The president of the American Society of Mexico has warned that United States investors will look to Canada if the Mexican government continues to change the rules of the game and doesn’t respect existing contracts.
Speaking Friday at a virtual event organized by the Confederation of Chambers of Commerce, Services and Tourism (Concanaco), Larry Rubin said the new North American trade agreement, the USMCA, will lead to greater United States investment in the region.
However, U.S. investment in Mexico will depend on the policies the Mexican government implements or doesn’t implement, he said.
Rubin said that board members of companies in New York, Washington, Chicago and Los Angeles watch events as they unfold in Mexico and that they will take note if public consultations involving U.S. companies are held or if established agreements between the private sector and the government are changed.
The government has already canceled a brewery project that was under construction by U.S. beverage company Constellation Brands in Mexicali, Baja California, after a consultation in March found that 76% of participants opposed it.
Rubin said that “enormous caution” is needed because the decisions the government makes today will have a “very significant” impact on the decisions investors make in the future.
“Mexico is not alone in the USMCA, it’s competing for United States investment with Canada. So if Mexico doesn’t get its act together and do things better, investors will naturally decide to go to Canada, which despite being more expensive is safer for investment,” he said.
Rubin said that Mexico urgently needs to send signals that the rule of law is respected and that United States investors will be respected 100%.
A group of “local rebel politicians” shouldn’t be able to stand in the way of a project because they didn’t receive a bribe or other benefit, he said.
“We have to be very careful because investment, like a swallow, flies away and leaves. There is room to do things better in terms of looking after commerce in Mexico,” Rubin said.
Speaking at the same event, Concanaco president José Manuel López Campos said that legal certainty and security are fundamental factors in generating investor confidence. Insecurity and an absence of the rule of law inhibits the capacity to attract new investment, he said.
The Concanaco event came just after the U.S. State Department published its 2020 Investment Climate Statement for Mexico.
It noted that the approval of the USMCA provided “a boost in confidence to investors hoping for continued and deepening regional economic integration.”
The State Department also noted that President López Obrador has expressed optimism that the trade pact’s entry into force on July 1 this year “will buoy the Mexican economy.”
“Still,” the statement continued, “investors report regulatory changes, the shaky financial health of the state oil company Pemex, and a perceived weak fiscal response to the Covid-19 economic crisis have contributed to ongoing uncertainties.”
The State Department also said that “uncertainty about contract enforcement, insecurity, informality, and corruption also continue to hinder Mexican economic growth.”
“These factors raise the cost of doing business in Mexico,” it added.
Despite the barriers to doing business, Mexico became the United States’ top trading partner in goods in 2019 and remains one of its “most important investment partners,” the State Department said.
“Bilateral trade grew 654% 1993-2019, and Mexico is the United States’ second largest export market and third largest trading partner,” the Investment Climate Statement said.
“The United States is Mexico’s top source of foreign direct investment with US $114.9 billion (2018 total per the U.S. Bureau of Economic Analysis) or 39.7% of all inflows to Mexico.”