News, Insights and Best Practices for Manufacturing in Mexico

Opening up the oil industry to grow Mexico's manufacturing economy

25 Aug 2014

Category: Labor & Economics

Mexican President Enrique Peña Nieto has been working hard to create an economy that will favor the manufacturing industry. His methodology has been simple: Streamline the rules that govern the energy industry and open it to foreign investment. This has a twofold benefit. It will bring in companies from the U.S. and elsewhere to begin drilling, which will create a small industry around the oil business in the form of companies building parts and working on creating an infrastructure to handle the load. Additionally, it will reduce the price for gasoline, electricity and natural gas.

Last week, according to the Wall Street Journal, Peña Nieto signed the new laws opening up the industry into effect. This is the biggest revolution in the Mexican energy industry in 76 years. State-run oil company Pemex will be remodeled into a more competitive, modernized business. Mexico will allow Pemex to begin making some of its own decisions, and the company will also change from being a four-division business to a two-division business. It will explore and produce crude oil, and it will transform that product into gasoline and natural gas. Its budget will be of its own choosing, and it will operate more like a private company.

Pemex Chief Executive Emilio Lozoya says these changes are necessary for making Pemex competitive when it faces foreign companies. Many of those businesses have been operating in an environment where competition is the norm, but Pemex has so far been run as a monopoly, and this will be the first time it must operate efficiently or lose out to other companies.

Opening up the oil industry will dramatically expand Mexico's economy
According to Ildefonso Guajardo, Mexican economic secretary, writing in the Dallas News opinion page, Mexico's decision to open up the oil industry will unleash a huge period of economic expansion. The secretary calls it a "new era of growth and prosperity".

The Mexican government, despite being composed of many different parties with different agendas, all came together in order to pass these regulations for the good of the country. Now, according to Guajardo, is the time for Mexico to begin tapping its natural shale and other unconventional oil resources and begin producing more oil and gas than ever before.

To help boost the economy and promote growth, according to Guajardo, the Mexican government is investing $600 billion in infrastructure. This includes roads, railways, ports for shipping, airports, pipelines to move oil and electrical grids.

The government is also bringing major incentives to the table for companies to begin taking advantage of. These include improved supply chains that will likely take advantage of Mexico's 40 free trade agreements, among its many other connections. The most famous of these is the North American Free Trade Agreement, which allows companies to ship manufactured goods tariff-free between the three North American countries.

The first president in 25 years to open the Mexican energy economy
Although it has been 75 years since Pemex has been the monopoly in charge of sending gas, oil and energy to the population of Mexico, according to Point Reyes Light, a California newspaper, Mexican presidents have been talking about opening the industry for 25 years without success. Because of Peña Nieto's ability to gather disparate parties together - and because the time for Mexican progress is finally right - this new president has succeeded.

What this means for American companies is it will soon be far cheaper to do business in Mexico than in the past because energy will cost far less. It is already cheaper to manufacture in Mexico instead of China, but soon it will be even less expensive than before. Those wishing to take advantage of this should contact a Mexico shelter company to discuss moving there as soon as possible.


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