Mexico’s Major Reforms

By on 19/11/2014
In Mexico the market is opening up, from telecoms to energy

The IMF have just concluded an Executive Board level consultation with Mexico. The investigation showed that, while the economy is improving thanks to the rebound in the markets of its giant neighbour the USA, more than a dozen major structural reforms should have a further positive effect.

Robert Rennhack was the senior reviewer for the Mexico team, and had some observations on the impact of the reform programme. This is against a background of growth expected to reach 3.5% in 2015, with strong manufacturing exports to the USA and a strengthening of the domestic construction sector.

Rennhack sees two main risks. One is the security situation, which regularly makes the global headlines, but the second is that the reform programme may be delayed despite the programme having been approved by the Mexican Congress. These structural reforms, in Rennhack’s view, ‘are really quite profound, and can transform the economy’. They cover major sectors of the economy including telecoms, finance, energy and labour.

The energy market in Mexico is large and has been a state-owned monopoly for the last 75 years. Now the private sector can invest in oil exploration, development and production, and get involved in natural gas and electricity generation. All of this should lead to increased investment, increased production and more jobs generated as well as possibly lower prices which would, in turn, make manufacturing more competitive.

Goldman Sachs said: ‘Reforms in the power generation sector, which have attracted less attention, will also be critical for economic growth, including manufacturing.’

The telecommunications industry is getting a similarly major overhaul. A few large companies have accounted for about 80% of the entire Mexican telecoms market. One remembers that the richest man in the world, Carlos Slim, has his base in the Mexican telecoms industry. But, again, this is being thrown open to competition and there are incentives for the dominant companies to shrink their share of the market. With more competitive pricing and availability, for everything from telecommunications to internet access, this reform should aid growth.

The labour reforms, which aim to move more workers into the formal labour market, should improve female inclusion in the labour market. This is linked to financial reforms, which should improve access to micro-financing, an area where women have traditionally benefitted.

With further reforms in finance and large changes in education, Mexico’s reform programme is far-reaching and should have a positive impact on the economy, regardless of what its major neighbour does. The reforms are large and bold, going against entrenched incumbents, both private corporations, and government departments. It remains to be seen if the IMF’s concern about delayed implementation becomes reality.

About Graham Scott

Graham is an experienced editor and publisher and an award-winning writer. He has travelled extensively and is interested in world cultures.

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