How Are Mexico's Businesses Navigating the New Normal?

The OBG Business Barometer: Mexico CEO Survey, in association with Grupo Financiero Internacciones

The recent victory of Donald Trump in the US presidential election has fostered uncertainty within the Mexican business community. Hundreds of articles have been written about what could happen if NAFTA were reviewed and how Mexico would cope without its major trading partner.

At this precise moment – and I cannot think of a more timely one – we have the results of Oxford Business Group’s first Business Barometer: CEO Survey for Mexico. This survey, conducted across the country over the past six months on an anonymous basis with hundreds of top business executives, reflects the nervousness and the scepticism in Mexico these days. That said, there are numerous reasons to see the Mexican glass half-full.

Whilst the reforms initiated by the current government have yet to materialise – some of them are likely not to be delayed, such as the tax reform – 53% of the leaders surveyed were positive or very positive about the outcome of government structural reforms. It now seems essential for Mexico to turn reforms into reality, considering that commodity prices have not taken off as expected and the Mexican peso is the third-worst-performing currency in 2016, after the pound and the Argentine peso.

To that end, the country is continuing its shift towards high-value-added manufacturing such as aeronautics and pharmaceuticals, which should remain a priority together with trade diversification. Voiding NAFTA would be a thorny process, as Mexico remains the US’ third-largest trading partner. The US is a primary partner for Mexico, and arguably the most important, but not its only one: 44 other countries connect to Mexico through free trade agreements, a number that seems destined to grow in the short to medium term.

On the road to consolidating value-added manufacturing, local leaders are appealing for a greater supply of engineers. More than half of those surveyed cited engineering as one of the most necessary skills in greatest need, followed by research and development. Survey respondents also said the business community lacks leadership, an essential component in further diversifying the domestic market.

When asked about the factors that make Mexico a competitive destination for investment, respondents chose human capital first, followed by an open policy and hospitality to foreign investment. The FDI figure keeps growing in 2016 compared to the previous year – it could end at $30bn against $28.5bn in 2015, according to the country’s Economic Secretary. This shows that foreign investors are not feeling the same levels of uncertainty that the local community does.  

The potential decline of trade relations with the US in the Trump era is, however, unlikely to stop Mexico’s growth path. Despite an improbable start-up of the Trans-Pacific Partnership, and waiting for the Pacific Alliance to bring larger regional dynamism, the CEOs interviewed in the survey include “access to other markets” as a determining factor in Mexico's competitiveness. The concept of “other markets” surely includes the US, but also takes into account powerful partners such as the EU, Japan and Canada, and again, the members of the Pacific Alliance.  

While the cloud of volatility shows considerable short-term risk to both consumers and importers, three out of four CEOs surveyed told OBG they are preparing a significant capital investment in the coming year – yet another sign of confidence.

It seems that neither the possible changes in trade with the US nor the volatility of the currency will prevent the Mexican economy from continuing to find its way. Diversification and aggregation of value emerge as two fundamental tools for reaching competitiveness in the long run. While disabling NAFTA – thanks to which Mexico is a primary partner of the 50 states comprising the US – looks harmful for the interests of Trump’s forthcoming administration, avoiding an excessive dependence on the US as a partner will help Mexico consolidate its position as a world economic power. It will be a long run.

OBG Business Barometer: Mexico CEO Survey Copyright (c). All rights reserved. 

This survey has been designed to assess business sentiment amongst business leaders (Chief Executives of equivalent) and their outlook for the next 12 months. Unlike many surveys, the OBG Business Barometer: Mexcio CEO Survey is conducted by OBG staff on a face-to-face basis, across the full range of industries, company sizes and functional specialties. The results are anonymous.

The data generated allows for analysis of sentiment within an individual country, as well as regionally and globally. Additionally, comparisons can be drawn between both individual countries and regionally. The results are presented statistically within infographics and discussed in articles written by OBG Managing Editors. 

OBG provides this survey, infographics and accompanying analysis from sources believed to be reliable, for information purposes only. OBG accepts no responsibility for any loss, financial or otherwise, sustained by any person or organisation using it.

Should you wish to reproduce any element of this survey, infographics and accompanying analysis please contact mdeblois@oxfordbusinessgroup.com. Any unauthorised reproduction will be considered an infringement of the Copyright.