As the weeks go by, we see yet more conflicting headlines regarding the Mexican economy. In just the past few days, we have published the following headlines:
So are things getting better? Or worse? Or are they stable? How can such conflicting headlines coexist? How can we make sense of all of this? The latest edition of the MND Economy Index, published this past week, shows a continued slow improvement in its composite score across 19 different economic indicators.
To help better understand how things are going, and to go beyond the numbers and do a deeper dive into the sentiment of the business community, I recently met with Guillermo Bernal, the general director of the Council of Global Companies in Mexico (Empresas Globales). The organization started 20 years ago and now represents 59 of some of the largest companies invested in Mexico. Just these 59 companies represent nearly:
- 10% of Mexico’s GDP
- 40% of the foreign direct investment (FDI) made in the country in a given year
- 11-13% of the country’s total exports
- Over 8 million direct and indirect jobs in Mexico
The 59 companies represent 20 different economic sectors, with approximately 50% being U.S.-based and 50% headquartered in the rest of the world. As you might imagine, these companies are exceptionally in tune with the economic pulse of the country. Confidence (or lack of) that these companies have in the leadership and policies of the government is critical to Mexico achieving its economic growth targets. Understandably, one of the primary objectives of Empresas Globales is to identify the opportunities and barriers to attracting more investment in the country.
Guillermo, who was recently named as the leader of the organization, has nearly 15 years of experience in the area of shaping regulatory environments and advancing private sector priorities in Mexico. Previously, he worked as the national director of public affairs with the American Chamber of Commerce of Mexico and maintains close cooperation and communication with their leadership. Empresas Globales recently created a paper called “20 Ideas for Mexico,” in which they outlined 20 strategies Mexico should embrace (or accelerate) to attract more foreign direct investment. The 20 ideas were organized in five key areas: education/talent, infrastructure, energy, security and regulatory environment.
To help drive policy decisions as well as deeper understanding of key topics, the leaders meet monthly and discuss a key topic. They invite government officials to the meetings to facilitate communication with policymakers. The most recent meeting was with respect to Mexico’s new labor laws and the impacts on specific industries and companies. Imagine for a moment that the government created a policy without input from the business community that ultimately resulted in businesses hiring fewer employees and slowing new investment. Open dialogue and discussion between leaders in the business community and the government help to minimize those risks. The companies are looking to comply with new laws, but they also want to ensure that the laws do not reduce competitiveness. The government is looking to improve its tax base and employee welfare, but it wants to do so in a way that doesn’t reduce employment and investment. Hence, the critical need for dialogue.
During the AMLO years, I often heard from the business community (off the record, of course) that they felt like they didn’t have a seat at the table. Laws were being made without their input and perspective. Perhaps not surprisingly, the Mexican economy stagnated and the vast majority of FDI was reinvestment of profits rather than new investment money coming into the country. Foreign companies even tried leveraging their embassies in Mexico to help their concerns be heard by the federal government. I frequently heard from the ambassador community (again, off the record) that they couldn’t get a meeting with the AMLO administration. As a result, more than a few ambassadors told us that they advised their foreign business leaders not to come to Mexico due to the political environment.
After some initial doubts on how things potentially would be under President Sheinbaum, things are clearly changing. La presidenta named Marcelo Ebrard, a seasoned and respected trade/business professional, as economy minister. She launched a program called Plan México that is looking to attract $500 billion in new investment to the country during her term. She created Mexico’s Business Advisory Council and named Altagracia Gómez, a bright, young businesswoman, as its chair. Sheinbaum has embraced the business community in a way that AMLO never did during his term.
So how are the business leaders of Empresas Globales feeling about the general direction of things? Some comments from Guillermo:
1. On the topic of taxes: “Businesses are increasingly feeling like this administration wants to cooperate and resolve tax issues that are important to the business community.”
2. On the topic of judicial reform: “The recently announced delays in several key aspects of judicial reform, as well as the strengthening of criteria for new judges, are seen as positive signs.”
3. On the topic of energy: “The administration is finally taking real steps to accelerate investment in green energy as well as increase energy availability.”
4. On the topic of security: “The results of Sheinbaum/Harfuch’s policies are undeniable and a very positive trend for the country.”
5. On the topic of support from the Economy Ministry: “As Ebrard has been exceptionally focused (and rightfully so) on the USMCA trade agreement, the recent naming of Ximena Escobedo as Subsecretary of Industry and Commerce has been very well received by the business community to have someone focused on and dedicated to supporting their needs.”
6. On the general mood of the business community: “It’s one of concern/frustration of Mexico not living up to its potential … and not living up to its potential largely due to self inflicted pain. That being said, we definitely see a light at the end of the tunnel.”
In summary, Guillermo emphasized the “combination of the favorable demographics of the Mexican workforce, the strong ecosystem of companies within the country, and the geopolitical risks increasingly favoring deeper trade relations between the U.S. and Mexico as strong tailwinds that will benefit Mexico for years to come.”
It’s still too early to see a positive step change in Mexico’s economic growth trajectory, but it does seem to me that we are increasingly seeing very positive leading indicators that should result in increased growth in the future. Here’s hoping for increased good dialogue between the country’s business and political leaders!
Travis Bembenek is the CEO of Mexico News Daily and has been living, working or playing in Mexico for nearly 30 years.
