fDi Markets Newswire:

Home / News / Mexico’s Obrador presidency: the FDI implications

Andrés Manuel López Obrador has won Mexico’s presidential elections, ending almost three decades of centre-right technocratic administrations and, according to the latest polls, shifting the balance of power in Congress decisively to the left. Sebastian Shehadi reports on what analysts believe this will mean for FDI.

Left-wing candidate Andrés Manuel López Obrador – commonly known as AMLO – has won more than double the votes of his nearest challenger in the Mexican presidential election, making it the widest victory since the 1980s, according to the country’s electoral institute.

“[AMLO’s victory] may have non-trivial implications for policy direction and asset prices as it could herald a shift from the hitherto investment-friendly and conventional policy mix towards a potentially more inward-looking, heterodox/interventionist platform,” said Alberto M Ramos from Global Investment Research at Goldman Sachs.

Mr Obrador’s nationalist state-centered approach “entails risks to the broader economy: it may increase uncertainty and hinder much-needed domestic and foreign investment, and could also lead to a significant misallocation of resources that could, over time, erode macroeconomic efficiency and overall productivity growth”, he added.

However, AMLO has run a much more economically pragmatic and business-friendly campaign in a clear bid to calm nervous local and foreign investors, says Karla Schiaffino, Americas politics analyst at Verisk Maplecroft. Indeed, he pledged to protect both employment and investment in his final weeks.

During his victory speech, Mr Obrador stressed his primary campaign pledge of fighting corruption, for one, by reviewing Mexico’s huge energy contracts. To the business sector, he said there would be no nationalisation and that he would respect private business.

Harry Beamish, founding partner at Becquerel Capital says that, in the short term “we will definitely see a pause [of FDI], most likely until the end of the year. This will be driven by a volatile peso, and a lack of clarity over AMLO’s real agenda as opposed to vote-winning rhetoric. Another major question mark is how he will implement his social programmes - i.e. tax the rich and support the poor”.

In the medium term, Mr Beamish contends: “AMLO will not be as extreme as first feared and will target specific sectors, rendering others more open to investment. The [currently very inefficient agricultural sector] will likely receive significant state intervention, therefore putting the brakes on external investment. The oil and gas industry is likely to suffer as AMLO will seek to clean up [oil giant] PEMEX, and delay further exploration and production auctions”.

Eduardo Arcos, an analyst at Control Risks, said that AMLO will increase scrutiny for contracts awarded on behalf of the government, eschewing bribing scandals. In the energy sector he will most likely give preferential treatments to state owned PEMEX, possibly at the expense of foreign companies that are willing to invest in Mexico.

“However, the electrical sector is unlikely to be too affected, the recent reforms having attracted a lot of long-term foreign investment, and with 60GW of installed capacity planned over the next decade, it makes little sense restructure. The major obstacle for FDI will be a long term foreign exchange risk, more than anything else,” adds Mr Beamish.

Claims that AMLO could turn Mexico in another Venezuela are unfounded, says the general consensus. “We do not expect Mexico’s economic position to deteriorate significantly over the next two years. Real annual GDP growth will be steady at 2.3% in 2018 and 2.5% in 2019,” says Ms Schiaffino.

This article is sourced from fDi Magazine
fDi Magazine

fDi Markets - request a demo

fDi Markets

Crossborder investment monitor

fDi Markets - Cross border investment monitor

fDi Markets is the only online database tracking crossborder greenfield investment covering all sectors and countries worldwide. It provides real-time monitoring of investment projects, capital investment and job creation with powerful tools to track and profile companies investing overseas.

Click here to find out more about fDi Markets

Corporate location benchmarking tool

fDi Benchmark is the only online tool to benchmark the competitiveness of countries and cities in over 50 sectors. Its comprehensive location data series covers the main cost and quality competitiveness indicators for over 300 locations around the world.

Click here to find out more about fDi Benchmark

Research report

fDi Intelligence provides customised reports and data research which deliver vital business intelligence to corporations, investment promotion agencies, economic development organisations, consulting firms and research institutions.

Find out more.
Follow us on Twitter

By continuing to use this site you consent to the use of cookies on your device as described in our cookie policy unless you have disabled them. You can change your cookie settings at any time but parts of our site will not function correctly without them.