The Rise of Case-By-Case Considerations for Doing Business in Mexico
A Place “in Dread”?
“There are two places that I think are in dread”, the editor-in-chief of The Economist warned shortly after Donald Trump’s election as 47th president of the United States. “One is Mexico. I think Mexico is in real trouble right now.”1
With a crackdown on immigration, the designation of Mexican drug cartels as foreign terrorist organizations, and an escalation on tariffs coming into sharper focus as President Trump is sworn in, Mexico’s extraordinary exposure to U.S. dynamics could be sufficient to justify the view. Further, Mexico’s domestic policies and politics are a driver in and of its own of risk, volatility, and uncertainty. If dread seems too strong a word, concern is undeniable.
Yet, Mexico remains attractive to foreign investment. The Mexican government recently touted pledges of investment from foreign companies to the tune of $20 billion.2 So, what’s the full story here?
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Sheinbaum Administration: First 100 Days and 10 Major Risks
For companies and investors interested in Mexico, the last 100 days have delivered back-to-back macro risk events. The “plan C” shorthand used to describe the Sheinbaum administration’s series of constitutional reforms does not fully capture the level of disruption these imply. Investors may not say as much publicly, but at least four of the recent reforms are deeply problematic for many of them:
The judiciary overhaul, which replaces sitting judges, magistrates, and justices through popular election. This makes Mexico one of the very few countries around the world that will have a Supreme Court elected by popular vote, rather than designated on merit.
The “strategic industries” reform, which makes law the discriminatory concept of “prevalence” by state-owned enterprises over private competitors. Unless checked by implementing legislation and regulation, this has the potential to upend the economics of existing power generation assets and inhibit further competitive investments.
The indigenous consultation reform, which incorporates the obligation of those that profit from administrative measures subject to consultation to grant the communities involved a fair and equitable benefit. Unless clearly defined in implementing legislation, it has the potential to introduce heightened legal risk for major projects in Mexico.
The autonomous regulatory agency overhaul, which ends the structural independence of technical regulators in energy, telecom, antitrust, and transparency. This has the potential to further enable government intervention and discrimination in permitting, as well as to hinder regulatory development and enforcement.
The recent amendments to the Mexican Constitution are not all there is. Other high-profile events since the election of President Sheinbaum cut across entire policy portfolios and issue types that altogether showcase the volatility of Mexico’s risk profile.
The securement of a two-thirds majority in Congress by Morena, which earlier in the year was discarded by analyst consensus as virtually impossible.3 This will continue to enable changes in the Constitution, as deemed needed, until at least the 2027 midterm election.
A series of incidents related to cartel violence, which suggest deteriorating governance conditions in multiple regions across Mexico.4 Paired with President Trump’s focus on cracking down on cartel operations and the smuggling of fentanyl, the profile of the issue is now fully cross-border, making it even more difficult to navigate.
Worsening financial conditions of Pemex affecting ongoing operations, as suggested by recent drops in production and warnings from oil service companies. As of January 2025, Pemex’s debt with suppliers reportedly stood at more than USD$20 billion dollars.5 Some analysts warn that a massive bailout or an associated fiscal crunch are inevitable.
Unexpected restrictions on trade of ‘sensitive’ textile and apparel goods under the IMMEX (maquila) program, which have jeopardized a booming industry of third-party logistics, including for the fulfilment of U.S. e-commerce delivery.6
Recent appointments of politicians to technical offices in key sectors, like energy, bucking what was originally seen as a more technical bent in the administration. The appointment of Cuitláhuac García, former Governor of Veracruz, as the head of CENAGAS, Mexico’s gas system ISO, is an example.
Tit-for-tat responses to provocative statements by then President-elect Trump from President Sheinbaum and her cabinet.7 While not incendiary, these do suggest that there is no private relationship or line of communication (as in the old AMLO-Trump days), which could complicate de-escalation efforts on any given issue at critical times.
Reasons to Remain Optimistic
The evidence of heightened Mexico risks, driven by both domestic and international dynamics, is simply too much to wave off as noise. But that does not mean that Mexico is inhospitable or unattractive to foreign investment. Far from it. Factors that keep drawing interest from abroad include the following:
- Mexico’s size (and geographical proximity to the U.S.) makes it unique among emerging economies. Even under the current challenging situations, it’s the ninth largest global recipient of FDI, and the third among developing nations, according to UNCTAD.8
- Mexico’s status as the largest trading partner to the world’s leading economy is likely to prove ‘positively sticky’. Also relevant, the Mexican government is clearly and solidly committed to keeping it that way – with nearshoring as its dominant buzzword.9
- According to optimists, the positive AMLO-Trump working relationship, which sets a precedent – even if their relational capital is unlikely to directly translate to President Sheinbaum.10
- Extraordinary potential in Mexico’s energy, transport, and manufacturing sectors, to cover a growing domestic and external demand and to update an aging and carbon-intensive infrastructure.
- Mexico’s competitive production costs, driven by a young and talented workforce, and its reasonably sophisticated frontier of possibilities of production, which will continue to drive opportunity.11 If Mexico can continue to fall on the right side of the equation regarding U.S. national security and political considerations, it might have a significant edge.
Much more circumstantially, President Sheinbaum and her team have used every recent opportunity to reiterate their intention to “enable” private and “mixed” – public-private – investments. The recent launch of her “Plan Mexico”, a first attempt of presenting a vision of industrial policy, is packed with pledges to unlock new opportunities for investment and to establish joint ventures in strategic sectors.12
In this context, even the most polarized and politicized of sectors continue to be navigated by many major international players. In other words, Mexico is far from being un-investable or outright inhospitable to mainstream investment.
The ‘Case’ for Case-By-Case Considerations for Doing Business in Mexico
Pessimists are right, there is heightened political and public policy peril in Mexico, as credit rating agencies and traditional political risk analysts confirm at nearly every turn.13 Betting that the macro political risk outlook is going to improve quickly and sustainably can hardly be justified. But optimists are not wrong: the opportunities in the country, across and within several sectors, are material and appealing. Some have the markings of durability.
Rather than becoming a card-carrying member of the optimists’ club, and name-and-shame the pessimists, investors and corporates with interests in Mexico should look for risk and opportunity where it matters – in specificity and granularity. Understanding macro risks is crucial for level setting and understanding where most stakeholder perceptions will likely be a form of risk in and of itself. But it should not be used to exert blanket veto over entire opportunity classes.
Risk, particularly political risk, is seldom uniform. That political risks in the Mexican energy sector are completely different than those in the manufacturing sector is evident to all. The differences between subsectors are also clear. The risk profile of oil and gas exploration and production in Mexico, for example, is markedly different that of operating combined cycle facilities, or that of developing wind and solar photovoltaic facilities. The Lopez Obrador administration proved this repeatedly.
Where some investors and corporates can miss out is in intra-sector dynamics. Case-by-case considerations define the areas of opportunity for commercial endeavors and for strategic positioning – but are frequently ignored. Take for example, the much-maligned Mexican power sector. The new form of Mexico’s Constitution, as mentioned above, effectively enables the state-owned enterprise and authorities to discriminate against private players. The implementing legislation might not provide enough guarantees to close this possibility. But it will likely seek to define the space and forms in which private players will not only be enabled but encouraged to participate.
Those that prove capable of mitigating and transferring the remaining political risk – by focusing on the development or operation of critical assets, by solving technical challenges beyond political restriction, by seeking forms of financing that can act as deterrents of political action, by fostering the development of new contractual forms that feed into expiring legacy forms, and by looking for sufficient and effective coverage of investor-state dispute mechanisms – will find whitespace to operate in. And much value to unlock.
To further discuss the insights and recommendations herein, reach out to our experts below.
Authors
Pablo Zárate
Senior Managing Director, Mexico Public Affairs
Pablo Zárate is a senior managing director within FTI Consulting’s Strategic Communications segment, based in Houston and Mexico City. He is a leader of the segment’s Latin America Public Affairs practice and focuses on developing and overseeing issue management programs to address high-stakes corporate challenges such as acute political risk, disputes, complex financial transactions, regulatory issues, and reputational crises.
Damián Martínez
Managing Director, Mexico Public Affairs
Damián Martínez Tagüeña is a Managing Director in FTI Consulting’s Strategic Communications segment, based in Mexico City. Damián advises companies on complex public affairs and regulatory issues, as well as on reputational crises and disputes. Prior to joining FTI Consulting, Damián served in the Mexican diplomatic corps for nearly 20 years, most recently as Chief of Staff of the Deputy Secretary of Foreign Relations.
Jorge Padilla
Managing Director, Mexico Public Affairs
Jorge Padilla is a Managing Director in the Strategic Communications segment at FTI Consulting, specializing in public affairs, government, and media relations across several industries, including energy, industrials, and infrastructure. He previously served as Deputy Editor-In-Chief of Mexico’s leading newspaper REFORMA, and co-led MURAL Newspaper in Guadalajara.
[1] fareedzakaria (November 15, 2024), Instagram, “Two places likely dreading Trump’s return…,” https://www.instagram.com/fareedzakaria/reel/DCZd4iLNX6g/?locale=es_US
[2] Alex Vasquez, “Sheinbaum Unveils $20 Billion in Mexico Projects Led by Amazon, Woodside” Bloomberg (October 15, 2024), https://www.bloomberg.com/news/articles/2024-10-15/amazon-amzn-woodside-wds-plan-20-billion-mexico-investments
[3] Jason Marczak, “What to watch in Mexico’s elections: A supermajority and a superpower,” The Atlantic Council (May 30, 2024), https://www.atlanticcouncil.org/blogs/new-atlanticist/what-to-watch-in-mexicos-elections-a-supermajority-and-a-superpower/
[4] Julian Resendiz, “Sinaloa cartel infighting leaves 500 dead, $1 billion in losses,” Border Report (December 4, 2024), https://www.borderreport.com/immigration/border-crime/sinaloa-cartel-infighting-leaves-500-dead-1-billion-in-losses/; and “Sheinbaum sends security forces to Tabasco to quell uptick in violence,” Mexico News Daily (January 16, 2025), https://mexiconewsdaily.com/news/sheinbaum-security-forces-tabasco/
[5] Gaspar Vela, “Sheinbaum anuncia fecha en que se terminarán de pagar adeudos de Pemex a proveedores,” Milenio (January 15, 2025), https://www.milenio.com/politica/sheinbaum-anuncia-fecha-terminara-pago-adeudos-pemex; and “Mexico’s oil and gas output drops to lowest level all year in November,” Reuters (December 24, 2024), https://www.reuters.com/business/energy/mexicos-oil-gas-output-drops-lowest-level-all-year-november-2024-12-24/
[6] Giselle Soriano, “Incremento de aranceles a textiles ya impactó a 52 empresas: IP, “ Milenio (December 24, 2024), https://www.milenio.com/negocios/aumento-aranceles-textiles-impacto-52-empresas-ip
[7] “Mexico president trolls Trump with “Mexican America” map after his “Gulf of America” name change proposal,” CBS News (January 9, 2025), https://www.cbsnews.com/news/mexico-president-trolls-trump-us-should-be-renamed-mexican-america/
[8] “World Investment Report 2024,” United Nations Conference on Trade and Development (UNCTAD) (June 20, 2024), https://unctad.org/publication/world-investment-report-2024
[9] “Plan Mexico offers incentives of almost 1.5 billion dollars to companies that opt for nearshoring,” Forbes Mexico (January 23, 2025), https://forbes.com.mx/plan-mexico-ofrece-incentivos-de-casi-1500-mdd-a-empresas-que-opten-por-nearshoring/
[10] “Mexican president calls Donald Trump ‘a friend’ and says he’ll warn him against closing border,” AP (July 19, 2024), https://apnews.com/article/mexico-trump-lopez-obrador-border-327657d76f4ad88f4199bded716e123b
[11]Jorge Gonzalez Henrichsen, “The Rise Of Automotive Manufacturing In Mexico,” Forbes (August 29, 2024), https://www.forbes.com/councils/forbesbusinesscouncil/2024/08/29/the-rise-of-automotive-manufacturing-in-mexico/
[12] “President Claudia Sheinbaum presents Plan Mexico, which includes an investment portfolio of 277 billion dollars,” Gobierno de México (January 13, 2025), https://www.gob.mx/presidencia/prensa/presidenta-claudia-sheinbaum-presenta-el-plan-mexico-que-contempla-un-portafolio-de-inversiones-de-277-mmdd
[13] “Moody’s downgrades Mexico outlook to negative citing institutional weakness,” Reuters (November 15, 2024), https://www.reuters.com/world/americas/moodys-downgrades-mexico-outlook-negative-citing-institutional-weakness-2024-11-15/
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