Disappointing derailing of formerly strong export market

Only a few years ago, Mexico was a very promising market for Danish exporters, but the current president has steered the country off course.

By: Niels Dall-Hansen, senioranalytiker, EKF, 10-08-2020

No expense was spared on incense, feathers and an indigenous cleansing ceremony when Mexico's president was sworn in on 1 December 2018. Andrés Manuel López Obrador – commonly known as AMLO – took office with widespread popular support, promising to do away with corruption, crime and greedy elites.
Meanwhile, in Denmark, a great many businesses, including renewable energy suppliers, looked on with growing interest.
AMLO's term in office kicked off with some of the lowest renewables prices worldwide and a booming market, in which EKF only last year was involved in financing a trailblazing combined solar and wind venture.

Since then, things have gone pear-shaped. To add insult to injury after the president referred to wind turbines as "visual pollution", the government introduced a policy of amending the regulations and contracts governing private-sector energy companies in an attempt to rescue the ailing government-owned energy giants CFE and PMEX.

Uncertainty concerning the legislation was always toxic to private investors, and has near-killed the market for renewable energy.

Dubious virus-management impacts the economy

With just over 80,000 fatalities, Mexico is now in fourth place among countries with the highest number of COVID-19 deaths, meaning that AMLO is unlikely to garner praise for his handling of the pandemic.

Meanwhile, governmental financial support has in no way been generous, and Mexican consumers have reacted by snapping their wallets tight.

Household consumption expenditure in the second quarter was a fifth lower than in the previous year, and EKF predicts that Mexico's economy will contract by at least 10 percent this year. Not least because the largest export market, the USA, has been on lockdown, and because the splashcash from tourists is in short supply.
AMLO himself blames Mexico's miseries on his predecessors

In spite of a crippled economy, a health service straining at the seams, and a mounting wave of crime, AMLO has retained his popularity. The opinion polls reveal that more than 55 percent of voters rate him as doing a good job. However, that figure suggests that the president's reputation is tarnishing, as it is far from the 85 percent at the start of his term in office. 

Passing the buck

AMLO himself blames Mexico's miseries on his predecessors. The supreme court has just given him the go-ahead to hold a referendum on whether he is to be allowed to prosecute the former presidents for corruption and a great many other wrongdoings.

The referendum smacks of political grandstanding, as AMLO's Ministry of Justice would no doubt have prosecuted had sufficient evidence existed. The referendum is conveniently timed to coincide with the mid-term elections next summer, thereby allowing AMLO to keep up his story about the corrupt system he inherited and is struggling to transform. This begs the question of what he might be transforming Mexico into. Critics claim that AMLO's pressure on the supreme court, independent bodies and export agencies, together with his vilification of the press, are reminiscent of tactics in less democratic countries and the mighty neighbour in the north.

However, the supreme court effectively double-crossed the president by amending a phrase in his bill so as to include his own period in office. AMLO has already caused international investors to withdraw; an unfortunate state of affairs in an otherwise very promising market. If the situation cannot be reversed, the president's mission to investigate previous political decisions could well boomerang on his own standing.