assessments

In Mexico, a President’s Populist Agenda Puts Investors in Its Crosshairs

5 MINS READMar 21, 2019 | 09:00 GMT
Mexican President Andres Manuel Lopez Obrador discusses his first 100 days in office in Mexico City on March 11, 2019.

Mexican President Andres Manuel Lopez Obrador's populist promises will collide with the interests of foreign and domestic companies, which until now have regarded Mexico as a relatively low-risk Latin American destination for investment.

(PEDRO PARDO/AFP/Getty Images)
Highlights
  • In the coming years, some private investors in Mexico will fall victim to President Andres Manuel Lopez Obrador’s push to make good on his populist campaign promises.
  • These promises include a proposed constitutional reform that would allow legally-binding public votes on projects in the private sector.
  • If approved, projects in the energy, mining and construction sectors will be most at risk for being thwarted by popular referendums.
  • The amendment would also open the door to referendums for deeper political reforms, such as a vote on presidential term limits or other government policies.

For the first time in several decades, Mexico’s ruling government now poses an increasing threat to foreign investment — largely due to its leader's desire to channel the populist anger that got him elected into creating policy. As a newly elected populist leader with a considerable political mandate, President Andres Manuel Lopez Obrador (who's widely known by the nickname AMLO), is armed with enough personal motive, power and popular support to frequently antagonize the private sector in the coming years. But the president's coalition also intends to cement deep legislative changes that would make Mexico a riskier place for business for much longer than a six-year presidential term.

The Big Picture

Mexican President Andres Manuel Lopez Obrador was elected by dissatisfied voters who responded to his populist promises to level the economic and social playing field for all Mexicans. Now, the new president is moving to consolidate his coalition's political power by appealing to this populist anger. But his push to maintain voters' support will collide with the interests of foreign and domestic companies, which until now have regarded Mexico as a relatively low-risk Latin American destination for investment.

Pandering to Populists 

Private companies in Mexico have long faced the risk of conflict with locals. And disputes and protests against investments that risk damaging the environment or the health of local communities are common — often leading to demonstrations, public opinion campaigns and direct sabotage to prevent projects from advancing.

However, AMLO’s ruling coalition is the first Mexican government in recent history to clearly weaponize these grievances of political minorities against its political opponents and the private sector. And with widespread popular support and control of Congress, there is little incentive for AMLO to change his approach for the foreseeable future — that is, unless voters send him a message by eroding his coalition's lower house majority in 2021 midterm elections.

But until then, AMLO will continue appealing to the same underlying populist anger that brought him to power by antagonizing the private sector in areas where it is politically advantageous. For the president's government to keep its populist bona fides and remain in power, it will need to be seen as defending the interests of the poor against wealthy businesses. For this reason, AMLO will try to occasionally hold referendums on investments or political issues that local communities oppose, simply to score political points at a national level. But the threats to investment will go far beyond just impromptu votes. 

The Threat of Regular Referendums 

In the coming months, the president's coalition also intends to approve reforms that would alter an article in the constitution to allow popularly mandated referendums on matters of public importance, including the future of individual investments. And the coalition's path to success is relatively clear.

AMLO is roughly 10 senators away from securing the needed two-thirds of the total vote to pass the constitutional reform, since he and his allies already surpassed the required threshold in the lower house (and will likely pass it in the state legislatures as well). AMLO's ruling coalition also has control of virtually every major state institution, which it can leverage to promise political favors in exchange for legislative votes. Without such power, Mexico's traditional parties, which make up the opposition, will have little sway to keep senators from defecting in support of the president's referendum reform.

In the likely event that AMLO successfully passes the referendum reform, it would create a permanent mechanism for locals to turn grievances against private operations into legally binding votes on a company’s planned or future investments. As a result, business stakeholders will face a growing threat of popular pushback against their activities and investments in the country. Referendum votes could even lead the Mexican government to expropriate some private sector projects.

A graphic showing foreign direct investment in Mexico, by sector, in 2017.

While many sectors will undoubtedly be affected by the reform, companies in energy, mining and construction will likely experience the largest hurdles to their business plans. Energy and mining have long been economic sectors that disrupt local communities through pollution or health risks. When it comes to the oil sector, the more controversial shallow-water or onshore projects will be most at risk for coming under fire by voters, once they have the tools to do so.

And when it comes to the construction sector, projects that have the most direct or visible impact on Mexicans' daily lives — such as those for roads and other public works — will also be particularly prone to local resistance. With their new power, voters could even bring about a referendum to end private projects before they begin, should enough individuals (such as those organized in officially recognized communal land plots) dispute the ownership of the land for the slated construction site.

Long-Term Political Implications 

If AMLO's constitutional reform passes, it would create additional uncertainty by allowing recall referendums on elected officials. In pandering to his populist appeal, AMLO has repeatedly said that he intends to hold a recall vote against himself ahead of the country's next elections for the lower house in July 2021 so that voters can determine his political future. In the meantime, AMLO will be looking to stoke conflict with the private sector and political opposition to prove his populist credentials and, in turn, shore up support should he decide to hold a recall vote — threatening to make Mexico an even riskier place for business for the next two years.

But the primary and potentially more permanent concern surrounding a recall vote is that it’s a thinly veiled excuse to hold multiple referendums on other political questions. A referendum on AMLO’s political future could easily turn into a vote on broader aspects of Mexican politics, such as term limits, federal government policies or the structure of government. And while AMLO has signed a nonbinding document claiming he won’t run for office again, there is little preventing him from laying the groundwork to do so — opening the door for more lengthy uncertainty in Mexico for foreign and domestic investors alike.

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