REFORMED CHARACTER

Mexico 2015 | DIPLOMACY | YEAR IN REVIEW

With the opening up of Mexico's oil and gas sector for the first time since 1938, 2015 has already proven a pivotal year for the country's economy. Widespread reforms look set to maintain that momentum.

Foreign oil firms are poised to storm Mexico, having been invited back 77 years since former president, and socialist dreamer, Lázaro Cárdenas nationalized the oil sector and founded Pemex. In mid-2015, Pemex, having grown accustomed to having free rein, was preparing to line up with other giants, including ExxonMobil, Chevron, and Total, as 14 oil exploration areas in the Gulf of Mexico were auctioned in what was the first real test of the new setup. And although the auction was considered a bust—ExxonMobil, Chevron, and Total all opted out, claiming the fields were too small—spokespeople for ExxonMobil and Chevron stressed that the firms would continue to monitor opportunities in the country. Indeed, future rounds of bidding are to include larger, deeper fields, and are likely to attract more attention.

Elsewhere, telecoms reforms in mid 2014 promised almost instantaneous results as America Movil, which dominates the mobile market to the tune of 70% and was largely the target of the shakeup, committed to diversifying assets in order to sidestep antitrust pricing regimes. And having been introduced in early 2014, finance-sector reforms aimed at boosting lending capabilities to support SMEs and safeguard lenders are already in full swing, and meeting less obstacles than proposed education-sector reforms, which have been punctuated by a series of setbacks. Drafted in order to combat the power and alleged corruption of heavyweight teaching unions, the proposed reforms have brought educators onto the streets in their thousands in recent months in protest. Encouraged by a government suspension of the teacher evaluations element of its reform bill, which unions say would curb their power and open the door to large-scale teacher dismissals, up to 10,000 protesters filled one of Mexico City's main boulevards in June in an effort to see the reform plans scrapped altogether. And so, despite success in other areas of the overall reform agenda, education remains a thorn in the side of Peña Nieto's PRI.

Overall, the PRI's successes and failures then went on trial in legislative elections on June 7, just weeks after the government had announced a suspension of teacher evaluations, a move that observers believed suggested the PRI was willing to sacrifice one of the key points of its reform agenda to boost its electoral chances. The PRI won the most seats in the Chamber of Deputies, yet a few surprises, including an independent candidate's victory in the race for the governorship of Nuevo Leon, suggest the rocky reforms process has shaken the party's standing.

In broader economic terms, Mexico's GDP continues to grow, up 2.4% in 2014 and 2.6% in 1H2015. When assuming office in 2012, Peña Nieto also promised to wipe out the budgetary deficit. And although it has fallen, a change from just 3.8% in 2012 to 3.7% in 2014 puts even more pressure on the administration's reform plans as a marker for its success. Bringing the spotlight back to the energy sector, then, could be just what Pena Nieto needs to boost growth and source more state funds for investment as the government seeks to inject energy back into an oil sector that has seen production drop from 3.71 million barrels per day (bpd) in 2006 to under 3 million today. The drop in global oil prices has also highlighted the sector's need for a proverbial kick up the backside. But if all goes to plan, the country could be in for a windfall of $62.5 billion in investment, and a boost in production of up to half a million barrels per day.

But before the black stuff begins to flow as it once did, and, indeed, at the price per barrel it once did, Mexico is keen to shore up its manufacturing matrix, currently the largest sector in the $1.3 trillion economy, with a range of free trade agreements (FTAs). Of the 12 FTAs currently in effect, the North American Free Trade Agreement (NAFTA) is the standout, with 90% of all Mexican exports destined for the country's northerly neighbors. Not happy with its reliance on the US, especially, however, Mexico continues to play a key role in the Pacific Alliance, an affiliation of Latin American states also including Chile, Colombia, and Peru that seeks to deepen trade ties and integration.

The Peña Nieto administration stands at a historic point in its tenure, with observers now sitting back and watching how the new energy sector setup plays out in reality and whether or not the PRI will come back out swinging in the face of union pressure against its education reforms post election. Either way, the Mexican engine will continue to purr thanks to a wide industrial matrix that is buoyed by an economic return to reform north of the border and the prospect of renewed foreign investment along the up and downstream hydrocarbon value chains.