Mexico pushes in the right direction

In the past two years, Mexico’s president, Enrique Peña Nieto, has pushed through “several groundbreaking reforms”, says the FT. He has dismantled telecoms oligopolies and opened up the state energy monopoly to private investment for the first time in 80 years.

The education system has also been revamped. These changes, the government hopes, should eventually add 1.5%-2% to annual growth rates, compared to a recent average of 2.5%.

But now the government faces an even more urgent task. In the past year, the murder of 43 students by drug gangs backed by corrupt police, along with a series of conflict-of-interest scandals, has hurt the ruling party’s authority and fuelled fears that the impressive progress of the past few years will be swamped by “violence, interest-group politics and crony capitalism”.

Restoring confidence in the rule of law is crucial to the reforms’ success and the ability of future governments to push through further changes. It is worth “ten energy reforms”, says finance minister Luis Videgaray.

Tackling this enduring problem would also allow Mexico to exploit its other economic advantages, such as its proximity to a strongly growing US economy and its increasing popularity as a manufacturing base now that China’s labour costs have risen.

There is lots of room for domestic services to expand too, as the middle class is growing by around 3% a year. “Mexico is about to go through the baby-boomer effect… the US had 30 years ago,” says Boston Consulting group’s Joel Muniz. Investors can buy into Mexico with the iShares MSCI Mexico Capped UCITS ETF (LSE: CMXC).

Leave a Reply

Your email address will not be published. Required fields are marked *