Mexico

Executive Summary

Mexico is one of the United States’ top trade and investment partners. Bilateral trade grew 430 percent 1994-2015 and Mexico now ranks as the United States’ second largest export market and third largest trading partner. The new U.S. Administration announced January 2017 its priority to renegotiate the North America Free Trade Agreement. Investors in Mexico will be watching these negotiations closely. Uncertainty regarding the content of the discussions and timeline for implementation of the future “rules of the game” may impact Foreign Direct Investment (FDI) flows in 2017.

Mexico benefits from credible economic management that has allowed the country to weather a period of low oil prices and significant currency volatility. Gross domestic product (GDP) growth, at 2.5 and 2.3 percent in 2015 and 2016 respectively, is relatively strong compared to Mexico’s G-20 peers. Compared to other emerging markets, however, Mexican growth over the past decade has been lackluster. Although well-managed by the Bank of Mexico, inflation is forecast to rise to six percent in 2017 due to peso depreciation and a jump in retail fuel prices caused by government efforts to stimulate competition in that sector. With the goal of spurring greater medium-term growth, the government of Mexico (GoM) launched significant energy, fiscal, social security, education, anti-corruption, security, political, and telecommunications reforms in 2013.

The most significant changes in Mexico’s investment outlook have taken place in the energy and telecommunications sectors. Prior to constitutional reform, the state-controlled oil company, Pemex, had a monopoly on all hydrocarbon activity in the country. The reforms have opened this sector, allowing domestic and international private sector firms to bid on hydrocarbon projects and partner with state oil company Pemex, creating significant new investment opportunities for Mexican and foreign investors in up-, mid-, and downstream business lines. In telecommunications, reforms were intended to improve competition and reduce concentration in the sector through the creation of a new, autonomous regulator. This regulator is empowered to order divestitures, enforce regulations, and apply targeted sanctions to companies it sees as overly dominant in the market.

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