Mexico’s president calls big business a ‘mafia of power’

Over the past few months, Mexican President Andres Manuel Lopez Obrador has made a bit of a show of cozying up to people in what he used to call the “mafia of power.”

He took the stage with Carlos Slim, the country’s richest person, at a news conference. He stood with leaders of two of the biggest business groups as he declared the private sector crucial to growth. He tweeted a photo of himself with the head of Italy’s Eni SpA, which has an oil-drilling project in Tabasco state.

The Twitter post most intrigued the investors and analysts reading the National Palace tea leaves, stirring speculation the president would lift his controversial embargo on oil-field auctions, which had brought in billions of dollars in foreign investment.

This was wishful thinking. AMLO, as the president is known, has extended the occasional olive branch to the business community without delivering what it wants — which is, basically, a return to the more business-friendly policies of his predecessor, Enrique Peña Nieto.

Investors remain skittish as Lopez Obrador enters his second year in office, with the country convulsed by violent crime and drug cartel turf wars. The Mexican economy is in a slump and many forecasts for 2020 are grim.

Ernesto Revilla, Citigroup Inc.’s head of Latin American economics and a former chief economist at the Finance Ministry, expects the economy to grow just 1% in 2020, the second-worst performance since 2009.

The worst? 2019.

“To have a more positive outlook and scenario going forward, you would need a dramatic change in investor sentiment,” Revilla said. “The majority of the private sector in Mexico is still skeptical.”

Before his landslide election in July 2018, Lopez Obrador provoked anxiety among the corporate elite, as he disparagingly called it, dismissing big-business people as “traffickers of influence.”

Since his inauguration last December, he has done little to calm their nerves. Two of his shock moves were scuttling a new $13 billion airport for Mexico City that had been under construction for three years and was one-third complete and demanding natural gas companies renegotiate long-ago signed pipeline contracts.

Then there was the moratorium on oil-field auctions. Pena Nieto had opened up the once-vital sector to try to kick some new life into it. The country’s output has been falling for 15 years, and state-owned Petroleos Mexicanos is the world’s most indebted oil company.

“Renewing the oil rounds would be a very positive piece of news that would generate confidence,” said Gustavo de Hoyos, the head of Coparmex, which represents 36,000 companies in Mexico, and a frequent critic of the president. “I don’t have any indication that it’s going to happen.”

One reason Lopez Obrador may be reluctant to change course on the auctions is fear of upsetting the leftist wing of the diverse movement that backs him. Rocio Nahle, the energy minister, has championed the state’s historic primary role in producing crude. Lopez Obrador is wary of making decisions that could tip the balance in his Cabinet and among his base, according to one person close to him.

It’s not all bad news in the economy. Inflation is near the central bank’s 3% target, less than half what it was two years ago. The national government will likely have another primary budget surplus next year.

Multinationals that have operated in Mexico for decades haven’t abandoned the country; foreign direct investment grew by 7.8% in the first three quarters of the year. The replacement for the North American Free Trade Agreement could soon go into effect.

On the other hand, gross fixed investment has fallen an average 5% monthly from a year earlier under Lopez Obrador. Domestic companies don’t trust the administration will respect the rule of law and not pull the rug out from under them, according to interviews with six executives who declined to speak on the record for fear of reprisals.

That’s an unfounded concern, said Jesus Ramirez, Lopez Obrador’s spokesman. “It is a government for all, both the public sector and private sector,” he said. The two “have to agree on common strategies to shore up the economy, so that there’s economic growth and that there are jobs.”

Lopez Obrador has pledged to lift economic growth to 4% and plans spending $44 billion on infrastructure to help get there, with most of the capital coming from the private sector. “Participation of the private sector in the country’s growth is necessary,” he said when he unveiled the package, which includes highway, railway, port, airport and telecommunications projects.

That could be “a catalyst for economic development,” Slim, who owns or has stakes in Mexican consumer goods, mining, construction and real estate ventures, said that day.

But analysts complained that details were scarce, and the S&P/BMV IPC stock index fell 1.6% the day the plan was announced.

“The national infrastructure plan is a step in the right direction but is unlikely to be a catalyst for Mexico to exit its investment limbo,” Morgan Stanley analyst Nikolaj Lippman said in a research report.

If the administration is ever going to win the trust of business, it will take more effort and time, Revilla said. “Most of the slowdown in the economy in 2019 can be traced to internal factors and the cancellation of the airport. The initial confidence shock was big enough to scare investment away for some time.”

Source: bloomberg

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