Jorge Sánchez
Partner
Haynes & Boone
/
View from the Top

Defining Future Strategies for the Industry

Wed, 10/16/2019 - 17:45

Q: The government has indicated that there will be no more mining concessions but that existing concessions will be respected. How is this impacting your clients?
A: The mining authority has the power to re-evaluate existing mining concessions to determine if they comply with the law, which is good for the industry. The key here is that concession owners are given access to all the information so that it can be corrected in case there are discrepancies between both parties. Regarding the feedback received, our clients want to know if the concessions that might be canceled will be offered again.
Two issues that the authorities should review are indigenous consultations and social licenses, which should be adapted to international standards. That is not easy, especially in Mexico, which has a large indigenous population. A great step toward this end would be to establish a protocol for the indigenous consultation based on the processes that other countries with similar problems have already conducted. One of the great obstacles that many administrations have encountered in Mexico is the existence of organizations that pretend to wage social battles but that, in actual fact, are dedicated to performing tasks that put unnecessary obstacles in the development of the industry only to benefit certain private parties.
It is also necessary to establish protocols so that the groups denominated as indigenous meet all the criteria established by the UN and the Mexican government to be considered indigenous. The lack of transparency regarding the indigenous consultation is a problem that has been successfully resolved in other Latin American countries, and Mexico could learn from those experiences.
Q: What is your advice for companies to succeed regardless of the uncertainty in the market and how can Mexico continue attracting FDI?
A: The most important element is to define future strategies and look for new suppliers and new markets. In this context of uncertainty, the most competitive companies will be those that have better access to new distribution networks of goods and services, opening their horizons to new customers. It is also important that companies have a strong capacity to react to changes in the industry.
To encourage FDI in the sector, it would be necessary for the Mexican government to send signals of certainty to investors in matters such as fiscal policy, monetary policy and infrastructure. A positive signal about any of these issues would generate certainty abroad. A topical issue that can have an impact on the mining industry and other strategic industries in the country is PEMEX’s debt rating. Other aspects that should be controlled are interest rates and inflation.
Mexico, in addition, must improve the security of the regions where mining projects are developed, since these are carried out in areas affected by violence, like Guerrero and other complex states. If this problem is not brought under control, it will be very difficult for companies to continue investing in these areas. Guerrero and Zacatecas are clear examples of that.
Q: How can the public and private sectors work together to mitigate the uncertainty surrounding the industry and maintain its competitiveness?
A: Clusters have been a cornerstone for the development of the mining sector in Mexico and have been successful in issues such as guaranteeing safety or engaging responsibly with the environment. We believe that government should go hand in hand with civil society and investors to develop policies that can encourage foreign investment while meeting the objectives set by the current administration in its National Development Plan. Mexico needs an open and technical dialogue between all parties involved on the future of the mining industry in the country, an industry that is constantly changing.