Economic Impact of the Structural Reforms
In 2013, the Federal Government and the leaders of the country’s political forces agreed on the Pact for Mexico, an unprecedented political agreement to implement those structural changes, necessary for Mexico’s growth. 13 structural reforms were approved to continue the country’s modernization, an effort that started in the eighties.
The three main objectives of these reforms are:
- Increase productivity.
- Reinforce and expand the rights of the citizens.
- Secure its democratic arrangement and freedom regime.
The 6 reforms aimed to increase the country’s productivity are as follows:
The principal objectives of this reform are:
- The modernization and consolidation of Petróleos Mexicanos (Pemex) and Comisión Federal de Electricidad (CFE) as state owned productive companies with new governance, and technical and managerial autonomy.
- Attract investment to the sector.
- Increase the availability of oil, natural gas and their derivatives.
- Improve the quality of public electricity, with broader coverage and more competitive prices.
In the hydrocarbons sector:
- The country maintains the ownership of underground resources.
- A new production model of oil & gas is introduced that enables the private sector to participate in exploration and extraction activities under contracts assigned by the authority. Pemex is allowed to participate in this activities as an additional player.
- The National Hydrocarbons Commission (Comisión Nacional de Hidrocarburos or CNH) is created as a regulatory entity, responsible for leading the tender processes, and assigning exploration and extraction contracts.
- Petrochemical activities are no longer reserved for the state.
- The private sector can participate in transport, distribution and storage activities of oil, natural gas, and oil derived products.
- The National Center for Natural Gas Control (Centro Nacional de Control del Gas Natural or CENAGAS) is created as an independent public entity, responsible for the management of the pipeline network and natural gas storage.
- The Regulatory Energy Commission (Comisión Regulatoria de Energía or CRE) is transformed into an autonomous entity, responsible for authorizing permits for the storage, transport, and distribution of oil, natural gas and oil derived products.
- The Mexican Oil Fund for Stabilization and Development is created to manage oil revenues.
In the electricity sector:
- Planning and control of the national electric system, and the public transmission and distribution service will continue under government control.
- CFE and the private sector are allowed to participate in power generation activities in order to reduce electricity costs, encourage a transition to clean energies, and expand the system’s coverage to areas lacking this service.
- The National Center for Energy Control (Centro Nacional de Control de Energía or CENACE) is created as a public entity, responsible for the operational control of the national electric system.
- The CRE is responsible for regulating and authorizing permits to generate power, as well as for authorizing transmission, distribution and carrying rates. The Ministry of Finance keeps the power to authorize the applicable rates for end users.
The objectives of this reform are:
- Foster a more competitive, fair and transparent domestic market, allowing families, especially low-income, to have access to more quality products and services at lower costs.
- Increase competitiveness of small and medium companies, since they will have access to cheaper supplies and raw materials, while preventing market concentration in large corporations.
- Expand the anti-trust practices catalog, as well as applicable sanctions to protect consumers’ rights.
To achieve these objectives:
- The Federal Anti-trust Commission (Comisión Federal de Competencia Económica) and the Federal Telecommunications Institute (Instituto Federal de Telecomunicaciones) are empowered to: i) enforce measures to eliminate barriers for free competition; ii) regulate access to basic goods, and iii) instruct the disintegration of economic agents.
- Specialized courts in anti-trust matters are created, and opposition resources used to delay legal procedures are eliminated.
- A new Federal Anti-trust Law is published, highlighting that no authority can fix prices arbitrarily.
Mexico will generate more confidence among domestic and foreign investors by penalizing anti-trust actions, forbidding monopolistic practices and illegal concentrations, as well as eliminating hindrances blocking free competition in production, distribution, and commercialization of goods and services.
This reform encourages competition in all telecomm services to improve the well-being of Mexicans and the country’s economic potential by:
- Attracting investment to strategic sectors such as satellite and broadcasting communications, thus stimulating telecommunications development throughout the country.
- Opening direct foreign investment: up to 100% in telecommunications and up to 49% in broadcasting, to strengthen competition and to access new technologies and new business and marketing service models.
- Increase options for end consumers at affordable prices for pay television, fixed-line and mobile telephony, and high speed internet.
This reform consists of a series of changes to the tax system to increase tax collection by:
- Creating a progressive increase collection mechanism.
- Simplifying tax payment.
- Reducing informality and tax evasion.
- Providing additional incentives to entrepreneurs and small agricultural producers for their consolidation.
The additional annual collection generated by this reform is expected to represent 2.5% of GDP. This increase will allow additional public spending in education, health and infrastructure.
This reform has two main objectives:
- Provide more people with access to financial products and services.
- Reduce the cost of credit.
To reach this objectives, competition in the finance sector is encouraged through the following actions:
- Encourage the effectiveness of the operations of financial institutions.
- Maintain a solid financial sector by reinforcing prudential measures.
- Facilitate access to development banks financing, jointly with commercial banks and other financial intermediaries, for strategic sectors such as infrastructure, small and medium companies an agricultural producers.
- Update the regulatory framework, and provide regulatory authorities with the proper mechanisms to penalize and to prevent illicit conducts that threaten the stability of the financial system.
This reform encourages the creation of jobs, business productivity and increase of the county’s competitiveness by:
- Facilitating access to the labor market.
- Strengthening regulatory, surveillance and sanctioning empowerment to labor authorities.
- Modernization in the administration of labor justice.
This objectives will be reached by including new forms of contracts, such as probationary and training contracts.
With the implementation of these reforms, Mexico is better prepared to face an adverse external environment. According to Economic Surveys Mexico 2015, prepared by the OECD, it is estimated that the effective implementation of these reforms during the following 5 years could represent an additional growth of the Mexican economy of 1 to 2 percentage points, as a consequence of an increase in productivity, capital investment, and employment growth.