Mining, an Industry that has been affected by drought: Moody’s

Credit ratings agency, Moody's Investor Services has published the results of a research developed by their Investors Services affiliate, revealing that the mining industry, alongside the beverage industry, are expected to be the most affected by the ongoing drought recorded in Mexico.

The National Water Commission (CONAGUA) has made a recent announcement that water stress is likely to continue to increase  in the coming years and Moody’s has stated that while the mining and beverage industries have well-developed water management plans, they will have to continually increase capital expenditures in order to procure access to water  in their production process.

Moreover, Roxana Munoz, Moody’s Assistant Vice President, said “the scarcity of water will affect hydroelectric power generation capacity, complicating Mexico's efforts to reach its target of generating 35 percent of electricity from clean energy sources by 2024."

Water pressure in the aforementioned industries will also affect regional and local governments by putting  credit pressure on their issuers. Banks and the financial sector at-large, the research goes on to detail, are in no special or specific danger thanks to diversification; only those oriented towards the agricultural industry could see the quality of their credits diminished. 

MBN has previously reported that up to 85 percent of the Mexican territory is facing an unprecedented drought that has affected the agricultural and livestock industries, alongside the hydroelectric plant upgrades promised by López Obrador in 2018, considered of absolute importance if drought is to be prevented or, at the very least, its effects lessened in the coming years. If the drought continues , municipal governments will get thrown under the bus of societal pressures and financial stress, given that the Mexican constitution provides for municipalities’ exclusive right and obligation to provide water access and sanitation to their respective populations, an additional burden on many already indebted governments, especially when infrastructure is involved, and also to CONAGUA’s budget.

CONAGUA maintains and updates an informative section on their website about drought in Mexico, highlighting historical drought records that show the severity and progressive nature of drought in the country, hitting new highs every year, and informing about government actions towards mitigating some adverse effects, including but not limited to severe forest fire attention and financial support to municipalities.