Global Investors’ Desire for Stability and Predictable Environments
A colleague recently returned from ADIPEC, a massive energy forum in Abu Dhabi, and summarized the sentiment of global investors: they seek stability rather than chaos. Their preference for stability does not depend on whether it comes from an authoritarian government or a democracy; what matters is the predictability of the environment.
Relevance to Mexico
Mexico has long boasted solid foundations, such as a stable macroeconomy, abundant natural resources, and a geographically privileged location. However, these attributes are no longer sufficient. Resources alone do not generate development; consistent public policies are needed to leverage these foundations and translate potential into growth and confidence.
In sectors like energy, Mexico has ceased to be an attractive destination for new investments. Capital is now looking towards geographies that were not on the radar a decade ago: Iraq, Indonesia, or Malaysia, among others. This is a concerning sign for an economy as large as Mexico’s.
A reader working for one of the country’s most important multinational companies mentioned that they will not withdraw their investments due to their long-term commitment. While true, it’s also important to note that many companies only reinvest enough to maintain operations rather than expand. Defending existing positions is different from investing fresh capital.
From my perspective, the risk lies not in a capital exodus but in a decline in investment quality. The case of Iberdrola selling its plant network to Cox Energy illustrates this clearly. The government celebrated the operation as a “sign of confidence” in Mexico’s energy sector, but the imbalance is evident. Iberdrola is a consolidated global company, while Cox Energy is smaller and still expanding. This speaks to the type of capital willing to enter the country.
The nuance matters. In an economy like Mexico’s—one of the fifteen largest in the world with direct access to the largest global market—investment quality defines possible development. Without policies that reduce uncertainty, Mexico risks attracting increasingly small and low-impact investments.
Bloomberg’s Perspective on Mexico’s Position
Recently, Bloomberg published an article accurately describing Mexico as a country at a turning point defined by two forces: growing vulnerability to U.S. trade policy and internal decisions on the role of the state, fiscal discipline, support for Pemex, and investment incentives.
This occurs as the review of the Mexico-United States-Canada Agreement (T-MEC) approaches. The agreement is a structural piece of the economy and should serve as an anchor of certainty. However, the opposite is happening due to policy in Washington and changes driven from the ruling party. My baseline scenario is still T-MEC renewal, but the review process will maintain pressures and uncertainties until 2026 and possibly 2027, as any substantial modification must pass through the U.S. Congress.
The public consultation period for the U.S. Trade Representative’s Office (USTR) concluded recently, leaving mixed signals. Business organizations support the continuity of the agreement, but there are also criticisms of Mexico for internal reforms, including judicial ones, that will complicate negotiations.
Mexico’s Future: Balancing Strengths and Risks
Mexico is not destined for stagnation, nor is it immune to it. We can boast solid foundations, but if the rules of the game are only redefined based on ideology, the direction loses focus. In an increasingly competitive global landscape for capital, offering political and regulatory volatility in the name of sovereignty does not strengthen the country; it weakens it.
Key Questions and Answers
- What are global investors seeking? Stability and predictable environments, regardless of the governing style.
- How does this affect Mexico? Mexico’s attractiveness for new investments, especially in the energy sector, has diminished as capital seeks more stable geographies.
- What is the risk for Mexico? The risk lies in a decline in investment quality, not necessarily an exodus of capital.
- What is the current situation with T-MEC? The agreement’s review process maintains pressures and uncertainties, with potential modifications needing U.S. Congress approval.
- What are the concerns about Mexico’s internal reforms? Business organizations support T-MEC continuity, but there are criticisms of Mexico’s internal reforms, including judicial ones, which could complicate negotiations.
