Matt KendallDespite Mexico’s largest-ever elections bringing clarity over who will govern, experts in the country are still murky over what’s to come when the new president takes office.
Leftist Andrés M. Lopez Obrador (AMLO) claimed a landslide victory on Sunday, attracting above 50% of the vote. Although he doesn’t take office until December 1, most of AMLO’s proposals have the potential to impact Nearshore stakeholders when that day comes.
“AMLO holds a nationalistic/populist worldview and favors a policy mix that is likely to validate a more active and interventionist public sector, both directly and indirectly through – often inefficient – state-owned companies,” said ratings agency Goldman Sachs. “This would likely increase uncertainty and hinder much-needed domestic and foreign investment, and could also lead to a broad mis-allocation of resources in the economy that could, over time, erode macroeconomic efficiency and overall productivity growth.”
What could an AMLO Government Mean for Cross-Border Business?
AMLO’s most notable qualities are his populist policies, unclear economic proposals, and plans for market isolation and nationalism. During a special presentation a Nexus 2018 last week, Sergio Legorreta, Partner at Baker McKenzie, explained why this is potentially cause for concern for US companies.
“If AMLO wins, the likelihood of inflation and devaluation will increase, there will be risks surrounding a lack of competitiveness, such as increased salaries and limited subcontracting, and it’s possible we will see regression on technology infrastructure,” he said. “AMLO has not been clear on his ability to control corruption, so there is also likely to be social unrest, as we are doubtful he will enforce the rule of law.”
Furthermore, Legorreta expressed that AMLO will possibly nationalize strategic industries and verticals, though it is unclear whether IT services or BPO will fall into those categories.
On the positive side, he has vowed not to increase taxes, instead bolstering government coffers by recovering embezzled funds. This means that companies should be able to rely on the same tax levels they are paying today, if he holds onto this promise.
He will however increase the national minimum wage and give a monthly stipend of US$100 to US$200 to students and the unemployed, assumedly from the same funds recovered from past cases of corruption.
Impacts to Talent and the Mexican People
On the talent side, the President-elect intends to eliminate admission exams to universities, opening the playing field for everyone in Mexico to acquire a decent education. However, he also plans to cancel the current administration’s educational reform, which introduced teachers’ evaluations and merit-based hiring, as well as scrapping the national social insurance program, which, with the country’s poverty level already at around 46%, could have serious consequences for Mexican citizens.
“Education reform less important for the private sector, as it’s been a disaster for many years, so won’t get better or worse if scrapped,” said Paul Imison, a British Business Journalist operating in Mexico City. “With the energy reform, however, AMLO has gone back and forth, and his advisers are saying different things than him on the campaign trail. Until he really comes out and says in detail what he will do, it will be hard for investors or anyone else to react.”
Among the general population, the usual doubts are resonating, stemming from inconsistencies in AMLO’s campaign rhetoric. People are nervous that there will be a similar scenario to the US, with a president that doesn’t seem to be certain about his decisions, so there is still a need to take the temperature on each and every member of government, to see how they support or hinder Mexico’s growth and evolution.
“There will be no way to really assess the new government until they have had a chance to govern,” said Guillermo Gonzalez King, Director General at Amprofon and previous CEO at Mexico IT. “To be frank, there are not yet any red flags popping up when it comes to nearshore business. I expected Canadian and American counterparts to reach out to ask about civil unrest and other concerns, but they never did. Also, the fact that Mexico seems to have gracefully accepted the outcome speaks volumes to the maturity in the system — this is the first time in my adult life that I feel Mexico is ascending into democracy.”
An Uncertain but Hopeful Future
After the results were revealed, there was not a huge exchange rate fluctuation from peso to dollar, showing that the global business community expects Mexico’s business efforts to continue.
The key here is that AMLO won a majority, giving him more room for maneuver, but without concrete policies it will be hard for companies to plan for changes.
“Things are still very vague right now,” said Imison. “There has been no major impact since Sunday, but that could change down the line as AMLO starts expressing his ideas in more detail. Although he’s a leftist, AMLO has been promising business-friendly changes and his advisers are out speaking to Reuters and Bloomberg saying there will be no radical changes.”
AMLO and his team are already trying to build bridges and alter any negative perception from national and international media. Jesús Seade, AMLO’s appointed NAFTA negotiator was quick to dispel any myths about his supposed “ambivalence about trade” as reported by Inside US Trade magazine.
“AMLO has expressed repeatedly and equally unambiguously his commitment to a prudent fiscal policy,” writes Seade in a letter to the US Trade Magazine editor. “[AMLO and his team] have categorically stated his commitment to free and open trade and our full support to the NAFTA renegotiation has been conducted.”
While it’s still too early to say, this day one move to ensure the president-elect is internationally perceived in the correct light could be a sign of his dedication to his promises. After all, any fluctuation to them and he will have the Mexican people to contend with.
“I did not vote for AMLO and haven’t been in tune with his rhetoric, but this morning I woke up and felt that Mexico as a society will judge this guy and will take him on his word,” said Gonzalez King. “There will be a huge civil observatory holding him accountable for every decision he makes as President.”
While there is not an expectation of any immediate business or social impacts, this deep concern has been on the minds of many since the first signs of an AMLO win and will continue until he officially becomes President.
Wages are too low in Mexico. There is also rampant ageism and sexism in hiring practices. Companies in Mexico do not like hiring older workers thus after a certain age older Mexicans do not have any incentive to go back to college to better themselves and get ahead. U.S. based companies operating in Mexico are also guilty of such negative hiring practices. The international business community needs to adhere to the same strict hiring policies that they are forced to adhere to in the United States.