In Conversation with Brennan & Partners
18th June 2021
Brennan & Partners held a further edition of its “In Conversation with Brennan & Partners” series with speakers Dr Luis Rubio (Chairman, México Evalúa), Dr. José Antonio Meade Kuribreña (Senior Advisor, Brennan & Partners and former Minister of Finance, Foreign Affairs, Social Development and Energy of Mexico), Vanessa Rubio Márquez (Senior Advisor, McLarty Associates and former Deputy Minister of Foreign Affairs, Social Development and Finance of Mexico) and Luis de la Calle (Managing Director and Founding Partner, CMM) providing insights into and discussing the implications of the 2021 Mexican Mid-Term Elections held on 6 June. The panel was moderated by Vanessa Rubio Márquez. The session was opened by The Lord Brennan QC (Chairman, Brennan & Partners and Vice-Chair of the UK All-Party Parliamentary Group on Mexico) and closed by The Rt Hon Sir Hugo Swire (Chairman of the International Advisory Board, Brennan & Partners).
The conversation explored the economic effects of the results of the mid-term elections, which were the largest in Mexico’s history as over 25,000 public positions were being contested, including the 500 members of the Federal Congress’ Lower Chamber, 15 State Governors and thousands of local officials.
Themes that emerged included:
>> The people spoke – a good turnout meant Mexicans were conscious of what was at stake at this election and came out to vote and decide in significant numbers. The election was overall a transparent one, and although electoral results are going to be judicially contested, none of the queries on relevant elections are perceived as having strong legal grounds.
>> Moderate Presidential Agenda – although it was not a presidential election, the results of these elections will have a significant effect on the presidential agenda. Without a qualified majority, the Government of Andrés Manuel López Obrador (AMLO) will need to negotiate the passing of key legislation in the Lower Chamber with opposition parties. This, in turn, will mean that the most “radical” initiatives in AMLO’s agenda will be shelved in favour of more moderate ones that are palatable to parties outside the Government’s coalition. AMLO has met the Congressional limits of the concentration of power.
>> AMLO’s drivers – President López Obrador firmly believes in oil and gas as a source of income and growth; reasonable profits for companies with a negative view on “excess” profit; and a balanced budget. He places enormous importance on keeping a strong peso. In today’s Mexico, the most significant proportion of revenue comes from manufacturing and services rather than oil and gas. In that sense, the stability of public finances comes from companies’ profits rather than from conventional energy sources.
>> Strong fundamentals – the Federal Government allocated less than 1% of GDP to social assistance and economic recovery during the pandemic compared to 8% of GDP spent by the Brazilian Government. In this context, Mexico’s GDP was hit harder than other peers in the region. However, public finances are in better shape as the fiscal deficit is lower, and there is more room for budgetary manoeuvring. Although rating agencies will be looking in the coming months at AMLO’s economic policy, the chances of losing the investment grade rating are low. Mexico is already exporting more compared to pre-pandemic levels.
>> Positive effects of US stimulus package – the Biden Administration’s stimulus package for economic recovery plus the infrastructure initiative will have a positive spill-over effect on the Mexican economy.
>> Geopolitical opportunities – as tensions with China increase, Mexico is ideally positioned to bring nearshore investment and manufacturing capabilities to supply the US market. As a member of the USMCA, Mexico is part of the largest economic region in the world.
>> Regional context – in the current regional context, Mexico is perceived in relative terms as a more stable market than its peers.
>> Mexico – UK potential for increased exchange – current bilateral trade amounts to c. £5.3 billion. With Brexit, the UK could negotiate and implement an ambitious trade deal with Mexico that signals to the rest of the world the kind of trading partner the UK wants to be. The trade deal can include origin cumulation for preferential access, a strong services chapter, 100% open skies, and UK’s application to CPTTP. Mexico’s membership of the USMCA should be the most attractive element for UK businesses.
Critical sectors for UK investment are agriculture, fintech, manufacture and infrastructure. Amongst the most interesting States for investment purposes are Mexico City, Jalisco, Querétaro and Nuevo León. Increasingly appealing are the southern states of Oaxaca, Chiapas and Guerrero.
The UK and Mexico can be partners for developing joint initiatives in Central America and the Caribbean. Central America has 35 million inhabitants, the same as Canada. With a renewed energy matrix, Central America can replace low tech manufacturing from Southeast Asia.
>> Towards 2024 – the remaining three years of AMLO’s Administration will be overshadowed by the upcoming presidential election in 2024. It remains to see if Morena can outlive AMLO and present a strong candidate for the 2024 elections. The 15 new Governors will be less inclined to be influenced by AMLO as their terms will extend beyond his mandate.