Mexico Country Outlook 2024

Center for the U.S. and Mexico | Report

January 18, 2024

https://www.bakerinstitute.org/research/mexico-country-outlook-2024

Introduction

Each year, the Center for the U.S. and Mexico at Rice University’s Baker Institute for Public Policy surveys a few experts for the annual Mexico Country Outlook. These experts are tasked with anticipating the opportunities and challenges in Mexico’s political, social, and business environments in the coming year for policymakers, industry leaders, and the general public. The resulting report addresses themes as varied as Mexico’s politics and democracy, regulatory environment, economy, legislative agenda, human mobility, public safety and security, education, health care, and political and diplomatic relationships.

This report presents the forecast for Mexico in 2024. It considers the country’s uncertain political landscape, complex legislative and regulatory environment, social and economic challenges, public safety and security barriers, and increasingly difficult relationship with the United States. More information about the Mexico Country Outlook and access to reports from previous years can be found here.

I. Executive Summary

Mexico’s outlook for 2024 contains both reasons for optimism and daunting challenges. Encouragingly for some industry leaders, a complicated geopolitical environment has motivated the United States to craft a new industrial policy that involves reshoring much of its manufacturing to North America. Mexico is in an enviable position thanks to its proximity to U.S. markets, which continue to display robust demand for Mexico’s goods and services, and the favorable investment environment stemming from the United States-Mexico-Canada Agreement (USMCA). A positive trading and investment environment, boosted by the post-pandemic recovery, is a testament to this, and likely guarantees that this will not soon change.

However, Mexico’s challenges in the coming year are enormous. They mostly result from questionable political choices and faulty domestic policy. On the political front, Mexico is experiencing the same populist wave seen by many other countries around the world. This has resulted in a presidency that is set to leave the country’s institutions much weaker than they were previously. Mexico’s checks and balances are eroding in a way not seen since the 1990s, and a forceful centralization of decision-making has inserted a high, dangerous degree of uncertainty and arbitrariness into its policymaking process.

Mexico’s electoral system is also weakened, and its political actors are likely to question the results of the upcoming elections on June 2, 2024. The leftist National Regeneration Movement (MORENA), the party of President Andrés Manuel López Obrador, is widely expected to interfere with the elections, making them less free and less fair. The danger of post-electoral conflict is thus much higher than it was in 2018 or 2021. Still, with the country remaining divided, the opposition will likely have a good showing even if it ultimately loses the elections. However, this political environment will detract from Mexico’s favorable business environment and slow down investment decisions.

The policy environment is also likely to be quite complex in 2024. This is partly a result of decisions made by the López Obrador administration over the past five years. Most of these policy choices will be difficult to reverse quickly. Mexico now faces chronic underinvestment in education, health care, and infrastructure, as well as a severely underfunded civil service. This has led the government to transfer many functions previously in the hands of civil servants to a less-competent military. Demilitarizing the government will pose an enormous challenge in the future.

Investors will want to see progress on all of these fronts before they trust that the country can provide the workforce, goods and services, and administrative competence needed to make their investments profitable. The few major projects that the government has actively invested in, including the Dos Bocas refinery, Mayan Train, and outer Mexico City airport, are unlikely to make up for underinvestment in nearly all other sectors.

In the key area of energy, Mexico is unlikely to correct course quickly. Its oil production is stagnant, refining remains a losing bet, and electricity production is already at capacity and insufficient for continued business expansion in 2024 and beyond. Electric transmission has also been underinvested in, making it unlikely that power will be available in the right places. The only promising project is the Trans-Isthmus passage linking the port of Salina Cruz in Oaxaca with the port of Coatzacoalcos in Veracruz. It is not expected to be completed by 2024, however, and perhaps not even in the near future.

Corruption and organized crime are also areas of high concern. The government has no coherent strategy for lowering corruption levels, and Mexico has lost ground in nearly every global corruption index. Its passive public safety and security strategy is essentially a “Pax Mafiosa” with organized crime, or an agreement to not interfere in criminal activities.

This strategy will rear its ugly head in 2024. Criminal organizations may even become an important electoral ally of MORENA in the June 2024 elections; they showed their ability to intimidate, and even kill, opposition candidates and poll workers in 2021, and they are likely to push ahead in 2024.

Organized criminal activity will likely be an important subject during the 2024 campaign season. It may also be a major deterrent to international investment in Mexico, as most businesses must now consider the safety of their physical assets and operatives, along with the uncertainty of the policy environment.

Fiscal discipline and low taxes are the two shining spots of the López Obrador administration, but they are likely to go out the window in 2024. The budget for the 2024 fiscal year already borrows heavily to make up for a shortfall in revenue and inefficient spending, in addition to the likely embezzlement of public funds to favor MORENA candidates in the election.

However, most of the major challenges Mexico is set to face in 2024 can be still be tackled. They primarily stem from the choices of its sitting president, with an obedient Congress and a political class unwilling to wrest power from the country’s chief executive. These choices, however, are likely to become structural if the next administration, which takes office on Oct. 1, 2024, does not immediately reverse many of these policies. If it maintains course, Mexico’s ability to capture the benefits of its geographic position, a favorable geostrategic environment, and the advantages that stem from the USMCA will be diminished.

Finally, Mexico’s foreign policy, which we expect to remain complicated through 2024, deserves its own analysis. Several areas are proving particularly contentious for the U.S.-Mexico relationship. First, Mexico has shown significant hesitancy on issues that are of extreme importance to the United States. These include stemming the flow of irregular migration into the U.S. and combatting the illegal import of fentanyl, which kills over 100,000 Americans a year. Second, numerous trade disputes have arisen over Mexico’s reluctance to open its energy market, disagreements over key agricultural products, and China’s apparent laundering of steel and aluminum through Mexico’s exports to the United States. Lastly, Mexico’s cordial relations with Latin American dictatorships, such as Cuba, Venezuela, and Nicaragua, and its reluctance to side with American interests in both Ukraine and the Middle East have irked Washington.

These choices are likely to continue slowing down U.S.-Mexico cooperation. However, the U.S. government will likely pay little attention to Mexico’s foreign policy through 2024, mostly due to major distractions in Asia, the Middle East, Europe, and at home, including its own presidential election in November 2024.