The AMLO administration will continue to make waves during the pre-electoral period, but they are unlikely to materially impact investment flows
Firms should continue to expect high levels of regulatory uncertainty in the lead-up to next year’s presidential election. Still, our view is that Mexico’s next government will be slightly more business friendly than the current administration, and we expect the next government to adopt a less chaotic policymaking approach, particularly if led by Claudia Sheinbaum or Marcelo Ebrard. To that end, it’s business as usual for firms, but MNCs may want to consider waiting until there is more clarity on the electoral front to make long-term, large-scale commitments in the Mexican market.
Overview
- The Andres Manuel Lopez Obrador (AMLO) administration raised alarms last week when it announced that it had seized a section of a railway in the state of Veracruz that belonged to Grupo Mexico. The government declared that the track was a public utility for use as part of a transportation hub in Tehuantepec, facilitating the development of a couple of AMLO’s pet projects, including the Tren Maya.
- Recent moves to extend government control over the mining and aviation industries have also raised concerns among Mexico’s business community.
- The Grupo Mexico case will go to court, and it is likely that a compensation agreement for the railway will materialize. Still, Grupo Mexico’s Guillermo Larrea decided to withdraw a bid from his company to acquire Citibanamex, citing regulatory uncertainty as a deterrent to investing in Mexico’s banking sector.
Our View
Our expectation remains that the AMLO administration will make waves during the pre-electoral period, as his government enters campaign mode and seeks to rally the MORENA base ahead of the 2024 elections. It is likely that the government will make additional moves to extend government reach into the private sector. Still, in the short term, this shift is unlikely to materially impact investment flows, particularly foreign direct investment. In Q1 2023, FDI totaled US$ 18.6 billion (almost as much as the US$ 19.4 in FDI the country attracted during the entirety of 2022), as firms are drawn to Mexico’s nearshoring potential amid shifting US-China dynamics. Still, if regulatory uncertainty and erratic policymaking persist beyond the current administration, firms may follow Larrea’s lead and reconsider their Mexico investment strategy.
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