News, Insights and Best Practices for Manufacturing in Mexico

Mexico's Industrial Sector to Benefit from Energy Reform

17 Dec 2013

Category: Labor & Economics, Manufacturing in Mexico, Politics & Regulations

Mexico's Congress recently approved the long-discussed energy reform bill, which is aimed to boost oil production, encourage foreign investment and advance the country's manufacturing sector. Before the passing of the energy reform bill, Mexico's oil sector remained unchanged from 1938 when the industry was put under the governance of Petróleos Mexicanos (PEMEX), Mexico's public oil company.

According to Bloomberg, the oil bill will generate approximately $20 billion in foreign investment within its first year. Experts tout the legislation will re-energize Mexico's economy by making oil more affordable in the country, and, in turn, it will result in higher manufacturing production and lure additional industrial companies to offshore manufacturing to the country. The Financial Times reported that the energy reform will result in a 3.5 percent increase in Mexico's gross domestic product within the next few years. Right now Mexico's GDP is at 2 percent or less. This legislative change might make Mexico the world's fifth-largest oil producer, Bloomberg reported.

"What this reform does is it now exposes the Mexican energy sector to national and international competition," said Duncan Wood, director of the Mexican Institute at the Woodrow Wilson International Center for Scholars, according to Bloomberg. "It marks a fundamental paradigm shift in the mentality of the energy sector. Now we get beyond 1938."

Transitioning to a privatized oil industry
While transforming Mexico's energy sector promises to foster competition and growth, it is set to directly benefit manufacturing in Mexico. The oil reform bill will lower energy costs across the country and usher in a more modern manufacturing age for the country, The Wall Street Journal reported. According to the newspaper, the bill will help Mexico maintain its current manufacturing momentum and cause many industrial companies in the country to utilize local steel and gas suppliers. Currently, it is cheaper for manufacturers to import these products due to Mexico's souring energy costs. 

"The medium-range impact will be greatest not on the energy sector but on the industrial sector," said Luis de la Calle, a political consultant who helped negotiate the North American Free Trade Agreement, according to the Journal. "With cheap natural gas, we will make steel in Mexico, we will make glass in Mexico, we will be able to make petrochemicals in Mexico."

The Journal noted the now-passed energy reform bill will allow Mexico to compete with China in offshore manufacturing even better.


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