Business Leaders Remain Confident As Mexico Readies Itself for the General Election

In Spanish

With elections scheduled in Colombia, Mexico and Brazil, the coming months will be crucial for the interests of Latin America. For Mexico, 2018 was expected to be a somewhat turbulent year, but in spite of this, the business community appears more positive than ever.

The optimism of the Mexican business community is accompanied by a renewed effort to put Mexico on the map. The country was recently the partner of Hannover Messe, an internationally renowned industrial trade fair that has been at the forefront of Industry 4.0 since its inception, and in the political sphere, Mexico held a notable position at the recent Summit of the Americas in Lima.

The results of our latest OBG Business Barometer: Mexico CEO Survey reflect these promising prospects, revealing a business community that is hungry for success and growth. Some 88% of interviewed CEOs had positive or very positive expectations about local business conditions over the coming 12 months, which was even higher than the 80% of our survey published in late 2017.

I think that the reasons behind the optimism of the Mexican businesspeople are rather structural: Mexico has a workforce that is strong in industries at both ends of the spectrum, from primary to tertiary. Its legislation, at least after the reforms, is competitive, and with further efforts to fight corruption and enhance the fiscal landscape, the inequalities in the country should reduce over time. The economy appears set to continue to grow rapidly in the years ahead.

Given the above, it is understandable that 73% of respondents said their business was likely or very likely to make a significant capital investment in the next 12 months. This is only one point up from the 72% of our last survey, but it is nevertheless a good figure given the pre-electoral climate.

How will NAFTA negotiations redirect Mexico’s economic development?

It is worth mentioning that these are the most positive results from our three surveys in Mexico so far. They come as the July elections near closer, with leftist candidate Andrés Manuel López Obrador currently the front-runner, and the renegotiation of the North American Free Trade Agreement (NAFTA) continues to drag.

When asked about what sectors would be key to reaching new strategic markets and developing bilateral trade – a pressing issue given the NAFTA situation – 41% of respondents cited industry and 34% cited energy. Mexico is currently the fourth-largest exporter of vehicles globally, but this sector could be at risk. If the US does pull out of the 24-year agreement, greater engagement with Asian markets will help further sustain the industry.

As the second-most popular answer, there is evidently confidence in the energy sector and its recent reform, which is somewhat surprising given that it has yet to bear fruit. Affected by the lower oil price environment and a longer-than-expected transition to making the sector internationally competitive, stakeholders are still
waiting to see the full pay-off of these reforms.

Priorities for the next administration as it navigates the post-election environment

There is a strong-minded focus on how to best propel the country’s development forward into the next decade. Internally, there is a drive to implement wide-ranging reforms, while externally, there is also the question of boosting trade with new partners across the Pacific, without losing traditional commercial territories.

A potential win by Obrador could represent a shift in the Mexican economic strategy, including changes to recent reforms. For example, 24% of business leaders foresee a bigger impact from potential anti-business domestic economic policies, while 20% of the community is afraid of potential amendments to the structural
reforms. In fact, when we asked CEOs what they believe should be the main priority for the next administration, tackling corruption was the most chosen option (36%), followed by improvement of the rule of law (19%). Reportedly just 1% of corruption in Mexico is punished, which has understandably generated considerable
frustration. Corruption has held Mexico back in a number of ways, impacting not only economic development, but the population’s safety and security as well. The Mexican Institute for Competitiveness estimated that corruption costs the country 5% of its GDP each year, with others placing this even higher at 10%.

In terms of domestic economic development, our results have consistently shown that the business community demands more research and development, with 27% of respondents citing this as the skill in greatest need in our latest survey, a slight decrease from the 30.4% of our prior survey. This was followed by leadership (25%) and engineering (18%) in our latest survey.

As a result, the outlook for Mexico is promising but not without its challenges. While the business community is positive, the new president will need to address a number of economic issues once the elections are over. Nevertheless, OBG’s survey demonstrates that the commitment of the business community and its faith in
the country is stronger than it was six months ago, signalling that the year of change ahead may indeed be beneficial for Mexico’s medium- to long-term development.