STORY INLINE POST
Mexico is a key producer of many metals for the global economy. For example, it is the largest producing country for silver worldwide. Mining is essential to the rural economy of Mexico. Even though mining only represents 4 percent of Mexico’s GDP, the bulk of mine employment consists of highly skilled, high-paying jobs located in some of the most rural and economically challenged areas of the country.
The Fraser Institute of Canada conducts an annual survey of government policies and performance toward the mining industry worldwide, to see which regions of the world have the most attractive versus least attractive government policies and performance regarding the mining sector. Its 2020 survey shows that Mexico has a long way to go to be competitive in the world of mining.
Here is how Mexico scored on its best four policies of the 15 different government policies (legal system, tax policy, etc) ranked for 77 different jurisdictions (countries or states) in total.
Government Policy Country Ranking (total 77) Attractiveness Score (total 5.0)
Mexico Best Policy Performance
Labour Availability 30/77 4.2/5.0
Geological Database 37 3.9
Infrastructure Quality 36 3.3
Environmental Uncertainty 44 3.0
Even though its best policies are only in the middle of the pack of 77 different jurisdictions worldwide, Mexico has a decent pool of skilled labor for the mining industry, a well-developed geological database to support exploration and mining, good infrastructure, such as airports, roads, power grid and social services, and reasonable certainty of environmental regulations, although the changes to and slow down of environmental permitting is a recent and rising concern.
Here is how Mexico scored on its worst four policies:
Mexico Worst Policy Performance
Security Risk 73/77 0.4/5.0
Social Conditions 69 1.1
Labour Regulations 72 1.4
Political Stability 65 1.4
Mexico’s worst policies and performance are readily apparent to most of us working in the mining sector and include security risks, social conditions, labor regulations and political instability. So, what can the federal government do to help facilitate healthy employment and economic activity in these rural, economically challenged areas of Mexico?
Clearly the policy areas with the worst performance need improvement. It is interesting to note that each of these four policy areas are not unique to the mining industry, they negatively impact all aspects of economic, social and political progress in Mexico.
Take security as an example. Rule of law cannot be found in many parts of the country. And it is not just drug trafficking organizations, although they are the worst offenders. Whether it is due to criminal activities, corrupt officials, social blockades, or labor disputes does not matter; the fact is that Mexico’s police and politicians and legal systems are often unwilling or unable to tackle such breaches of the law.
There is no quick fix to this problem, but doing the right thing in a quiet, systematic, consistent and persistent way will ultimately make a positive difference. Beefing up police numbers and effectiveness, arresting criminals, convicting corrupt officials and improving the legal and court systems to keep social or labor disputes off the streets are all keys to better rule of law.
In terms of social conditions, rural people are tired of not receiving the public services found elsewhere in Mexico. In many cases, if a mining company wants to develop a mine in a rural area, it must also play a key role in the local community by assisting with public services. This we do quite willingly because it is the most efficient way to raise the quality of life in these rural areas.
In 2013, the federal government introduced the Mining Duty as a way to return some mining taxes to the local states and municipalities. It was intended to provide public infrastructure and services in rural areas but it was never fully implemented. The current administration recently did away with distributing the funds to the local areas. It chose to keep those mining taxes for federal use. Returning the Mining Duties to the local states and municipalities for the benefit of the local communities would be another way the federal government could help its own citizens.
The eradication of labor service companies has also had a negative impact on the mining sector. Most mining companies rely on local contractors, whether for mining, or trucking, or camp services. This was a very successful and time-tested way to support local businesses and help build up both their human resources as well as benefit from their equipment and supplies that companies may lack. The current administration is a big supporter of big unions that actually detract from the creation of local jobs and economic activity. In fact, some big unions are accused of stealing their own members’ funds. Clearly, supporting local companies is better when it comes to supporting local communities and economies.
Last but not least is the rise of political instability throughout Mexico, which is hardly unique throughout Latin America. The success of any government is ultimately determined by what they do rather than what they say. In this area of policy performance, we can only hope that politicians of all stripes think and act on behalf of the people and not themselves.