Throughout recent administrations in Mexico, the growing need for institutional reforms in the country has been pointed out repeatedly by multilateral organizations such as the OECD and development banks, as well as by local analysts. In a number of areas, such as energy, policies and structures are still in place that were set up a over half-century ago to respond to conditions at the time. Institutions such as the state-owned oil monopoly Pemex and the national teachers union SNTE are widely seen as a drag on the country’s competitiveness in the modern global economy. The recently concluded administration of President Felipe Calderon made a game attempt to push forward some reforms, but these were largely undermined by the opposition Institutional Revolution Party (PRI), which saw its own opportunity to return to power looming on the horizon. The PRI did retake the presidency in the 2012 election, and new president Enrique Peña Nieto has energetically launched a flurry of reform proposals since taking power in December 2012. The following is a brief overview of reforms either proposed or already signed into law since last year, and some of their implications for business in Mexico:
The labor reform was actually proposed and approved in the waning days of the administration of Felipe Calderon, but entered into effect at the outset of the Peña administration. The reform strengthens protections for workers in areas such as workplace access for the handicapped, rights for domestic and agricultural workers and enforcement of compliance with social security and health benefits for independent contractors. Business owners welcomed additional stipulations making hiring and firing more flexible by allowing for trial periods for new employees, training periods and seasonal hiring. The reform helps to bring worker protections more in line with modern standards in the developed world, and allow businesses greater leeway in finding the best workers for their needs.
Modifications to existing legislation governing the country’s public education system were approved at the outset of the Peña administration and entered into effect in February 2013. The changes appear to be aimed principally at wresting some control of public education from the powerful teachers union, SNTE, and in fact the government landed a strong blow against the union by jailing its leader-for-life Elba Esther Gordillo on corruption charges days after the reform went into effect. Key stipulations under the reform include requiring that teachers meet government-regulated ability standards to be hired, promoted to directorial positions and remain in their positions, and reinforcement of English as a second language. Improving teacher quality and foreign language skills are intended to make the Mexican labor force more competitive in a globalized economy.
The hotly debated telecommunications reform, published as law in June 2013, was largely billed as an effort to reduce monopolistic practices in telecommunications and incentivize increased competition and investment. Industry leaders such as Televisa and Telmex historically have dominated their respective niches in services such as television, telephony and internet to the near exclusion of other players, despite slow inroads by new entrants in recent years. The reform calls for the creation of a new telecommunications regulatory body with significantly increased enforcement powers. Other key elements include allowing providers to offer services across various sectors, such as television, telephony, mobile data services and internet; authorization of licenses for two new free-to-view television networks; and an increase in the percentage of foreign ownership permitted in broadcast media.
President Peña sent his financial sector reform initiative to Congress in May 2013, and it is still working its way through the legislative process. The principal stated goal of the proposal is to facilitate access to credit, particularly for small and medium sized businesses, and bring down the cost of credit across the board. The proposed legislation includes stipulations aimed at making it easier for consumers to change banks, increasing access to information on financial service providers and boosting competition among lenders, among others. If implemented, the reform is expected to stimulate the economy and job creation.
The energy sector is the most controversial of all President Peña’s reform targets, and energy reform may come to be the keystone of his presidency if ambitious changes are achieved. State ownership of subsoil resources and energy generation are enshrined in the Mexican consitution and considered by many to be an untouchable symbol of national sovereignty. Nonetheless, steadily declining petroleum reserves and the limited technological capabilities of the state oil and gas monopoly Petroleos Mexicanos (Pemex) have made changes to the existing scheme critically necessary. At this writing, the official reform proposal has not yet been presented. The opposition National Action Party (PAN) has presented their proposal, however, and it is expected to be broadly in line with the President’s objectives. Key planks of the PAN proposal include implementing administrative autonomy for both Pemex and electricity monopoly CFE, subcontracting oil exploration and extraction activities to private companies via concessions, and eliminating monopolies to allow private companies to compete with Pemex and CFE, among other significant changes. The opposition Democratic Revolution Party (PRD) is expected to vehemently oppose any amendments to the Constitution contained in the official reform proposal.
In addition to the reforms, President Peña Nieto recently announced his administration’s highly anticipated National Infrastructure Program (PNI), which is expected to provide a much-needed boost to a rather sluggish current economy. The plan foresees approximately US$312 billion worth of investment in projects intended to improve the country’s overall logistics capabilities, with an eye toward addressing regional imbalances in infrastructure development as well. The PNI focuses on five key sectors: The naitonal highway grid, railways, maritime and inland ports, airports and telecommunications. Elements attracting particular attention include the reintroduction of passenger railways in to Mexico and the possibility of building a new airport to alleviate congestion at the current Mexico City international airport.