US$9.1 billion. However, we needed to estimate the gross value of

production in nuevos soles (at 1994 prices) to apply the multiplier and estimate the total

aggregate value generated in the economy. Using a price index for the mine’s

production, we estimated that the gross value of its production was approximately S/.

20.3 billion (at 1994 prices) during 1993–2006. Therefore the total aggregate value

generated by the Yanacocha Mine during the period was S/. 45.1 billion (at 1994

prices) (20.31 x 2.22 = 45.14).

Finally, to estimate the value of this total aggregate impact in current dollars, we used

both the price index of the Yanacocha Mine’s production and the price index of the total

gross domestic product of Peru. We applied the first to convert the direct impact from

nuevos soles (at 1994 prices) into current dollars. We applied the second to the indirect

and induced impacts. As a result, we estimate that the total aggregate value generated

by the Yanacocha Mine during 1993–2006 was US$21.3 billion. As the gross value of

the mine’s production was approximately US$9.1 billion, the implicit multiplier in current

dollars was 2.33 (9.12 x 2.33 = 21.27).

48

Employment Multipliers

The employment multiplier is similar to the value added multiplier but focuses on the

number of jobs generated in the entire economy, as a result of a specific economic

activity. In our case it measures how many new jobs are generated in the economy for

each worker directly employed in the mining sector, which can be used to estimate the

overall impact of the Yanacocha Mine in terms of jobs created. This multiplier takes into

account the linkages among several industries in the economy. For example, if the

mining sector’s production increases:

• This industry will require more workers. Compared with other industries, this

direct impact on employment is low because mining is not labor intensive.

• Also, there will be an increase in the demand of inputs provided by other

industries, thus firms that produce those inputs will also require more workers

and inputs, and so on. This effect is called the indirect impact on employment.

• Finally, the new workers - resulting from both the direct and indirect impacts -

will consume more goods and services, and therefore the producers of these

goods and services will also require more workers and inputs. This is the

induced effect of mining production on employment.

According to the National Institute of Statistics (NIS) estimates, for each new worker

directly employed in the mining sector, approximately 9.58 new jobs are created in the

whole economy (including the new mine worker). Therefore to estimate the number of

jobs that the Yanacocha Mine has generated in the economy we multiplied the total

number of mine workers by 9.58.

In mining, the employment multiplier (total employment generated / direct employment

generated) is higher than in other industries, which means that in this sector, the

indirect and induced effects on employment are significantly higher than the direct

impact. This can be explained by the following two reasons:

• First, as it has been mentioned before, the mining sector is less intensive in

labor than other industries. Hence for a given number of workers in the mining

sector there is more value added/spending than in many other sectors and

49

therefore incremental spending and thus indirect job creation per job in the

mining sector may be higher than in other industries.

• Second, the wages in the mining sector are higher than the average wages in

the whole economy. This implies that the induced effect on employment can be

strong. For example, if a mine worker’s salary more than doubles the average

salary in other industries, his consumption could create more than one job in

those other industries.

It should be clear that the employment multiplier used in this study cannot be compared

directly with the value added multiplier, given that they are expressed in different units

(number of jobs and monetary units, respectively). The following formula shows how

these two multipliers are related:

α***

=

industry

total

total

industryindustryindustry LP

LPW

WVAMEM

Where:

:

::

:

:

:

:

αindustry

total

total

industry

industry

industry

LPLPWWVAMEM

From the formula above, the cases in which the employment multiplier is higher than

the value added multiplier may be deduced: basically, this occurs when the analyzed

industry analyzed pays higher average wages (when Windustry/Wtotal is greater than one)

and is less labor intensive than the rest of the economy (when LPtotal/LPindustry

Employment multiplier of the analyzed industry.

is greater

Value added multiplier in the analyzed industry.

Average wages paid in the industry.

Average wages paid in the entire economy.

Labor participation on the value added in the economy.

Labor participation on the value added in the industry.

Constant greater than one, equivalent to the inverse of the

participation of value added on the gross value of production in

the industry.

50

than one), on average. These two conditions are satisfied in the case of mining activity.

While it is believed that the NIS estimate of the multiplier is a reasonable one (allowing

for the relatively dated underlying input-output analysis), other studies have used

different numbers. For example, the International Council on Mining and Metals (ICMM)

study, “Peru The Challenge of Mineral Wealth: Using resource endowments to foster

sustainable development” June 2008, used a multiplier between 6.5 and 8.5 for its

estimate of the total impact on employment of the Antamina mine.

The Double Difference Methodology

Figure A2 illustrates the general characteristics of this methodology on the assumption

that the project aims to produce a specific impact on variable Y.

Figure A2: General Characteristics of the Double Difference Methodology

In figure A2, b represents the beneficiary group and c represents the control group. At

the beginning of the project (period 1), both groups have an average value of Y1 (Y1b

for the beneficiary group and Y1c for the control group). Note that the beneficiary group

and the control group do not need to have the same average values for impact

Y 1b

Y 1c

Y

Y 2c

Y, impact variable

Beginning of project

(Y – )

–

Change of impact variable on beneficiary

Change not attributed to intervention

2b

End of project

2b – 1b

(Y 2c – Y 1c

Y

)

Source: APOYO Consultoría.

51

variables at the beginning of the project, although both groups should ideally have

similar characteristics in terms of the attributes that influence anticipated impacts, such

as access to public services and income. At the end of the project (period 2), the

impact variables are measured again for both groups to obtain Y2b and Y2c

.

The impact on Y attributable to the project is estimated according to the following

formula:

)()()(IMPACT 1212 ccbbNET YYYYY −−−=∆= .

The estimation of the net impact (∆YNET) involves looking at the changes in the

beneficiary group and the control group and ascribing the difference between these to

the mine. As the control group, by definition, is not affected by the project, changes in

the control group cannot be attributable to the project. This nonattributable impact (Y2c

– Y1c) is subtracted from the impact observed among the beneficiary group (Y2b – Y1b).

This requires measurement of the impact variables at the beginning and end of the

project (or at another time) for both the beneficiary group and the control group.

52

REFERENCES

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Empirical Microeconomics.” Working Paper CWP10/02, University College London and Institute for Fiscal Studies, London

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Caliendo, M., and S. Kopeinig. 2005. “Some Practical Guidance for the Implementation of Propensity Score Matching.” Discussion Paper 1588, Institute for the Study of Labor, Bonn.

Cuánto. 2007. Anuario estadistico: Perú en números 2007. Lima: Cuánto. Cuánto. 2008. Anuario estadistico: Perú en números 2008. Lima: Cuánto.

Escobal, 2005. The Role of Public Infraestructure in Market Development in Rural Peru .Wageningen University.

ICMM (International Council on Mining and Metals). 2008. Peru The Challenge of Mineral Wealth: Using resource endowments to foster sustainable development.

INEI (Instituto Nacional de Estadística e Informática). 2001. Multiplicadores de la economía Peruana. Lima: Dirección Nacional de Cuentas Nacionales.

Rosenbaum, P., and D. Rubin. 1983. “The Central Role of the Propensity Score in Observational Studies for Causal Effects.” Biometrika 70: 41–50.

Stratus Consulting. 2004. Resumen de Reporte de Evaluación Independiente de la Calidad del Agua en la Cercanía del Distrito Minero Yanacocha, Cajamarca, Perú. Report prepared for the International Finance Corporation and the Multilateral Investment Guarantee Agency. Washington, DC.