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Key Takeaways
- Over the past two decades, copper prices and economic activity in Chile and Peru were closely linked, but a noticeable decoupling has emerged in recent years.
- Regulatory burdens and political fragmentation have hindered production growth in both countries. Peru faces additional challenges from limited exploration investment, social conflicts, and investor uncertainty, while Chile struggles with declining ore grades.
- Slowing productivity growth in Chile and Peru is tied to their inability to fully capitalize on high copper prices, limiting mining's potential to drive efficiency gains, competitiveness, and broader economic benefits.
Historically the world's first and second largest copper producers, Chile and Peru, have seen economic growth closely track the commodity's price. However, S&P Global Ratings notes an apparent decoupling of this trend in recent years
Despite copper prices reaching historic highs of more than $4 per pound (/lb) on average between 2022 and 2024, GDP growth in both countries trended lower over that period (see chart 1).
Chart 1
Together, Chile and Peru hold one-third of the world's copper reserves, and account for up to 11% of global production. As a result, they can potentially capitalize on strong copper price prospects driven by the energy transition, as well as by otherwise limited global supply (see chart 2).
Current high prices present an opportunity for Chile and Peru to strengthen the mining sector and leverage this favorable external environment to advance overdue economic and social reforms that drive long-term economic growth.
However, regulatory burdens and political fragmentation, along with declining ore grades in Chile and social protests and illegal activities in Peru, pose significant challenges to capitalizing on the price boom.
Chart 2
The Relationship Between GDP Growth And Copper Prices
In the early 2000s, China's rapid industrialization and export-led growth drove a surge in base metal prices, including copper. Between 2004 and 2011, the country's growing share of global copper demand pushed prices to over $4/lb from $1/lb.
This commodity boom significantly benefited copper-exporting nations like Chile and Peru. In Peru, structural reforms in the 1990s, combined with favorable external conditions in the early 2000s, spurred $19.4 billion in mining investments across four large-scale projects during the 2010s. These projects boosted GDP growth above its previous trend, accelerating a reduction in poverty and generating employment.
Chile, the world's largest copper producer, used the boom to offset declining output from older mines. Between 2004 and 2015, 10 new mines began operations, contributing 16% of Chile's total copper output by 2023 and maintaining its status as the top producer.
Copper prices fell sharply in 2015 due to oversupply and weakening Chinese demand, contributing to slower economic growth in Chile and Peru. Despite this, earlier exploration investments enabled Peru to launch two greenfield and three brownfield projects in 2018, totaling $9.3 billion, supporting GDP growth even as copper prices softened.
Mining is a cornerstone of both economies and contributes to GDP through investment, labor demand, exports, and tax revenue. In Chile, mining--of which copper constitutes nearly 90%--represented 9% of GDP and 55% of exports over the past decade. Similarly, in Peru mining contributed 9% of GDP and 60% of exports (30% from copper) during the same period.
Copper Titans Under Pressure
Peru and Chile possess significant mining potential but face major challenges in expanding copper production despite expected robust global demand in the coming years. This allowed emerging competitors, like the Democratic Republic of Congo, to threaten Peru's position as the world's second-largest copper producer in 2023.
Bureaucratic hurdles remain a significant barrier in both countries, delaying investments with lengthy and complex processes. In Peru, the number of administrative procedures surged to 232 in 2020 from 12 in 2001, according to a study by the Commission for Sustainable Mining Development. In Chile, environmental impact assessments for major projects averaged 985 days for approval in 2023, based on data from the University of San Sebastián.
Regulatory burdens extend to exploration projects in Peru, discouraging new investments. Limited exploration in recent years has delayed the readiness of new projects, leaving the pipeline underdeveloped (see chart 3). This is reflected in the relatively few additions to the mining project portfolio following the end of the 2010-2014 commodity price boom.
Chart 3
Additionally, social protests and illegal mining activities frequently disrupt operations at existing mines and hinder progress on greenfield projects, creating uncertainty for investors. Although a small investment cycle is anticipated in 2025, it is expected to fall short of the scale observed during the 2011–2015 boom.
Chile's mining sector also faces declining ore grades and aging mines, which constrain production capacity. Since 2000, the average ore grade of Corporacion Nacional del Cobre de Chile (Codelco)--the state-owned company responsible for about one-third of Chile's total copper production--has fallen to 0.66% (2022 figure) from 1.02%. This decline means nearly 50% more mineral material must now be processed to obtain the same amount of copper.
In response to this challenge, companies are focusing on operational expansions and brownfield projects, which account for 80% of the 2024–2033 mining investment portfolio, according to state copper commission Cochilco. However, these measures are expected to deliver only incremental gains, falling short of what is needed to ensure long-term competitiveness.
Chile and Peru are also grappling with rising production costs over the past five years. Nearly half of this rise is driven by higher energy costs in both countries. Despite this, Chile and Peru remain relatively competitive among top copper producers, but maintaining this advantage will require addressing inefficiencies and ensuring a stable investment environment (see chart 4).
Chart 4
These challenges, combined with political fragmentation, have led to a significant decline in both countries' rankings on the Fraser Institute's Investment Attractiveness Index. The index evaluates mining operations based on geological potential and a policy perception score. Chile's score dropped to 60 in 2023 (38th out of 86) from 85 in 2018 (sixth out of 83). Similarly, Peru's score fell to 44 in 2023 (59th out of 86) from 82 in 2018 (14th out of 83).
Reversing The Productivity Slowdown Is Key To Boosting GDP Growth
Enhancing productivity is critical for sustained economic growth and long-term prosperity. It drives competitiveness, resource efficiency, and the fiscal capacity needed to address social challenges and support development. While favorable external conditions--such as commodity booms--can temporarily lift GDP growth, only productivity gains ensure that growth is resilient and lasting.
In this context, Peru and Chile's productivity growth has slowed sharply in recent years. A Solow decomposition of GDP growth reveals that the contribution of total factor productivity (TFP) has significantly declined for both countries versus the previous commodity boom (see charts 5 and 6).
In Peru, GDP growth between 2010 and 2014 was driven largely by productivity gains and capital accumulation. TFP contributed an average of 2 percentage points (p.p.) per year, while capital accumulation contributed 3 p.p., supported by the development of four large-scale mining projects.
However, falling commodity prices over 2015–2019 exposed Peru's economic vulnerability. Growth slowed, and TFP stagnated, revealing the country's limited success in diversifying beyond commodity exports.
Peru's long-term growth prospects remain weak without structural reforms. With labor's contribution expected to remain stable and no significant increase in capital investment likely, TFP would need to contribute 3 p.p.–4 p.p. annually--up from 1 p.p. currently--to sustain GDP growth rates of 5%, which is comparable to past periods of high copper prices.
Chile, despite its higher GDP per capita and Organization for Economic Cooperation and Development (OECD) membership since 2010, has also faced slowing growth. In recent years, GDP growth has been largely driven by capital accumulation, while TFP has made a negative contribution on average over the past decade. Rising regulatory burdens, weak development in nonmining sectors, and diminishing returns from past education reforms have also weighed on productivity.
Chile's future growth will depend on removing barriers to productivity and investment. Achieving GDP growth of 3% would require TFP growth to double from its projected 2025–2027 rate to 1.0 p.p.–1.5 p.p. annually, assuming labor's contribution remains steady, and capital investment follows historical patterns.
The green transition presents an opportunity for Chile and Peru to strengthen their mining sectors by attracting new investments and boosting production efficiency. Realizing this potential requires fostering a predictable business climate, enhancing government technical capacity, streamlining regulations, and improving coordination between mining companies, government, and local communities to remove bottlenecks and accelerate project development.
However, leveraging higher copper revenue to drive long-term productivity would require further reforms beyond the mining sector. In our view, policymakers could seize favorable external conditions to advance overdue economic and social reforms that tackle inequality and promote economic development.
Chart 5
Chart 6
Related Research
S&P Global Ratings research
- Andean Countries' Responses To Rising Social Demands Will Be Key To Sovereign Ratings, March 9, 2023
Other research
- OECD Economic Surveys: Chile 2025, Organization for Economic Cooperation and Development, 2025
- Informe Anual de Productividad 2024, Chilean National Commission for Evaluation and Productivity, 2024
- La productividad en América Latina y el Caribe: Tendencias recientes y el shock de la COVID-19 (Estudio de Referencia 3), IMF, 2022
- Informe final de la Comisión para el Desarrollo Minero Sostenible, Commission for Sustainable Mining Development (Peru), 2020.
- Peru: Building on Success, Boosting Productivity for Faster Growth. World Bank, 2015
- Peru's Recent Economic History: From Stagnation, Disarray, and Mismanagement to Growth, Stability, and Quality Policies, IMF, 2015
The views expressed here are the independent opinions of S&P Global Ratings' economics group, which is separate from but provides forecasts and other input to S&P Global Ratings' analysts. S&P Global Ratings' analysts use these views in determining and assigning credit ratings in ratings committees, which exercise analytical judgment in accordance with S&P Global Ratings' publicly available methodologies.
| Economist, Latin America: | Harumi Hasegawa, Boston; harumi.hasegawa@spglobal.com |
| Research Contributor: | Bhavika Bajaj, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
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