News, Insights and Best Practices for Manufacturing in Mexico

Mexico's oil reform ignites opposition

02 Dec 2013

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

According to The Canadian Press, the decision to privatize Mexico's current state-run oil industry is being opposed by lawmakers and Mexicans who say the industry is constitutionally safeguarded to keep the nation's oil out of foreigners' hands. For manufacturing in Mexico, oil reform may cause increased competition and easier access to more affordable energy. Yet some lawmakers and Mexicans are against any changes to the country's energy sector or claim President Enrique Peña Nieto's reforms aren't detailed enough or go far enough to grow the economy. The Economist reported nearshoring and offshoring by foreign businesses is vital for the country's economy to grow at a faster pace, and oil reform would offer just another lure for North American companies to manufacture in the country.

Energy revolution strains Mexican considerations
Mexico created constitutional safeguards in the late 1930s to keep Mexico's oil in the hands of the country, because many lawmakers and Mexicans saw foreign investment was taking the country's oil wealth across borders, according to The Canadian Press. While this is still a source of pride for many people in the country, the current state-run system is now out of date and unable to foster economic growth as it should.

When the U.S. and Canada saw strong gains in their energy sectors in the last decade, Mexico's dropped 25 percent since 2004, The Canadian Press reported. Oil reform might invigorate the economy and attract more manufacturers to the country, yet not every Mexican citizen feels the profit-sharing contracts, which are important aspects of the country's oil reform, will benefit Mexico's economy.

"The profit-sharing contracts, there's no reason to believe that they would be radically different from the contracts we already have," said David Shields, a Mexican oil analyst, The Canadian Press reported.

According to The Economist, the profit-sharing contracts are the part of oil reform seeing the most opposition. The contracts would alter the constitution to allow private businesses to work with the state-run oil company, Pemex. However, Pemex would only receive a share of the profits, not full control, according to The Economist. This might not lead enough foreign companies to invest in Mexican oil, which is a vital part of the oil reform plan. Some Mexicans still value the country's oil control and are opposed to any change in Mexico's energy policy, The Economist reported. This might cause significant opposition in the near future and harm the country's manufacturing growth.

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