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MEXICO INVESTMENT OVERVIEW AFTER 2018 ELECTIONS

Mexico Investment Overview After 2018 Elections

Andres Manuel López Obrador (AMLO) won the Mexican election and his party will have the majority in Congress, which may lead the country to relevant changes in Mexico´s policy and politics.

What to expect?

López Obrador promised quite ambitious social programs, assuring investors that he will exercise fiscal prudence and respect the independence of Mexico’s Central Bank.

The people that elected him expect quick results and proof on the fulfillment of his promises, starting with his anti-corruption agenda and increasing economic growth.

The upcoming expected actions most likely be:

Cabinet nominations; propose the 2019 budget; nomination of new board member of Mexico’s Central Bank; and his approach to the North American Free Trade Agreement (NAFTA) and the energy industry.

López Obrador has insisted that he will like to preserve NAFTA and maintain good relations with the United States, working towards negotiations that will benefit both countries.

Mexican policy makers are also preparing for a scenario without NAFTA. The European Union and Japan could be alternative markets as Mexican exports could become even more competitive, thanks to a cheaper peso and Mexico’s other existing free trade agreements. With a unique geographic advantage, a free-floating currency that can adjust to make exports attractive, relatively cheap labor and competitive transnational supply and production chains, Mexico can remain competitive in the manufacture of goods in a post-NAFTA scenario.

Lopez Obrador has insisted that during his government he will strength Pemex and plans to improve and build new refineries.

López Obrador has also declared that the main objectives of his government will be:

In the fiscal sphere, López Obrador committed not to raise taxes, and to finance higher social spending with a reduction in governmental spending. Also to take the current 2% investment to a level close to 5% so that, along with private investment, it will reach 25% of GDP.A large part of this new investment will go towards the provision of new infrastructures in the south of the country, where the most backward states are located.

The modernization of the Isthmus of Tehuantepec, which includes a new port in Salina Cruz, Oaxaca,  which will be one of the infrastructure megaprojects of the next administration and it is planned to allocate 25,000 million pesos of public resources, bring paved roads to near of 350 municipal capitals of the country, fundamentally to the southeast area of the country  (Oaxaca, Chiapas and Guerrero).

Renovating and expanding the existing railway, port terminals and the Ixtepec airport are some of the projects that will be developed in the next six years. .

The recovery of oil production is one of the great economic proposals of López Obrador and also the renovation of existing refineries. These measures according to Lopez Obrador would allow reducing the price of gasoline and diesel in the second half of his six-year term.

The next secretary of Finance, Carlos Urzúa, sees it feasible even for the Mexican economy to grow at a rate of of 5% per year in the second half of the mandate.

Even though López Obrador said that the new airport was going to be cancelled, Javier Jiménez Espriú, proposed by López Obrador as communications secretary, announced that next week the analysis with the current government regarding the construction of the Mexico City International Airport (NAIM) will begin. He stated that the alternatives will be analyzed.

Mexico is a strong destination for production, thanks in part to the country’s free trade agreements and its geographic positioning – proximity to USA and Latin America.

The most significant benefits under the Mexican economic development plan are those provided to promote the export of manufactured goods. These export benefits apply to all entities, regardless of size and degree of foreign ownership, and are provided in both tax and non-tax forms.

Regarding the real estate and construction sector, it is expected that revenues will grow throughout the year to grow by 6% by early or mid-2019.

In Mexico, housing construction will achieve an increase in revenues of approximately 18% until 2018, so it is expected that the volume of cement sales will grow within the range of -3% to 5% until mid-2019.

 

Mexico City, July 12th, 2018

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