HOUSTON — A range of new initiatives in Mexico, including the overhaul of its energy policy, could make the nation a top bet for global investors, according to a new report from law firm White & Case.
But as befits the international nature of global capital, Mexico will also need this investment to successfully transform its economy, the international legal firm noted.
“Mexico is probably the country that offers the best opportunities for investments in the world, given its sound public finances, the favorable demographics, the availability of an educated, trained workforce and the new legal framework,” said Vicente Corta Fernandez, senior partner of White & Case in Mexico City, in the report. “If it is to truly modernize, however, a massive investment of capital will be required, which has driven the decision to open Mexico’s economy.
Mexico recently passed a constitutional amendment to open its energy sector to international investors, allowing the country and private corporations to share in the risks and rewards of oil, gas and electricity projects for the first time in decades. Mexico is still writing the implementing regulations for the new policy and expects to begin its first auction in mid-2015.
Pipelines, power and petrochemicals
Energy is one of several areas in which President Enrique Pena Nieto has introduced reforms, including telecommunications, taxation, banking system, education and the political system. The initiatives are expected to make the country much more competitive in the future, increasing opportunities for Mexicans and for would-be investors.
The reforms to the power sector will attract manufacturing that once found Mexico uncompetitive because of its high electricity prices, the report said.
Better pipelines to the United States and development of its unconventional fields also are expected to lower the price of natural gas, which Mexican officials hope will transform the petrochemicals sector, as it has in the United States.
Mexico already has one private sector petrochemicals deal underway: the Etileno XXI, a proposed $4.5 billion ethane cracker with an ethylene production capacity of 1.05 million tons per year. The project, a joint venture between Mexico’s Grupo Idesa and Brazil’s Braskem, has already received $3.2 billion in financing.
White & Case believes the project, the first of its kind in 20 years, represents a turn towards a robust future for Mexican petrochemicals.
“The project signals a re-emergence of the petrochemicals sector in Mexico, which we hope will continue to benefit from the government’s increased support of further opening the country’s vast oil and gas resources for private investment and development,” White & Case said.
Boosting Mexico’s economy
More flexible labor laws, telecommunications rules and policies governing competition also will boost Mexico’s economy, White & Case said, noting that it will be further aided by recent improvements in the U.S. economy and wage inflation in China, White & Case said.
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White & Case’s projection comes even as Mexico is still struggling economically. Its growth was much lower than projected last year, hard hit by a decreasing rate of oil production, which funds a significant portion of all government activities.
Still, foreign direct investment across Mexico has tripled in the last three years, topping out at $35 billion in 2013. Moody’s also recently increased Mexico’s debt rating to A3, an indicator of its sound economy.