El Salvador and Costa Rica could emerge as competitors to Mexico's mining industry

The recent signs of greater mining potential in Central America, driven by legislation in El Salvador and Costa Rica, could put pressure on countries like Mexico, where public policies have weakened the industry and reduced the country's competitiveness.

"This opening will not only attract foreign investment but will also put pressure on countries like Mexico to reconsider their restrictive policies towards mining, which have mainly affected Canadian companies," Andrés Abogado, managing partner at law firm Abolaw, told BNamericas.

"With a region that is increasingly favorable to formal mining, Mexico could face challenges to maintain its position as an attractive destination for mining investment if it does not adjust its regulatory strategy," he added.

At the end of last year, El Salvador’s legislature approved a bill to allow metallic mining and exploration in the country, while in Costa Rica a government initiative is advancing to legalize open-pit mining.

According to the Fraser Institute's mining investment attraction index, Mexico ranked 74th out of 86 jurisdictions where surveys were conducted with mining companies in 2023, a record decline and 37 places lower than in 2022.

The institute's annual survey seeks to evaluate the geological potential and public policies related to investment in the sector at a global level. The index comprises the mining potential index with best practices (60%) and the mining policy index (40%).

The policy of freezing the awarding of concessions, which has prevailed since the leftist Andrés Manuel López Obrador became president at the end of 2018, coupled with the slowdown in the processing of permits – mainly environmental – has continued to affect the mining industry in Mexico during the new administration of Claudia Sheinbaum.

The May 2023 reform to four laws governing the sector – including the mining law – still lacks the associated regulations, which has affected exploration in particular because geological service SGM was given exclusivity, complicating the participation of private sector companies.

As a result, Mexican mining chamber Camimex expects investments in the sector will fall by more than 20% this year to about US$3.8bn from approximately US$5bn in 2024.

Additionally, in the budget for this year, increases in special and extraordinary taxes on mining were approved, raising the rates from 7.5% to 8.5% and from 0.5 to 1%, respectively.

Camimex recently expressed concern about the finance ministry’s proposal and warned that the measure would put at risk more than US$6.9bn in investment in new projects in the next two years.

Abogado said the recent expansion of mining potential in Central America due to policies promoted mainly by El Salvador’s Nayib Bukele and Costa Rica’s Rodrigo Chaves "marks a significant change in the region and opens a window to economic competitiveness."

Countries such as Panama, where in November 2023 the large-scale Cobre Panamá copper mine was indefinitely suspended after the supreme court declared its new contract unconstitutional, could also be motivated to join this incipient regional trend since the operation represented almost 5% of GDP and its closure has affected the public finances and economic prospects of the country.