The past 12 months can be defined by three things, one lawyer told us: “A lot of change, a lot of work, and a lot of investment.” July 2018 saw the election of left-wing candidate Andrés Manuel López Obrador as the country’s next president, who stormed to victory with 53 per cent of the popular vote, in the process winning 31 out of Mexico’s 32 states. According to one source, “It has been a long while since Mexico had an administration with control of that level,” and “significant change” is sure to be on the horizon.
As interviewees often tell us, “Change and uncertainty is good business for lawyers.” Companies are placing an increased emphasis on compliance in order to avoid risk. Interviewees have also reported “a lot of very important transactions” in the project finance, telecoms and infrastructure sectors over the past three years. Significantly, reforms enacted in December 2013 opened Mexico’s energy sector to foreign investment, creating “huge potential for investment” which has been flooding in since the legislation was implemented. There has also been an uptick in real estate and construction projects, particularly around coastal areas and cities which offer “very attractive prospects” to investors.
Even before the start of Mr López Obrador’s term in December 2018, practitioners from specialisms across the board reported “receiving a lot of questions about how the new left-wing political party will impact their respective fields”. In the competition law arena, sources told us that “the field will not suffer or be affected by the change in administration” as this would require a constitutional amendment for the president to have a direct intervention on officials handling the matter. Arbitration practitioners too expect minimal changes, although one source expressed concern that “WTO litigation and investor state arbitration linked to the new president’s ideology, which favours state involvement in industry, protectionism for domestic industries, could be coming our way”.
Trade and customs lawyers have observed that “the new administration coming to office made 2018 a year of uncertainty for political developments”. They add that “this put brakes on the market, and few cases were initiated”. The government is also considering putting a stop to the construction of a new airport in Mexico City, and submitting the issue to public consultation. One source told us, “This is a problem as people often do not understand the technical nature of the issue."
Opinions on the new government are divided, but respondents remain optimistic for the future. In the words of one interviewee, “The new president is stubborn but pragmatic, so it will be interesting to see who within his administration is able to successfully put forward their agenda.” Another source observed, “The leadership of the party has been contradicting itself,” and some practitioners doubt Mr López Obrador’s consistency on key policy issues. For example, he has shifted his opinion from being a critic of NAFTA, to claiming to support it. As one lawyer observed, “While he has stated that he will not conduct expropriations, I would not be surprised if he does”. Overall, although lawyers across the country are expecting a lot of changes, it is hard to be sure in exactly what sense this will be. On a positive note, according to sources, “Mexico had very peaceful elections and confidence is high among investors.”
Though Mexico’s trade market has “died down and remains relatively quiet” due to the changing in administrations, the ongoing NAFTA negotiations “seem to be going well”. One of the greatest challenges lies in the nationalistic political climate in Mexico’s northern neighbour, which has adopted a self-serving approach to trade and industry. For example, corporate tax rates in the US have been reduced in order to encourage investment and create job opportunities there. This has led some US-based entities with operations near the border to “unwind operations in Mexico and ship the assembly lines back to the US”.
Traditionally, the Mexican legal market has been “very closed and steady”. It has been dominated by top-tier local players, and “it was very difficult for firms to break in if they were not the usual suspects”, market sources told us. This is starting to shift, and sources have reported a big change in the legal market in Mexico as many international firms have begun to make strategic alliances, taken over practices or recruited practitioners from well-known firms. This reflects international firms’ “increasing interest not just in opening offices in Mexico, but in taking major steps to build specialist practices”. In the words of one interviewee, “This is definitely causing movement.”
The legal market “is becoming more sophisticated every year” and has been “growing fast” over the past three years. One interviewee stated, “If you look at the market now compared to 2015, the level of competition is much, much higher”. This can be attributed to the influx of international players to the market and the heightened capabilities of market-leading Mexican firms, which continue to dominate the local market.
This environment is very positive for clients, who now have a greater range of options when it comes to selecting and instructing legal counsel. As a result, companies’ attitudes have shifted: “Clients no longer work with one firm for everything – they are in the position to look at who is best equipped and skilled for each matter.”
Although the results of July’s election will certainly bring a raft of changes to the Mexican market, “the climate is very bright for the future”. Mr López Obrador, backed by a popular majority and having won all but one of Mexico’s states, is in a uniquely strong position to enforce change during his six-year term to give life to his left-wing policies and enforce Mexico’s much-needed anti-corruption drive. The Mexican economy retains the confidence of investors and practitioners predict a busy year going forward.