Last year, while EU GDP was declining by 0.3%, Peru´s was surging ahead by 6%. Between 2007 and 2011, poverty levels fell from 42% to 28%. Inflation is low and the country´s debt enjoys investment-grade status; the World Bank now calls Peru an “upper middle income country”.

The feel-good factor is easily explained: high global commodity prices. Peru is the world´s largest producer of silver, second largest producer of copper and zinc, the fourth largest producer of lead and the sixth largest producer of gold. In 2011, mining provided 59% (US$27.4 billion) of Peru’s export revenues. International money has been flooding in. According to Miguel Palomino, director of the Peruvian Institute of Economics, mining investments have been increasing by 35 percent per year, reaching $10 billion annually in 2012.

Given the context (high commodity prices, relatively sound macro-economic policy), you could be forgiven for assuming that Peru is set fair to continue cashing in on its mineral resources.

But there´s more to this story. Here is a troubling statistic from the Peruvian Government: social conflicts have increased by 300% during the last five years with 149 recent disputes involving extractive industries.

The big mining projects, so vital to Peru´s economy, are generating more than cash; they´re creating serious conflicts between companies, the government (national, regional, local) and communities worried about their land and livelihoods. 

The highest-profile fight has been in Cajamarca, scene of a planned $4.8 billion expansion of Yanacocha gold mine (operated by US firm Newmont and Peru's Buenaventura) to a nearby site at Minas Conga. The company´s plans to turn several lakes into reservoirs have provoked fierce opposition from local citizens and politicians, causing such turmoil that a state of emergency had to be declared. 

A report from Alana Wilson of the Fraser Institute shows that social conflicts arising from Peruvian mining projects have gotten so bad and so prevalent, they pose significant threats to future investment. As for Cajamarca, Newmont are saying that Conga will no longer start in 2014 as planned, and that the firm "is taking a slower development approach to advancing the project”.

Clearly there is something badly amiss here. Two recent papers do a good job of revealing the scale of the problem and the depth of the anguish. They also hint at how the advancing tide of social conflicts can be turned back.

The first is “Listening to the City of Cajamarca”, a perception study which Newmont commissioned from Queensland University´s Centre for Social Responsibility in Mining (CSRM) and CCPM Grupo Consultor. The brief was to interview community members, representatives from local authorities, institutions, and civil society organisations, as well as personnel from the Yanacocha mine and accurately capture their views.

It´s fascinating reading. The introduction, from two senior Newmont executives, gives you a sense of how bad things have got:

“We are not proud of the current state of our relationship with the people of Cajamarca. We want to take this opportunity to acknowledge the mistakes we have made in how we have conducted ourselves and conducted business.”

And then you hear from the locals. Here are a few snippets:

“Since Yanacocha came, we have been living in a constant state of conflict”.

“The company has an inability to see, feel, understand or even listen”.

“There is deep resentment about employment. There has never been a good strategy for local employment”.

“The company does not have a development agenda – it has a social license agenda. Once it gets access the transaction is complete and the relationship is over”.

“More people came to the city, but public services did not improve – all that has added up to a huge sense of resentment”.

“In terms of social investment, their approach has collided into the peasant economy. They don’t understand it – they have made no effort to understand it”.

It´s powerful reading, and fair play to Newmont for commissioning and publishing it. One expects that it´s given them plenty of food for thought.

The second report, Conflict Management and Corporate Culture in the Extractive Industries: A Study in Peru, was produced by Caroline Rees and Rachel Davis from the Harvard Kennedy School of Government and Deanna Kemp from Queensland University´s aforementioned Centre for Social Responsibility in Mining. In this case, they interviewed people working within Peru´s mining industry, seeking to explore how corporate cultures in mining companies influence how well (more accurately, how badly) companies manage conflict with local communities.

They conclude that while all companies pay lip service to the importance of good community relationships and effective conflict management, “there is limited evidence that these factors hold much sway when it comes to really critical decisions for the company, such as the timing of a new project phase or activity”.

The people they interviewed (remember, all company employees) talk about a historical or cultural ‘paternalism’ on the part of firms, and practices of “throwing money” at communities.

“Everybody knows what the game is. It’s not personal. It’s about money. [The community’s attitude is,] ‘We’re not here to settle a score, we just want a new school.’...That’s the way we [the company] are interacting. That’s the shame of it all, because the relationship got off on that type of foot. You make noise, you get in the way, you cause a problem, we give you money, we get what we want, you’ve got what you want, and then once that money runs out, it starts all over again.”

“To move really fast you just pay [off the communities], which teaches behaviors you live with for the rest of your life.”

Now you could read these reports, listen to those voices and be deeply frustrated that paternalism rather than partnership seems to define the company/community relationship in Peru´s mining industry.

Or if you´re an optimist like me, you could get excited by an apparently huge opportunity gap which, if addressed, could accelerate Peru´s social and economic development.

Industry needs to take the lead in putting things right by building solid relationships which head off social conflicts before they happen.  Mining groups are not NGOs, they´re in business to get minerals out of the ground at a profit. Asking them to help prevent costly and dangerous social conflicts by partnering with local communities and by embedding socio-economic development and responsible environmental practices into their corporate culture is simply asking them to apply sound business practice. Increasingly, they seem to get that.

The other major responsibility lies with government. At local and regional levels, weak institutions and poor governance mean that Peru does a poor job of translating the profits from its mining tax into tangible improvements in infrastructure, healthcare, education and housing – the Fraser Institute say that of the available windfall money in 2011,less than half was actually spent.

Back in Lima, Peru’s central government likes to hedge its bets, postponing its participation in key conflicts in the hope that private companies, civil society organizations and local and regional authorities will sort it out satisfactorily between them. National government needs to play a more prominent role.

Nobody benefits from social conflict. Suspended projects, roadblocks, shootings and states of emergency serve nobody´s interests. The recent rise in Peruvian conflicts was inevitable given the influx of major projects and what the reports reveal about old/current business practice and the failings of government at all levels. Put those things right and there´s no reason why Peru´s mining sector can´t drive socio-economic advancement.

We´ll be discussing these issues at The Economist´s upcoming series of events focused on sustainable development of the planet´s natural resources, beginning with our Feeding the World meeting in Amsterdam, then moving to Stockholm for the World Forests Summit and Oslo for our Arctic Summit. I hope to meet some of you there, and in the meantime would greatly welcome your comments to this piece – all contributions gratefully received.

Feliz año nuevo!

Dougal