IN FLUX

Mexico 2017 | EXECUTIVE GUIDE | REVIEW: DOING BUSINESS

Political turbulence to the north has forced Mexico to bend, but the economy shows no signs of breaking—and the new challenges could prove big-time opportunities for new avenues of growth.

Despite moving down two places from 45th to 47th in the World Bank's Ease of Doing Business ranking, Mexico slightly improved ease of doing business in terms of distance to the frontrunner. The most notable improvement was in the sub-ranking for registering property due to increased reliability of infrastructure. Mexico remained steady in most subcategories and kept its fifth-place ranking for getting credit. Mexico's overall ranking places it first within the Latin America and Caribbean region, ahead of Colombia and Peru in second and third, respectively. GDP growth was slightly down in 2016 compared 2015, dropping from 2.5% to 2.3% according to the World Bank. The Mexican peso is rebounding to pre-Trump election levels, and confidence is on the up. Even with several regional free trade agreements in limbo, it seems the Mexican economy has a stable footing in these tumultuous times.

NAFTA
With the election of President Trump in November 2016 came fears in Mexico of NAFTA renegotiations and an overall economic downward spiral. Mexico's worst fears have yet to be realized, but the country is still braced for the economic impact of Trump's agenda. Mexico's macroeconomic stability in recent years has been driven by both clear objectives of the Mexican government and further economic integration within North America. This economic integration supports a long-term perspective of Mexican-US relations based on cooperation and contradicts Trump's political rhetoric. And so far, the US President's rhetoric has not led to any concrete action, indicating that decades of furthering economic ties will not be unwound by a few words from an inexperienced politician. Businesses, especially along Mexico's northern border, have increasingly integrated operations and supply chains across the North American region.
In August 2017, Mexico, the US, and Canada met in Washington for NAFTA renegotiations. Mexico is looking to incorporate new sectors into an updated NAFTA. Amongst Mexico's objectives is a call to include energy, financial services, and telecommunications—sectors that have been privatized since the original deal in 1994—in the updated deal. Mexico will oppose additional tariffs.
Regardless of what happens with NAFTA, businesses are still exploring economic relations with other countries and regions to make up for the economic slowdown related to political uncertainty. Depreciation of the Mexican peso against the US dollar in 2016 has led to a decrease in imports and the need to expand exports. Slowly but surely, foreign investment in Mexico too is diversifying. Increased FDI from China and other Asian countries gives Mexico some leverage going into NAFTA negotiations. Though the US still accounts for roughly half of FDI, other sources include Spain, Germany, Canada, and Japan. Furthermore, FDI increased 0.6% in 1Q2017 compared to the same period in 2016, reaching USD7.95 billion.
Trans-Pacific Partnership
Trump's presidency has also influenced another regional trade agreement that includes Mexico. The Trans-Pacific Partnership (TPP) was one of former US President Obama's key achievements and promoted economic relations amongst 12 Pacific Rim countries. Since the US withdrawal from the agreement in January 2017, the remaining 11 original signatories have been working to finalize a new framework by November 2017. Aligned with Mexico's interest to expand exports and reduce dependency on US economic ties, the TPP would provide greater access to economies such as Japan and Australia. With a huge agricultural sector and no competition from the US or EU within the new TPP-11, Mexico could be poised to become a major supplier for food-importing countries such as Japan and Vietnam. If successfully renegotiated, the TPP would liberalize markets and lower both non-tariff and tariff barriers to trade between Mexico, Chile, Peru, Canada, New Zealand, Australia, Malaysia, Vietnam, Brunei, Singapore, and Japan.