U.S. alert for doing business in Mexico

13/09/2020

The U.S. government warned that Mexico has seen low economic growth since 2019, regulatory changes affecting investments are perceived and there was a weak fiscal response to the economic crisis generated by the Covid-19.

State Department report points out risks due to changes in energy sector regulations, as well as insecurity and corruption.
State Department report points out risks due to changes in energy sector regulations, as well as insecurity and corruption.

In the State Department's document Mexico 2020 Investment Climate Report, it also noted that the debt rating was downgraded and there is uncertainty, insecurity, informality, and corruption, among other problems. Despite the attractiveness of Mexico, the regulatory changes carried out by the current administration generate doubts in the investment climate, especially in the energy sector.

There are international organizations that assure that the economic weakness and uncertainty is a product of the public policies of the current administration. Although an energy reform was approved, the current administration promoted legal changes that favored Petróleos Mexicanos (Pemex) and the Federal Electricity Commission (CFE) over private participants, which led some companies to file lawsuits with the Judicial Branch, and even resorted to international arbitration.

The State Department also perceived that the government of President Andrés Manuel López Obrador erodes and questions the work of regulators who seek to avoid monopolies, as was seen last May. It recalled that the then director of the National Commission for Regulatory Improvement (Conamer), César Hernández, resigned when he refused to exempt a controversial regulation on energy projects from the regulatory impact assessment.

"Investors are more concerned that the administration is undermining confidence in the rules of the game, especially in the energy sector's regulatory bodies," the document says. For example, the President appointed four of the seven commissioners of the Energy Regulatory Commission (ERC).

It also mentions that the Federal Economic Competition Commission (Cofece) has lost influence in the current administration, while regulatory changes are undermining competition in the energy area. Although the current government says it is fighting corruption, this problem continues and affects the equitable application of the regulation.

Companies reported that the country's security remains a concern, especially for those who want to invest.

The current environment affects the investment climate and the cost of doing business in Mexico, which is shown in the latest competitiveness rankings, in addition to the fact that Fitch, Moody's, and Standard and Poor's agencies downgraded the country's and Pemex's ratings.

The State Department added that financial institutions, as well as the Bank of Mexico, revised downwards the expectations for the GDP this year, anticipating a contraction from 4.6% to 8.8%. Regarding the country's labor situation, the United States expects conditions to improve with the change to the law in 2019, since for years there were complaints about low salaries as well as lack of social security.