Investment Will Continue to Flow to Mexican Mining SectorWed, 10/21/2015 - 11:44
Q: How will Mexico’s numerous reforms affect the development of the national economy, and the mining sector in particular?
A: In 2013, Mexico’s government focused on creating and passing reforms that the country had been in need of for the last two decades. We were able to send a very positive signal that the government was able to implement the required constitutional reforms across many components of the Mexican economy. 2014 saw us implement these constitutional reforms, publishing the necessary regulatory and legal framework, and making sure the reforms work when put into practice.
We have very efficiently stabilized the Mexican economy through fiscal discipline and responsible monetary policy of the Central Bank. But despite all this progress, Mexico is not growing fast enough. Due to low productivity, we have had very poor economic growth over the last two to three decades. In the natural resources sector, this lack of productivity was caused by the lack of an appropriate legal framework for investment. However, all of the reforms will help mining companies access abundant resources. This will occur through the Energy Reform, through the education reforms, and by ensuring a flexible labor market. We expect that the main beneficiaries of the Energy Reform will be companies that currently spend more than they should on energy. Furthermore, the task of designing a good legal framework for the reforms, and set clear rules regarding property rights and contracts for gas concessions, will address one of the main challenges in mining: land tenure problems in ejidos. The secondary laws of the Energy Reform will clarify the way that contracts should be made between ejidatarios and oil and gas and mining companies, which will reduce the degree of uncertainty for long-term contracts and mining investments.
Q: What are the objectives of the mining royalty tax, and how will the government ensure that it will not affect the country’s productivity and competitiveness?
A: Before the tax reforms on the Mexican fiscal system, we had a very soft and outdated tax regime. The country had set royalties on the amount of land in a concession but these royalties were not related to the total revenue a company was generating from the mining process. It was thus clear that we needed to redesign the way we tax the mining industry. Whether or not this will affect the competitiveness of Mexico’s mining industry depends on how the law is applied. The Fiscal Miscellaneous Resolution addressed the application of the taxes, and clarified that only mining production and not the metallurgical processes will be taxed. This means that the real tax burden for the whole process will be lower than what was being expected in early 2014. We will not know how the royalty will affect investments in the Mexican mining industry until we see consolidated figures for the entirety of 2014. From 2011 to 2013, the industry was extremely successful and we are now monitoring the numbers very closely to assess how the new tax system is affecting mining. When you look at the profitability and sustainability of investment in mining, other factors apart from taxation are also important, including legal certainty, economic stability, and political stability. We want to work on all of those tasks together to achieve a balance between them and increase the competitiveness of Mexico’s mining sector.
Q: What is the government planning to do to encourage more foreign investment into the mining sector?
A: We are responsible for promoting foreign investment in Mexico in general. We work very closely with ProMéxico, the Mexican agency for promoting investment and exports, and with other ministries to coordinate our efforts and secure investments in the Mexican mining industry. Other issues need to be addressed to increase mining investments, such as labor issues, security, and tax issues. The reforms are part of our comprehensive efforts to help the mining industry solve these issues. The Ministry of Economy has a direct responsibility for ensuring that Mexico’s reforms jointly facilitate the increase of the country’s productivity and competitiveness. It will allow foreign investors to receive fair treatment and take advantage of short and mediumterm investment opportunities in dynamic and profitable business sectors. Though questions are being raised about future investments in the mining industry, we want to send a very clear signal that we are open for dialogue and are willing to work together with companies to ensure that they have a positive investment experience in Mexico.