MEXICO: An introduction

Introduction

After GDP growth of 3.9% in 2022 and 3.1% in 2023, the Mexican economy has slowed down in 2024. This is mainly attributed to presidential and legislative elections, uncertainty related to proposed legal and constitutional reforms, diminished spending and caution in investment, a tight monetary policy, and a deceleration of the US economy. As a result, the forecasted growth in 2024 has been lowered from 2.4% to around 2.2%.

After the elections held on 2 June 2024, where Mexicans voted for continuity in the form of another term for the Morena party, the country is anxious to see if President-elect Claudia Sheinbaum and the qualified majority in Congress obtained by her party and allies, will fully endorse the reforms and policies proposed by her predecessor. Thus far, there has been an overall positive reaction to the elected cabinet members, with many scientific and technical profiles in the different ministries and other governmental positions, and the prospect of increased co-operation between the private and public sectors.

Proposed Reforms

In February 2024, the outgoing president submitted to the Chamber of Deputies 20 bills, including amendments to 53 constitutional articles and reforms to different laws, ranging across a variety of subjects, including the rights of indigenous communities, social programmes, health, the judiciary, the environment, pensions, the minimum wage, criminal offences, electoral matters, dissolution of autonomous entities, energy, and attributions of the national guard.  

Below are only some of the proposed reforms that will be analysed by the new Congress upon taking office in September:

Judicial reform. Proposals include (i) that the designation of National Supreme Court Justices and federal judges and magistrates be made by popular vote; (ii) an amendment to the structure, composition and functioning of the National Supreme Court of Justice, including decreasing the number and tenure of Justices; (iii) an amendment to the system of administration of the federal judicial branch, which would now include a new entity with members appointed by the executive branch and the senate, not only from the judiciary; and (iv) the creation of a disciplinary judicial court, which would hear complaints against members of the judiciary.

• Autonomous agencies. One of the bills contemplates the disappearance of the Federal Antitrust Commission (COFECE), the Federal Telecommunications Institute, the Energy Regulatory Commission, the National Hydrocarbons Commission, the National Institute for Transparency, Information Access and Protection of Personal Data and the National Commission for the Continuous Improvement of Education. The powers of these agencies would be transferred to different ministries managed by the executive branch or to state productive enterprises.
• Criminal reform. Intending to increase the catalogue of criminal offences that would merit automatic preventive arrest pending trial, including certain tax offences, drug dealing, organised crime, among others.
• National Guard. A proposed militarisation of the National Guard and an increase in its powers, including authority to participate in criminal investigations.
• Energy. Changes to the approach and elimination of relevant concepts adopted in the 2013 energy reform – eg, potential disappearance of the legal concept of “state productive enterprises” that was adopted by PEMEX (Mexico’s national oil company) and the Federal Electricity Commission (CFE).   

The above is only a sample of the wide-ranging constitutional amendments that have been put before Congress. If some of the proposed reforms are actually enacted, they will have significant impact on the legal, political and economic landscape of the country.

Shared Prosperity: Infrastructure and Energy

During the past months, President-elect Claudia Sheinbaum has been communicating her “Shared Prosperity” plans and strategy for Mexico, including on matters of national security and justice, energy, infrastructure, water, education, development zones, employment, digital transformation and telecommunications.

Within her plan, the infrastructure programme contemplates ambitious cargo and passenger train projects, toll roads, as well as investments in ports and airports. There is also a water plan that prioritises policies for the reuse of water, cleaning of rivers and technical improvements for agricultural irrigation.

In the energy sector, the President-elect has reiterated that the Mexican State shall maintain a 54% participation in the generation of power, but she has also openly supported the participation of the private sector in the electricity industry, and she is a strong promotion of renewables and energy transition. Substantial activity is anticipated in this industry to fulfil the growing demand for electricity and to combat the lack of investment not only in generation, but also in transmission and distribution grids; important investments have been announced for such objectives. Distributed generation will likely continue to grow, and the energy demands of nearshoring, digital infrastructure and data centres that cannot be supplied by CFE will most likely require the development of “inside the fence” generation projects. The development of renewable energy projects should naturally enable the advance of green hydrogen projects.

The foregoing is to be organised around “Zones for Welfare Development” (Polos para el Desarrollo del Bienestar) across the Mexican territory that intend to accommodate new infrastructure, manufacturing industries, logistical projects and other social infrastructure required to support the economic activities.

Other Relevant Reforms

An amendment to the Securities Market Law was approved by Congress and published in the Federal Official Gazette on 28 December 2023. This amendment incorporates a simplified procedure for the registration of securities, mainly aimed at increasing the participation of small and medium-sized companies in public securities offerings. The law was also modified to include more flexible clauses on protection against hostile takeovers, public policy incentives on sustainability and gender equity, and the regulation of hedge funds. To date, the National Banking and Securities Commission has not yet issued the supplementary regulation. Once enacted, the new rules will hopefully promote the growth and dynamism of Mexico’s capital markets.

Tax Matters

It is expected that the new administration will continue with most of the current fiscal policies, including an attempt to enhance tax collection and combat tax evasion, without creating new taxes or raising existing ones, but rather through tax audits with a deep review of taxpayers’ transactions.

Conclusive agreement proceedings with tax authorities, reached with the support of the Taxpayers’ Defence Office (PRODECON), will continue to be an essential part of a defence before embarking on litigation; however, the autonomy and technical capacity of PRODECON may be affected if a bill currently being analysed in Congress is passed, which proposes to merge PRODECON with the National Commission for the Defence of Users of Financial Services (CONDUSEF).

A constitutional amendment is also being analysed by Congress proposing that administrative and federal courts shall resolve tax controversies of a lesser value in a period not to exceed six months, thereby expediting the resolution of tax controversies, which typically takes over a year.

The incoming administration will likely continue to grant incentives, including federal and local tax incentives, to promote the welfare development zones.

Antitrust

The Mexican Antitrust Commission (COFECE) has been investigating cartels and abuse of dominance across various sectors, including entertainment, real estate, carrier services and medical devices. Recently, we have observed increased attention to digital markets (ie, through an investigation into market access barriers in digital marketplaces). We anticipate more activity from COFECE in this area, even though the Mexican Telecommunications Institute also holds antitrust authority. The legal status of COFECE is currently under discussion, with a presidential initiative proposing a change from an independent governmental agency to a body that would be dependent on the Ministry of Economy; the effects of this constitutional reform, remain to be seen.

Sustainable Finance

Sustainable finance in Mexico is rapidly evolving. In September 2023, the government of Mexico, through the Ministry of Finance, launched the Sustainable Finance Mobilisation Strategy together with the Global Green Growth Institute. Through three pillars, the strategy aims to:

• align public spending with sustainable development goals, adopt sustainable practices, identify climate risks and implement financial instruments that enable the energy transition;
• promote sustainable finance with public policy, regulation and the use of the Sustainable Taxonomy issued earlier in the year; and
• integrate a gender perspective in the financial sector, train the sectoral authorities in terms of sustainability and promote the strategies in this area.