Security, Trading And Investment Update For Mexico

01 August 2019

Security Trading And Investment Update For MexicoInvestor sentiment in Mexico has weakened following the resignation of Finance Minister Carlos Urzúa in July 2019, and the increasingly populist politics of President Andrés Manuel López Obrador (AMLO). A dispute over gas pipeline contracts between the Mexican government and US and Canadian energy firms highlights the increasing risk of contract alteration and cancellation in the 12-month outlook.

Security Environment

Protests resulting in business interruption are likely to increase in the one-year outlook, as groups encouraged by AMLO’s social promises pressure for their demands to be met.

Protests in Guerrero, Michoacán, and Oaxaca states frequently generate blockades of federal highways and rail lines by striking unions.

In January 2019, a five-week rail blockade by teachers’ union CNTE led to an estimated loss of US$1.5 billion.

In addition, rail routes, especially the Veracruz-Mexico City line, face frequent disruption from thieves who are reported to use obstacles to force trains to stop and then steal their cargo.

Security, Trading And Investment Update For MexicoMining and onshore hydrocarbon projects will increasingly face risk from fuel and cargo theft, and environmental protests.

There has been a sharp rise in the number of illegal liquefied natural gas (LNG) pipeline thefts, with 4,019 thefts recorded in the first five months of 2019, compared with 215 in the whole of 2018, and 166 in 2017.

Pipeline thefts often lead to spills and leaks, increasing risks to individuals and businesses. In January 2019, a gas explosion at the Tlahuelilpan pipeline in Hidalgo State killed 137 people and has been blamed on the actions of fuel thieves.

The government is now increasingly likely to transport fuel by road, but this is expected to increase oil-tanker trucks by organized crime groups.

The states of Guadalajara, Puebla, Tabasco, and Tamaulipas are predicted to be among the hotspots for cargo theft and extortion in the coming year.

Trading Environment

Mexico’s growth outlook remains challenging due to policy uncertainty and high operational risks for international investors.

Mexico is forecasted to enter a technical recession after two consecutive quarterly declines of 0.2% and 0.1%, respectively.

The resignation of Finance Minister Carlos Urzúa, on July 9, is an indication that AMLO is increasing looking to centralize economic policy.

Urzúa’s departure raises doubts as to whether Mexico can maintain budget stability beyond 2019, and increases the likelihood the government will pursue fiscal reform to increase tax revenue from the extractive sectors.

Pricing outlook MexicoProduction of hydrocarbon is expected to remain constrained in the near-to-medium term by a lack of investment from successive governments in past decades.

The state-run oil firm will struggle to reverse long term production declines, despite AMLO's new proposals to revive the firm, which involve administering US$5.8 billion in aid, via tax cuts, and a US$16 billion cash injection.

Investment Environment

Contractual agreement repudiation risks have significantly increased for foreign and domestic investors in Mexico, particularly within the energy sector, following a dispute over the renegotiation of gas pipeline project contracts in July 2019.

The seven projects in question comprise 3,230 kilometers of pipelines, representing investment of almost US$5 billion, and are designed to transport nearly 7.5 billion cubic feet of gas a day to federal electricity commission plants for power generation.

The dispute over renegotiation of the gas pipeline contracts is due to AMLO's claims that contract clauses, requiring state payments to developers that cease operations under force majeure circumstances, are unfair.

AMLO has pledged to drive down of government procurement costs, increasing the likelihood of the government attempting to renegotiate terms of public procurement contracts across multiple sectors in the medium-term.

Mining and hydropower projects are also increasingly likely to face cancellation risk via referendum. Projects run by state-owned companies are likely to enjoy stronger presidential support and lower contract revision risk than private-sector led projects.

In March 2019, AMLO ordered the cancellation of the Los Cardones mining project in the state of Baja California Sur, citing concerns over the environmental impact on the local groundwater supply.

Authorities and civil society groups are increasing their oversight of environmentally sensitive projects, raising the likelihood of contract cancellation under the current administration.

According to the Mexican Association of Hydroelectric Energy (AMEXHIDRO), pressure groups taking legal action on land related grounds have halted at least 19 large-scale energy projects worth a combined US$1.03 billion since 2016.

4 Key Takeaways

  • Investor sentiment in Mexico has weakened following the resignation of respected finance minister, Carlos Urzúa in July 2019.
  • 4,019 oil pipeline thefts recorded in the first five months of 2019, compared with 215 in the whole of 2018 and 166 in 2017.
  • Mexico is forecast to enter a technical recession after two consecutive quarterly declines of 0.2% and 0.1% respectively.
  • In March 2019, President López Obrador ordered the cancellation of the Los Cardones mining project on environmental concerns.

The monthly Risk Outlook is supported by our proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

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In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Eritrea, Iraq, Mexico and Zimbabwe all of which have been the subject of recent enquiries from our client base.

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  • Eleanor SmithEleanor Smith

    Eleanor Smith is a Senior Political Risk Analyst within Marsh JLT Specialty’s Credit Specialties team. At Marsh JLT Specialty, Eleanor analyses developments in political risks, and advises clients on their effect in a range of sectors. Eleanor is also responsible for delivery of World Risk Review, JLT’s country risk ratings platform, to clients and prospects.


    Eleanor has a first-class degree in History with Spanish from UCL, and a Masters in International Public Policy from the same institution. With experience in a range of sectors, including diplomatic missions and not-for-profit, Eleanor can help clients understand their risk exposure.

    If you would like to talk about any of the issues raised in this article, please contact Eleanor Smith, Senior Political Risk Analyst on
    +44 (0)20 8108 9544.

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