Contribution of Mining to Mexico’s EconomyMon, 10/21/2013 - 09:48
The International Monetary Fund had forecast a growth of 3.5% for the Mexican economy in 2013. However, the Mexican government announced a year-on-year growth of only 0.6% during the first quarter of 2013 and a moderate increase of 1.5% during the second. Overall, the Mexican economy has underperformed in relation to both domestic and international expectations, averaging a growth rate of only 1% during the first half of the year.
These negative results can be partly explained by the current downturn in Mexico’s mining industry. Figures reported by Mexico’s National Institute of Statistics and Geography (INEGI) indicate that the fall in metal prices caused the contraction of the mining industry’s output value by 1.75%. The decreased margins of mining activities also discouraged the industry from pursuing certain projects, and therefore negatively impacted the total volume of production, which only grew 0.32%. This double effect of negative metal prices was compounded by the loss of industrial activity, both within mining companies and throughout the sector’s network of suppliers. INEGI’s industrial activity index for the mining industry only fell an average of 0.07% during the first semester of 2013, due to the long term nature of investments in mine development. However, this index decreased 2.06% in the case of service providers for the industry. The numbers published by INEGI indicate that a bigger drop in the industry’s activities, production and value creation could be reported in the coming trimester, once the stall in exploration, construction, and production projects start to affect production figures.
The importance of the mining industry for Mexico’s economy is clearly reflected in the country’s GDP. This sector’s negative performance influenced an average fall of 1.1% in the value of secondary economic activities during the first six months of 2013, which in turn pushed the growth rate downwards. By contrast, in the previous years of the mining boom positive growth in Mexico’s general economy was supported by the industry’s spectacular expansion, as shown by data from Camimex (the Mexican Mining Chamber). In 2012, for example, the total value output of the mining industry increased 14% in relation to the previous year. The mining sector also generated US$22.5 billion in foreign currency during that year, thus positioning itself as the fourth largest contributor to Mexico’s economy (after the automotive industry, the electronics industry, and the hydrocarbons sector).
Between 1994 and 2011, the mining industry’s participation in Mexico’s GDP grew by 1.5%. Today, this sector contributes 4.9% to the country’s total GDP. The investment the industry has triggered in recent years has had a significant effect on employment, infrastructure development, and the general growth of economic output in Mexico. As of December 2012, the mining industry was responsible for 328,555 direct jobs and 1.5 million indirect jobs in Mexico, according to data from the Mexican Institute of Social Security (IMSS). From 2007 to 2012, over US$25.64 billion was invested in the sector. In spite of the current economic context, mining companies are set to increase investments by 1.3% during 2013, thus setting the stage for a better economic performance once metal prices recover.
The macroeconomic framework, the prospect of structural reforms to promote economic growth, create jobs, and reduce poverty and social inequality, make Mexico an attractive investment destination despite the challenging financial environment in the mining industry.