Image credits: Deon Hua
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News Article

Mining FDI Drops by 60 Percent in 1Q22

By Fernando Mares | Wed, 06/29/2022 - 17:19

Amid political and legal uncertainty and higher metal prices, the Ministry of Economy (SE) reported that Foreign Direct Investment (FDI) in the mining sector plummeted year-over-year during 1Q22.

According to SE, the sector received over US$610 million during 1Q22, which is 59 percent lower than the amount registered in 1Q221 with US$1.49 billion. The drop in investment is driven by the high performance of the sector in 2021. During this year, mining companies restarted the investments that were paused due to the COVID-19 pandemic in 2020, when the total FDI reached only US$294 million in total. In 2021, the sector received $2.8 billion in FDI, an increase of 861 percent when compared to 2020.

SE reported that 2020 is the second-worst year for the sector on record, just behind 2015, when the sector received just over US$92 million. According to SE’s data, the mining sector received over US$5.4 billion in 2013, which is the largest amount registered by the ministry. 

Experts expect FDI to drop sharply in 2022 because of the uncertain environment created by the government’s latest decisions, like the Mining Law reform to nationalize lithium, suspensions on mining concessions and the ban on open-pit mining projects. “The federal government’s proposal to exclude or limit private participation in the exploration and exploitation of minerals related to the energy sector has created uncertainty,” said an anonymous company manager in the Fraser Institute’s 2021 Annual Survey of Mining Companies, where Mexico ranked as the world’s 34th most attractive mining country. 

The mining sector is also bogged down by heavy taces. According to a study carried out by PricewaterhouseCoopers (PwC) mining companies have a tax burden of 52 percent, which is bigger than the one in countries like Chile, Canada or Peru, with an average of 35 percent. In addition, labor disputes, mostly regarding profit sharing issues, are other challenges mining companies face. 

Nevertheless, some experts argue that although there is an uncertain environment and companies do not feel as comfortable as during previous administrations, Mexico is not living the worst-case scenario that many had feared when López Obrador took office. According to these analysts, companies have some room for maneuvering if they were already established in the country and have the means to evaluate their operational risks.
 

The data used in this article was sourced from:  
MBN, La Jornada
Photo by:   Deon Hua
Fernando Mares Fernando Mares Junior Journalist and Industry Analyst