With a new President-elect and a new political
party set to take office in December, an economy seemingly content to send
mixed messages of both growth and stagnation depending on the month and the
chosen economic indices, and on-again, off-again NAFTA negotiations, Mexico
City appears at a geographical and historical crossroads.
Mexico City is the oldest and most populous
major city in North America. The centuries-old city proper now holds almost 9
million residents, with the Greater Mexico City Metropolitan Area boasting over
21 million, or approximately 20 percent of Mexico’s national population. While
that age and size make the city the most established in the region, they bely
the accompanying dynamism of the city.
Politically, Mexico City, as the country’s
Federal District, serves as capitol of Mexico and the seat of the federal
government. This July’s election of center-left President Andres Manuel Lopez
Obrador marked a decided shift in the politics for the country, but whether it
marks a true shift in national direction is yet to be determined.
Economically, the Greater
Mexico City Metropolitan Area contributes almost one-fourth of Mexico’s national
GDP that makes it the 15th largest economy in the world.
Long the financial center of Latin America,
17 of the Fortune Global 500 call Mexico City home. While Mexico’s GDP growth
is above one percent this year after a sluggish 2017, and most economic indices
indicate continued overall health, economists cite uncertainty surrounding the
future of NAFTA as the major factor holding back real growth.
Of the three nations involved in the
current renegotiation of the North American Free Trade Agreement (NAFTA),
Mexico seems most vulnerable to a “no deal” or a “bad deal”. The past 25 years
of NAFTA have seen the Mexican economy quadruple, due in no small part to
increased exports to the U.S., which account for four-fifths of its total
NAFTA Negotiators Work Toward Tentative
Culturally, Mexico City also serves as a
key cultural bellwether for Latin America. Mexico City is home to more than 160
museums, 100 art galleries, and 30 concert halls. Reportedly, it is also home
to the third highest number of theatres of any city in the world (rivalling New
York and Toronto), and numerous parks and sports venues, including the world’s 12th-largest
stadium and the 1968 Olympic Games stadium.
Educationally, the city is the home of
numerous universities, including North America’s oldest and largest – the
National Autonomous University of Mexico (UNAM) – with more than 300,000
students. UNAM accounts for as much as half of the country’s scientific
research, which has birthed a growing start-up technology scene. However, economists
point to the need of greater participation in higher education for Mexico to successfully
compete long-term in the Fourth
Environmentally, Mexico City is forefront
in the country’s battle for the environment. The federal and local governments
have implemented numerous plans to combat the deteriorating air quality caused
by the high population density and resulting vehicle and factory emissions. Located
in the high plateaus of south-central Mexico, clean water also remains a
Foreign residents are increasingly common
in Mexico City, with a growing immigrant and expatriate population primarily
from the U.S., Canada, elsewhere in Latin America, and more recently, the
Middle East, China, and South Korea. The U.S. State Department estimates that
more than 700,000 U.S. citizens (out of more than one million living in the
country) reside in Mexico City – the single largest population of U.S. expats
anywhere in the world.
So what’s ahead for Mexico City on the road
beyond the current crossroads? Economists predict that Mexico will assume its
place as a top 10 world economy by 2050 – third-largest in the Americas behind
the United States and Brazil. But how quickly that transpires will hinge
somewhat on the current crossroads, NAFTA negotiations, and the long-term
political and economic policies to be implemented by the new Mexican government
when it takes seat in December.
When it comes to NAFTA, a
conclusion to the negotiations would go a long way towards clearing some of the
economic uncertainty and paving the road ahead for Mexico.
Thus far, talks have proceeded slowly over
the past year with little visible progress.
While the Mexican Presidential election had
put things on hold for a couple months, talks are now set to resume in earnest,
and representatives of both Canada and Mexico have indicated they are looking
forward to advancing at a more intensive pace. One of the first acts of
incoming President Obrador was a letter to U.S. President Donald Trump offering
cooperation on the outstanding trade issues and the U.S.’s hot button of
When preliminary talks resumed last week,
media reported that the U.S. and Mexico were close to settling a slew of the
more contentious issues on the automotive industry.
Mexico-Controlled Foreign Corporation Tax
Might be Triggered by U.S. Tax Reform Law
As for internal reforms, President-elect
Obrador ran on a platform which in part promised to reform the chronic
government corruption that has become a drag on doing business in the country.
Also central to his campaign, Mr. Obrador
promised to improve the local economy and the benefits accruing to the working
class. A successful resolution of the NAFTA and a reduction in corruption would
certainly aid in that goal.
For international business and corporate
mobility, Mexico presents a solid overall business climate. The World Economic
Forum (WEF) already ranks Mexico 51st of 137 economies on its Global
Competitiveness Index for 2018 but recognizes that the greatest detractor
is in doing business with government.
The recent political developments appear to
indicate at least a status quo or slightly improving business climate in Mexico.
Specifically, on the subject of corporate immigration, extensive legislative
reform of Mexico’s immigration framework already took place in 2012, and there
are no indications of any major substantive changes in the works. Changes over
the past couple years have been more of the routine administrative and staffing
variety, with an uptick in compliance enforcement of existing regulations.
Mexico, and Mexico City in particular, therefore
remain solid destinations for international business. With the two greatest
challenges (NAFTA and government reform) at least in part being addressed, the
present crossroads appear to be a simple choice between maintaining the status
quo or making more positive but difficult changes in hopes of an even greater
future going forward.
Kent O’Neil is a Global Legal Analyst and frequent writer on
international business and global corporate mobility for Newland Chase. Kent
received his Juris Doctor from Penn State’s Dickinson School of Law and a
Bachelors in Economics from Clarion University. Prior to joining Newland Chase,
he worked in both private practice and in-house for a multinational corporation
operating across North America, Europe, Asia, and the APAC region. Now based in
the U.S., Kent has lived and worked as an expat in Pakistan and the