Photo credit: Senado Lleno… by Eneas De Troya
Mexico’s transformation from an inward-looking, oil-dependent country to one of the planet’s most dynamic and open economies in twenty years has been, according to experts, astonishing. While U.S. investors have always been interested in playing a role in Mexico’s economy, reforms in traditionally “closed” sectors will be attracting even more interest, with international fund managers stating that investors should continue to put 30 percent of their Latin American allocation into Mexican stocks and bonds.
The reforms that are of most interest are those that have recently been announced in the education system, the telecommunications sector and perhaps most importantly, the energy sector, which has been dominated by, state-owned PEMEX (Petróleos Mexicanos) for decades.
The goal of the reforms is to allow competition in the market, allow affordable choices for consumers, and thusly allow growth. The telecommunications sector, according to Daniel Castro, senior analyst at the Information Technology & Innovation Foundation, has cost the economy of Mexico 1.8 percent of GDP per year due to poor performance.
Castro further claims that according to OECD data, “much of this has been driven by unfortunate regulatory policies that restrict foreign investments and discourage competition from new entrants. The proposed reforms would create a new independent regulator charged with ending monopolistic practices and increasing competition within the telecom sector. In addition, the current caps on foreign investment would be raised so as to encourage more investment in telecom networks.”
But it’s not only telecoms where foreign investors are interested; American oil companies along with other international oil companies are hoping for reforms in Mexico’s energy sector to go through. Mexico is currently the world’s seventh largest oil producer and one of its largest export markets is the United States. Proposed reform to the sector is to encourage private investment in order to increase production. Investment in infrastructure and technology upgrades is sorely needed for the country to take full advantage of its vast oil and gas reserves. Mexico is currently importing gas from the United States in order to meet the needs of its growing manufacturing sector.
Other factors contributing to American investment interest in Mexico include the cut in benchmark interest rates, which are now at a record low of four percent. Standard and Poor’s´ has lifted the nation’s credit rating from stable to positive. Investment and economic experts have stated that a stronger peso should not be of too much concern to investors unless it drops below 10 pesos per U.S. dollar. Currently it is valued at 12.42 per dollar, and some international fund managers predict that by the end of the year, it will be worth 11.75 per dollar. Most people involved in the financial industry say that it is highly unlikely that the peso will strengthen to the point where it will hinder Mexico’s growth.
Even without the reforms in the telecoms sector, Mexico is growing. However, because the country wants to see as much growth as possible, politicians and businesses want the reforms to go through, which will be of as much benefit to American companies as they will be for Mexico’s citizens.