One of the main bumps foreign investors find on the road to a new business environment is national regulation and that of mining in Mexico is certainly complex. Often hindering investment, the industry calls for its simplification. “I wish for greater legal dynamism and a simplified legal framework,” says Gerardo Gardea, Director General of Delta Solutions. “I think the complicated legal framework is undermining our country’s competitivity and productivity.”
In 2005 the Mexican mining law was amended to simplify the process of obtaining mining concessions by merging the exploitation and exploration schemes. Despite the improvements, many believe some procedures are still too complex. “In terms of the regulatory aspects, I think Mexico is moving toward being more careful regarding oversight, which is good, but some of the processes are still too bureaucratic,” says David Jones, Director of Minaurum Gold.
The country’s mining potential is undeniable. It is the largest silver producer in the world, the second largest economy in Latin America and has more than 500 years of mining history. According to CAMIMEX, the industry created 16,854 new jobs in 2017, employing a total of 371,556 direct staff, with 32 percent higher wages than the national average.
But if mining is one of the country’s most important economic activities of the country, many believe it should be encouraged instead of hindered by regulation. “The authorities should acknowledge that the mining industry has been vital for Mexico for the last 500 years and it is one of the country’s most important industries,” says Alberto Vázquez, Senior Partner of VHG Abogados.
THE NUANCES OF MINING LAW
Mexico’s mining horizon is cloudy. The country dropped from the 11th most attractive investment destination in 2011 to the 44th in 2017 in the Fraser Institute Survey. “This shows us that something is definitely wrong. The situation illustrates that it is necessary to revise the country’s fiscal framework in terms of mining,” says Sergio Almazán, Director General of CAMIMEX.
The Mining Law governs over most industry matters, but mining is also ruled by other transversally-applying laws, including but not limited to those for water use, labor, firearms and explosives, ecological balance and environmental protection. With so many regulations involved, it is hard for mining players to stay updated.
But it is equally difficult for the law to develop at the industry’s pace. Now, technology has evolved and many activities are much lower-impact. But the law does not seem to take this into account. “I would prefer the authorities expedite processing for man-portable drilling, which lets companies drill more quickly and with less impact on the surrounding areas,” says David Jones, Director of Minaurum Gold. He says the permit required to install a man-portable drill is often just as burdensome as creating a road access.
To address this issue, Gardea says mining law needs to evolve hand in hand with technological innovation to create a framework that reflects the latest developments. “Lawmakers need to remain up-to-date on industry innovation to provide investors the judicial certainty to keep betting on Mexico,” he says. Jones encourages an urgent review of the existing regulations. “The authorities need to make distinctions to make processes easier,” he says. “The regulations could be revised to encourage low-impact activities.”
The lack of centralized institutions overlooking the whole industry is another big bump in the road. The Mining Undersecretariat, established at the end of 2017, strives to better integrate mining regulatory matters. But mining still relies on multiple institutions, often blurring their effectiveness by duplication of efforts.
Unifying regulatory and public efforts can be the first step. “The growing investment in the mining sector is demanding that we increase our institutional capacity to provide better and easier ways for local and foreign investors in their projects,” says Mario Alfonso Cantú, Undersecretary of Mining at the Ministry of Economy.
The creation of a Ministry of Mining to oversee all industry matters is being discussed as a possibility for the upcoming administration to boost the industry. Centralization has been done before in other sectors, and The Federal Institute of Telecommunications (IFT) is an example of success.
But while creating a whole Ministry for mining could improve its institutional effectiveness, it would also imply a huge allocation of public resources. Instead, Vázquez proposes changing mining’s institutional dependency, so it no longer relies on the Ministry Economy but on the Ministry of Energy. “The mining sector should not be part of the Ministry of Economy, as it is essentially part of the energy sector,” he says. “I believe that if the mining authorities came from the Ministry of Energy, communication would be much more fluid.”
Not only does he believe in the translation of mining from the Ministry of Economy to the Ministry of Energy, but he also says mining public officers should be appointed that have a deep understanding of the technical industry dynamics, rather than the economic factors. “It is key to have government representatives for the industry that are committed to the sector,” says Vazquez. “We must have officials who comply with the law and understand the nuances and importance of mining in Mexico.”