Mexico's C-suite executives give their opinion on the coming 12 months

Since Donald Trump’s election as US president in November 2016, Mexico’s economy has seen both uncertainty and progress. Just one fortnight after announcing that the US would lift tariffs on Mexican and Canadian steel imports, and publicly encouraging Congress to quickly pass the US-Mexico-Canada Agreement (USMCA), President Trump announced on Twitter that he would place progressive tariffs on all Mexican imports to the US, starting at 5% in June 2019, and increasing incrementally to 25% by October of that year. However, three days before the tariffs were set to go into effect, he called off the plans, citing an agreement to cooperate on immigration. While US industry groups had criticised plans to impose tariffs, Mexican officials struck a calmer approach, engaging with President Trump’s Cabinet and advisors to negotiate a solution. They pointed to existing efforts to curb migration flows, and highlighted that a 5% tariff on Mexican goods would equate to an additional $17bn for the US annually, with a 25% tariff rising to around $100bn in extra costs for consumers.

Although President Trump wanted to push for speedy ratification of the USMCA, the latest back and forth on trade barriers could delay its ratification. While there were hopes that the Mexican economy would soon see relief from a few of its external pressures, the episode created additional uncertainty for businesses and consumers on both sides of the border. This comes alongside ongoing issues such as US-China trade tensions and a global economic slowdown.

Mexico’s economy, although one of the region’s most stable, posted 2% growth in 2018 – a level many international observers claim is below its full potential. In its February 2019 report, Banco de México forecast GDP would grow by between 1.1% and 2.1% in 2019.

However, the current administration, led by President Andrés Manuel López Obrador – better known as AMLO – promised average annual growth of 4%, with plans to hit 6% by the end of his term in 2024. In order to achieve this sharp upturn, the country will need to boost investment across the board. Given the government’s self-imposed austerity measures, this will have to increasingly come from the private sector.

According to the most recent Business Barometer: Mexico CEO Survey, respondents suggest they have not been deterred by either the challenging global political-economic environment or slowing growth at home. They indicated that they were only somewhat less likely to make a significant capital investment than they were in February 2019, with the percentage of those responding likely or very likely falling from 70% to 65%. The proportion of respondents who said they were very likely to make investments rose from 29% to 32%. Despite the uncertainty surrounding the USMCA in the first half of 2019, the ongoing US-China trade war and President Trump’s latest statements on tariffs, nearly two-thirds of leaders are optimistic enough to invest significantly – a testament to Mexico’s ongoing appeal to the business community.

For the fifth time running, research and development topped the responses regarding the skill most in need, accounting for 32% of the total. This was followed by leadership, with 26%. Interestingly, engineering – a common choice in previous surveys – declined as a popular option, replaced by computer technology, which accounted for 12%. The top-three choices tell an interesting story about the direction business leaders see the skills base heading, centred on adding value to the economy through technology and new practices.

CEOs also highlighted their preference for investment in social infrastructure, to ensure the economy can count on a healthy and well-educated population in subsequent decades. Some 29% chose this option as the most important long-term infrastructure development for the economy, followed by energy (27%) and airport infrastructure (25%).

Arguably, these results are closely linked to two key policies from the current administration. As part of his wider plan to involve the state more in the energy sector, AMLO has significantly limited the progress of energy reforms, suspending oil auctions to private companies, which he says he will not restart until output has risen. Coupled with this, after an unofficial referendum and citing corruption practices, in October 2018 he cancelled Mexico City’s new $13bn airport, which was more than a third complete at the time. These decisions have been unpopular with the business community, largely because both energy and airport infrastructure are thought of as some of the top factors boosting Mexico’s overall economic growth.

With the country in the early stages of a new six-year government, we provided CEOs the opportunity to voice their opinion on what the top foreign policy priority should be. Half chose “continue a globalist, multilateralist agenda”. Second, with 20%, was “maintain a civil relationship with the US”, with approximately 17% arguing that the country should “manoeuvre closer to China”. While it certainly seems that on a political level the current administration is pursuing a neutral foreign policy, with AMLO choosing not to attend June 2019’s G20 meeting in Japan, it appears that the private sector will be the leader in driving Mexico’s growth agenda abroad over the medium term, whether it be globally, with the US, China, Europe or the rest of Latin America.