Argentina has significant geological and mining potential, especially in copper and lithium, for which demand is expected to increase substantially due to the energy transition. Mining activity accounts for 0.9 per cent of gross value added and 3.7 per cent of exports but has not yet reached its full potential. In contrast to Chile and Australia, the sector and its suppliers have had limited development. We diagnose the factors that limit the integration of mining activity with the national productive apparatus. We outlined a series of proposals to promote the development of suppliers and thus boost the sector and the local economy.
Current overview of suppliers to the mining and quarrying sector
In Argentina, the sector is dominated by metals and lithium mining. In 2019, these two segments accounted for almost 85% of total turnover, 86% of purchases of goods and services and almost 93% of imports of goods made by the sector.
The main suppliers to this sector are industry (24%), construction (17%), trade (15%), professional and business services (10%), oil and gas (8.7%) and transport and logistics (8%).
Generating suppliers of national capital produces considerable benefits. It contributes to productive diversification, promoting the expansion of economic activity at the local level and of productive and technological capacities at the national level. It can also contribute to the social mobility of local workers due to wage improvements in firms supplying large companies.
Challenges for local supplier development
Mining suppliers face challenges both in entering value chains and in staying competitive and growing.
A necessary condition for progress in this direction is the productive scale of mining activity, which has been affected by macroeconomic instability, the lack of progressivity of the tax system and uncertainty regarding the incentives of the promotional framework.
Beyond these macro conditioning factors, the supply policies and practices of large mining companies that prioritise their global contracts and establish barriers to entry for local suppliers also stand out. Added to this are the limitations related to the productive, technological, financial and commercial management capacities of the suppliers themselves.
Among the political-institutional challenges, we find:
- The Mining Investment Law (LIM) does not regulate or incentivise the generation of suppliers for the sector.
- The absence of a federally coordinated information regime that favours the linkage between mining sector demand and the supply of domestic capacities.
- Provincial policies on local procurement and contracting for mining which, while favouring territorial and federal development, discourage inter-provincial coordination and create barriers to achieving economies of scale.
- The lack of coordination between production needs, the socio-environmental challenges of the mining sector and the work agendas of the public scientific-technological and innovation system.
Fostering the development of local suppliers
A strategic vision
The starting point consists of defining and negotiating among multiple actors a strategic vision for the development of the sector. It is proposed to move towards a mining sector that prioritises the sustainable management of resources, the decarbonisation of its activities, the promotion of upstream and downstream production chains and the search for innovative solutions to structural limitations of the sector (such as social conflict and insufficient coordination of mining policies at the federal level).
This strategy is likely to require modifications to the current regulatory regime governing the sector. Several short-term priority initiatives within the existing regulatory framework are identified below, as well as reforms to be explored in the medium to long term.
Short-term
To reform the promotion regime established by the mining investment law, using changes in the conditions for accessing the benefits established by this law. These include:
- Strengthen the requirement to submit a National Industry Participation Plan (NIPP) as a condition for access to fiscal and exchange rate stability for companies operating mining projects.
- Extend the requirement to submit a PPIN to the benefits of importing duty-free capital goods under Art. 21 of the LIM.
Medium and long-term
Argentina is a country with an important productive industrial network with competitive suppliers in many sectors. In collaboration with the scientific-technological system, there is great potential to promote an energy transition based on the national and provincial productive apparatus, as well as to address many of the major environmental challenges.
The medium and long-term proposals are aimed at generating a real federal policy for the development of mining suppliers. This requires consensus building between public and private actors and exploring reforms to current regulations.
In Australia, there is a Mining Equipment, Technology and Services (“METS”) supplier sector. It is made up of over 600 companies, many of which have the mining sector as a major customer. They involve collaborative projects and create opportunities for technology providers to connect and transform individual solutions into collective responses. Importance is given to informal collaboration to solve specific problems and, to a lesser extent, formal collaborations with universities.
Promoting demand
Establish a federal information regime to collect information on procurement, near-future plans, items to be procured, and also the exploration and mining companies at each stage of the value chain.
Internationally, there is a trend towards greater transparency in the publication of information on how much money mining companies spend. The Extractive Industries Transparency Initiative (EITI) and the Local Procurement Reporting Mechanism for the Mining Sector (LPRM) are a standardisation tool to prevent each country from collecting information in its own way. They offer an opportunity to encourage governments and companies to collect, systematise and share data on procurement plans and promote demand.
Promote supply
Create a federal information regime on the supply of mining suppliers (existing and potential) and existing domestic capacities (with the possibility to offer or develop capacities for local supply).
Encourage greater articulation of national and provincial state agencies and greater technical assistance to local suppliers.
To encourage the supply of specialised suppliers, the Industry Capability Network (ICN) was created in Australia in the mid-1980s. This network makes it possible to contact companies with compatible profiles (matchmaking). It seeks to increase economic activity and employment opportunities for local industry. With similar objectives, the Supplier Company Qualification System (SICEP) was created in Chile in 2001. This private sector initiative aims to add value to both mining companies – by providing them with validated information on their suppliers – and supplier companies – by giving them the possibility of offering their services to the most important mining and industrial companies in the country.
Promote innovation and applied research
Argentina has a developed public science, technology and innovation system. However, unlike other economic sectors, and Australia, in Argentina, the agenda of public science and technology agencies has traditionally been disconnected from the needs and challenges of the mining sector.
- Promote public-private articulation for R&D and institutional capacity building.
- Promote the creation of new support instruments and incentives for cooperation between mining companies and suppliers, to develop suppliers’ capacities.
- Generate greater federalisation of the Regime for the Promotion of the Knowledge Economy (RPEC), to promote the entry of highly qualified services into the mining chain.
An interesting example of this is the National Mining Programme “Alta Ley” in Chile. It proposes initiatives in two areas: technological and enabling. In the technological area, the focus is on smelting and refining; in the enabling area, on the development of human capital, suppliers, R&D&I, infrastructure and institutions. In Australia, the Collaborative Research Centres programme has also been active since 1990.
