The approval in Congress of the New Mining Law, proposed by the federal executive, could become a major obstacle for Nearshoring in Mexico, due to the uncertainty it generates in the sector and the current concessions.
On March 28, President Andrés Manuel López Obrador presented an initiative to reform the Mining, National Water and Ecological Balance laws, which broadens the purpose of mineral exploration, exploitation and benefit, since it includes in the objectives of the mining activity new implications, many of them more in an ideological sense than technical and economic. For example, the equitable distribution of public wealth, protection of the environment, achieving balanced and sustainable development of the country and improving the living conditions of the population.
A notable factor is the fact that that the new law sets limits to concessions, which establishes investment risks from the private sector.
The relevance is great and it has passed by in the informative maelstrom of the media: at the end of last year there were around 3,123 establishments dedicated to mining in Mexico.
Its activities were very varied, from oil and gas extraction, exploitation of metallic and non-metallic minerals in mines, quarries and material banks, as well as well operations, among others.
In Mexico there is a record of 421,833 mining workers who extract their wealth from the bowels of the earth. The national mining-metallurgical production totaled in 2022 around 34,782 million pesos, equivalent to 16,516 million dollars, for an increase of 19 percent compared to the previous year.
Also, according to figures from the National Institute of Statistics and Geography (INEGI), in our country the mining-metallurgical sector represents 8.6 percent of the industrial Gross Domestic Product (GDP) and 2.5 percent of the National GDP.
All of the above, not forgetting that for 13 consecutive years Mexico has occupied the first place as a producer of silver on a global scaleit is also in the first 10 positions in the world production of 17 minerals.
For all the previous figures and several more, the new Mining Law will have many implications for the economy; as well as for many companies that operate in Mexico, both national and international.
Regulatory factor, the main risk
Perhaps the most important change consists in reducing the term of the concessions from 50 to 30 years, with the option that for a single occasion they could be extended for up to 25 years.
This initiative intends to drastically modify the procedures for obtaining mining concessions, their requirements, the exercise of their rights and compliance with obligations and their sanctions.
Therefore, such adjustments could generate a large-scale capital outflow and a decline in the mining industry.
In fact, mining activity currently has several problems, one of them is the deterioration of your business not only due to economic conditionsbut because the federal government’s policy towards the industry has caused it.
INEGI’s own official figures indicate that During this six-year term, the territory granted to mining companies has decreased from 10.64 percent to 8.59 percent of the country’s totalwhich implies about 24 thousand mining concessions.
The Moody’s agency itself has warned about important risks for the mining industry in Mexico due to legal and regulatory issues, especially due to the restriction that would be imposed on concessions if the legal reform is approved.
According to the rating agency, the changes will be negative at the credit level for the mining sector, with the possibility of increasing the regulatory burden on producers and raising the risk due to the possibility of early termination of their current concessions. The agency also warned of concern about the administrative reform that was presented together with the reform to the Mining Law that, if approved, would also would allow the government to unilaterally withdraw concessions or permits in mining and in any sectoronly with the argument that they affect the “public interest”, and without any compensation for those affected.
Barrier to Nearshoring
The new mining law could also limit investments in Mexico given the probable arrival of investments through nearshoring.
This is due to the fact that many investors need, in addition to certainty, a robust Rule of Law. In this sense, the production of goods or services requires conditions for investment, among which are the supply of electricity and access to minerals for the completion of the assembly of products, but without legal certainty, investments will think twice.
One thing is true and it has been demonstrated over the years: mining is one of the few economic activities that triggers employment in remote areas.
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