As the world moves ahead, Mexico lurches backward.
In June 2020, Mexico dropped out of the top 25 countries for foreign investment for the second time in over 20 years. For the second largest economy in Latin America, this is bad news. What has precipitated this decline in confidence by the global investment community? This article explores the central reasons for this reality.
Mexican President Andres Manuel Lopez Obrador (AMLO) has been in office for 18 months and has yet to take a trip abroad (although he is scheduled to meet with U.S. President Donald Trump in Washington D.C. in the next few weeks). He has missed critical opportunities to attend strategically important meetings like the G20 Summit, the UN General Assembly, The United Nations Climate Action summit, etc. A former foreign Minister for Mexico, Jorge Castañeda, stated “this has hurt Mexico’s good image in the world.”
Changing The Rules:
Other than remaining sequestered in Mexico, AMLO has made a series of policy decisions that have startled the investment community around the globe. These include:
- Cancelling the proposed Mexico City Airport project – a US $15 billion project that was 20-30% complete.
- Halting the construction of a US $1.4 billion Constellation Brands brewery in the Mexicali, Baja California region. The project was 70% complete with approximately US $900 million invested.
- Pemex – Mexico’s state controlled petroleum company remains mired in a morass of complex issues. As the six “super-major” fossil fuel companies – BP, Shell, Chevron, Total, Eni and Exxon increase their investment in renewable energy, Mexico has doubled-down on a strategy to repair and resurrect Pemex; a proposition that has brought a chorus of bewilderment from institutional investment community. This has resulted in downgrading Pemex bonds further into “junk” territory and a downgrade of Mexico’s sovereign debt rating to one step above junk.
- Renewable Energy Policy Changes – In an attempt to further safeguard Mexico’s national energy company (CFE) AMLO changed the rules in May 2020 effectively halting US $7 billion in renewable energy projects. Foreign companies and their investors remain livid. They have filed dozens of lawsuits against the Mexican government to reverse these arbitrary decisions that impair the ongoing viability of their enterprises in Mexico. Analysts, institutional investors, former Mexican government officials, and media outlets have expressed shock at what some have termed Mexico’s attempt to return to an energy policy from the 1970’s – betting their future on a dependence on oil.
For 2020, Mexico’s central bank has forecast GDP to contract by 9%. For Mexico, already in recession pre-pandemic, the ongoing economic deterioration is expected to relegate approximately 9 million people to poverty – or “56% of the country, not earning enough to cover basic needs.”
Currently, Mexico has no minimum universal pensions, unemployment benefits or universal basic incomes to provide any social safety net whatsoever to this massive cohort of marginalized citizens. AMLO staunchly refuses to use debt to assist the poor. Instead he touts a series of infrastructure projects to create jobs. However, these projects elicit howls of dismay from the global investment community, and are further complicated by work stoppages due to the COVID–19 pandemic and legal rulings.
Under AMLO’s direction in his first 18 months in office, reductions in federal support for the healthcare sector have led to shortages of medicine, equipment and staff in public hospitals. Thus, as of June 30, 2020 Mexico reports 226,089 confirmed cases of COVID-19 and 27,769 deaths. Numerous sources indicate these figures provided by the Mexican federal government could be 5-10 times higher than reported. This death rate from Covid-19 translates to a fatality rate of 11.8, vastly greater than the global figure of 5.4.
We have arrived at a critical juncture in Mexico; one that demands the courage to re-examine how Mexico calculates its strategy for the future, as characterized by the following author:
“The first step is to measure whatever can be easily counted. This is OK as far as it goes. The second step is to disregard that which can’t be easily measured or to give it an arbitrary quantitative value. This is artificial and misleading. The third step is to presume that which can’t be measured easily really isn’t important. This is blindness. The fourth step is to say that which can’t be easily measured really doesn’t exist. This is suicide.”[i]
As Mexico’s leadership defines and implements its strategy to create a better future by a return to the past, counting the cost becomes terribly important. AMLO has, and continues to pontificate what he is against: corruption, wasteful spending, the divide between the rich and the poor. Is it possible that in the process of being against something worth being against, AMLO’s advocacy has morphed into a narrative of something not worth being for?
It’s not easy to count the cost of moving into the future via a return to the past. It’s easy to count prospective job creation numbers associated with several infrastructure projects. It’s also easy for politicians and world leaders to disregard those social maladies which do not lend themselves to being easily counted. For societal challenges like hunger, employment, homelessness, lack of access to education and healthcare, the difficulty in counting the cost becomes even more difficult and leads to conclusions that these issues have less or no importance. Today, when we encounter difficulty counting or measuring the misery of people, the tendency is to dismiss it; to elevate other issues that are more amenable to counting and measurement into government policy and future strategic considerations.
As our world moves toward increasing economic integration, the necessity to develop renewable energy resources that replace the destructive forces of petrochemical industry, and enhance access to healthcare, food, education, housing and employment opportunities for our most vulnerable – Mexico is attempting to resurrect a bygone era – where the cost of miscalculation can be devastating.
Just ask the global investment community and bond rating agencies. Mexico’s current strategic trajectory has led to an outcry and crisis of confidence by global institutions that matter. Unfortunately, we humans like our biases confirmed.
We are willing to manipulate and ignore incoming information to bring about and protect the pleasant emotional state that “I am right.” Psychology refers to this as the confirmation bias. Mexico’s AMLO exhibits his ongoing captivity to this malady at his daily press conferences in Mexico City as he rebuts questions from the press: “I will look at any additional evidence to confirm the opinion to which I have already reached.”
Does this sound like blindness to you?
Maybe Mexico’s President Andres Manuel Lopez Obrador needs to get out more…with a mask on…Unfortunately, for the nation of Mexico and its people, Mexico’s strategy for the future via a return to the past has been unmasked by those assessing Mexico’s current viability for essential foreign direct investment.
NOTES: [i] Handy, Charles The Age of Paradox Harvard Business School Press © 1994 p. 221
For The Yucatan Times
Bill Dahl is a former Senior Vice President for Bank of America in Los Angeles, CA. He currently resides in Queretaro, MX. His insightful analysis of global economic affairs have been published widely. He is a contributing columnist for IDN-InDepthNews and Wall Street International Magazine. He has been a contributing columnist for The Yucatan Times.
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