Mexico City: At a Crossroads Geographically and Historically

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.

“Snapshot” at the 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 exports.

Related: NAFTA Negotiators Work Toward Tentative Deal

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 (rivaling 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 Industrial Revolution.

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 perennial problem.

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.

Road Ahead for International Business and CorporateMobility

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 immigration.

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.

Related: 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.

The World Bank has estimated that systemic corruption may cost the Mexican economy as much as nine percent of its GDP annually.

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 Philippines.

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