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Investors Welcome ... With or Without New Friends
Notwithstanding a new administration in the U.S. and uncertainty around NAFTA, economic growth, coupled with energy reform and rigorous antitrust and anticorruption regulations, continues to fuel significant flow of international capital into Mexico. The financial and legal sectors must keep pace.
Enrique González Calvillo, a partner at cross- border law firm González Calvillo, S.C., points with enthusiasm to a new petrochemical initiative underway in the state of Sinaloa. “There is a
revolution going on in Mexico with respect to the natural gas industry. The development of pipelines is bringing natural gas to the whole country, primarily to fuel power plants. But a host of other projects will be driven by that natural gas.”
The Sinoloa venture, a fertilizer plant, is being built by Swiss petrochemical company Proman. The plant’s three phases will require approximately US$5 billion in capital, but this steep price tag is not an obstacle. The predicted long-term price of natural gas, González Calvillo points out, is creating a huge incentive to launch projects of this nature.
REFORMS DELIVER SUCCESS
As little as five years ago, such an undertaking would have been unthinkable. But Mexico’s energy reform has opened the door, for the first time since 1938, to petrochemical development. Even the lack of infrastructure and supply of natural gas no longer stand in the way. Investors are providing the infrastructure to deliver gas imported from the United States throughout the nation.
Recent reforms in other areas have also created a more open playing field for foreign investors. In particular, González Calvillo highlights antitrust law. Not only has the government enacted new legislation, but it is also aggressively charging ahead with enforcement efforts. “The antitrust commission of Mexico has become one of the fiercest and strongest authorities in the world.” The once-common practice of price-fixing is now “unthinkable,” he says. “If you get caught, you may even face prosecution.”
AND YET ...
The Sinoloa ammonia project offers just one example of enthusiastic foreign investment. González Calvillo readily acknowledges that México City could enact further reforms to attract even more investment and encourage economic growth. In particular, he hopes for improvements to the rule of law and the financial sector.
With the government consistently abiding by and operating under well-established and clearly written guidelines, González Calvillo envisions a new Mexico that will run much more efficiently and with far more certainty. He predicts that more transparency in, and adherence to, the legal system will stimulate the country to blossom from its current ranking as the world’s 13th-largest economy to a place among the top 10.
As with the rule of law, González Calvillo characterizes Mexico’s maturity in the financial sector as largely unrealized.
ENRIQUE GONZÁLEZ CALVILLO
Partner
González Calvillo Abogados
The main reason for this sluggishness: “The majority of our country doesn’t have access to the banking system.” Growth of the middle class, he explains, would allow the financial sector to become stronger. “You will see more business by banks, you’ll see more competition.”
Because Mexico is still a vigorous emerging market, González Calvillo expresses confidence that the middle class will indeed thrive. “Our growth was at 2.8 percent, while Brazil was showing negative growth only last year.”
NO ELEPHANT IN THE ROOM
Even in a changing global political atmosphere—abetted by Trump administration policies that seem to value separatism over unity and competition over cooperation—the international law expert remains optimistic. “Mexico’s life is intimately related to the United States,” he asserts. Although the United States and Mexico evolved from profoundly different roots, he argues that it would be a major mistake not to appreciate the history and depth of their longstanding relationship.
With the Sinaloa petrochemical project, for example, González Calvillo wholeheartedly approves of purchasing natural gas from the United States, whose surpluses, he reasons, can serve as a reliable source of natural gas for years to come. Even if a trade war breaks out, binding agreements among private parties on both sides of the border will ensure the supply of gas and the financing of new pipelines.
Any concerns about the new leadership in Washington? González Calvillo sees a business environment that is continuing to expand and move forward “despite what is being said about the future of NAFTA and other issues regarding Mexico.” He adds, “I thought it was beside the point to say that the future of Mexico depended on the election of someone in the United States. Now I am sure of it.”
A project being developed by Proman, AG, one of the world’s leading producers of methanol, will make Mexico self-sufficient and even turn it into a net exporter of ammonia—a chemical crucially needed for the country’s robust agricultural sector.
INTERVIEW: GONZÁLEZ CALVILLO ABOGADOS
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