In Mexico, big challenges await the next president
Voters are frustrated with the lack of progress and are demanding change
On July 1, nearly 90 million Mexican voters will go to the polls to elect more than 3,000 local, state and federal representatives, including the country’s next president. It was six years ago that Enrique Pena Nieto was elected president and introduced the Pact for Mexico, a major plan for reform aimed at improving the country’s economic performance, development, security and government transparency. But despite these efforts, Mexico’s next president will inherit many of the same challenges that Pena Nieto faced in 2012, some of which have grown even more severe over the past six years.
Many voters are thus frustrated with the lack of progress, which largely explains why the candidate representing Pena Nieto’s party, the Institutional Revolutionary Party, or PRI, is currently polling in third place. The front-runner, Andres Manuel Lopez Obrador, who heads the National Regeneration Movement, is a left-leaning nationalist candidate who defies the status quo. He holds a roughly 20-point lead over his closest rival, Ricardo Anaya, who heads the National Action Party, or PAN.
Though Lopez Obrador appears increasingly likely to win – presidential elections in Mexico are decided in one round, so he needs only a plurality to become president – it’s not a foregone conclusion. Polls in Mexico are notoriously unreliable, and about 20% of voters remain undecided. Still, attention in this election campaign has focused on Lopez Obrador, not only because he’s the top contender but also because his election would represent a break from traditional, establishment politics in the country. From 1934 to 2000, Mexico was governed by members of PRI. After 2000, the leading opposition party, PAN, won two terms before PRI once again became the top party in 2012. If Lopez Obrador were to win, it would be the first time since 1934 that a party other than PRI or PAN formed a government.
The popularity of Lopez Obrador is largely a result of the widespread desire for change. There have been some economic changes in the past six years, but for many they have produced few results. Take the energy industry, for example. By many accounts, Mexico’s energy sector reforms have been successful. The government has deregulated the energy markets to encourage more foreign participation and investment. But the drop in oil prices since late 2014 has discouraged investment in the industry worldwide. Lower prices also forced the government to temporarily subsidise oil production and exacerbated the fall in production. State-run oil company Petroleos Mexicanos, or Pemex, has gone from producing 2.88 million barrels per day of light hydrocarbons in 2013 to 2.14 million bpd in 2018. Despite the moderate recovery in oil prices, Pemex production has continued to decline due to a number of factors – resource depletion, insufficient liquidity and investment, lack of technology to address aging fields, the weaker peso relative to the dollar and cash flow shortfalls. These problems have led some, including Lopez Obrador, to call for additional changes and even partial rollbacks of the reforms.
In addition, the new administration will need to tackle the rising dependency on imports to supply the country’s gasoline and natural gas needs. Last year, according to Pemex, Mexico imported about 75% of its gasoline, roughly 80% of which came from the United States. Mexico imported 570,000 bpd in 2017, and according to estimates, it will import 603,000 bpd in 2018. The increasing dependence on imports is partly due to declining production in Mexico and a severe shortage in refining capacity. Pemex has six aging refineries that are currently at roughly 50% capacity. Its refined petroleum production fell from 1.46 million bpd on average in 2013 to 795,000 bpd in 2018. At the same time, demand for gasoline has increased. Thus, imports have more than doubled in the past decade.
Similarly, natural gas supplies are increasingly dependent on imports. Mexico imported 5.14 billion cubic feet per day of natural gas in March this year, accounting for 64% of the country’s natural gas consumption. Over 80% of the natural gas imports came from the United States. As the trade dispute with the U.S. ramps up, these imports increase Mexico’s vulnerability. To address this problem, the country will need not only to increase oil production but also to work toward expanding refinery capacity and building gas storage inventory and facilities.
Another massive challenge with which the new president will have to contend is violent crime, which has been on the rise since 2015. In 2013, during Pena Nieto’s first year in office, 18,331 violent homicides were reported in the country. Last year, this number reached a record high (25,339), and this year it is on pace to surpass that figure. Efforts have been made in the past six years to reform the criminal justice system and crack down on organised crime, but they have proved rather ineffective.
The violence has had an economic i mpact. Some companies have been forced to temporarily close facilities because of security concerns, while others are anticipating financial losses. Private sector estimates indicate that investment may fall by up to 5% as a result of the violence. There hasn’t yet been a large-scale exodus of companies from Mexico, but the situation will become intolerable when companies operating in Mexico see a hit in profits in the long term.
And it’s impossible to discuss what awaits Mexico’s next president without addressing U.S.-Mexico relations. The U.S. will dominate much of the next administration’s agenda, particularly when it comes to trade and immigration. Trade with the U.S. is actually one area where all three leading candidates are in broad agreement – they all believe that it’s an essential part of the Mexican economy. During the presidential debates, the candidates focused on why they were the best person to negotiate with the U.S., but none actually questioned the benefits of the trade partnership itself. Even if an agreement on NAFTA is reached before the new president assumes office on December 1, he will still have to enforce the agreement and make sure the U.S. does as well. He will also need to address how and to what extent Mexico should diversify its trade in the long term.
As for immigration, Mexico has two challenges. The first is border control. The second is the influx of immigrants from Central America. The government has made efforts to improve the National Migration Institute, the agency that oversees immigration, to better handle the influx. Mexico will have to work with the U.S. and governments in Central America to improve security and limit the flow of people across its southern and northern borders.
Mexico’s next president will inherit a country fraught with deep economic and security problems. The public has grown increasingly dissatisfied with this state of affairs, and the establishment, including the current ruling party, has had its chance to find solutions. Thus far, it has failed. Many voters now appear ready to back an alternative candidate, one who ran for president twice before but was never so close to winning office. Lopez Obrador’s popularity indicates their frustration with the status quo and the desire for change. Elections, after all, are expressions of social undercurrents, not the other way around.