Attorneys who handle commercial deals for clients investing in Mexico have made a killing in recent years, thanks in part to recent deregulation in key Mexican industries such as energy and telecommunications. But attorneys in Miami are concerned that a change in the leadership of Mexico, combined with uncertainties created by an as-yet-unratified trade agreement between Mexico, Canada, and the U.S, and by protectionism rearing its head around the world, could mean the good times are over.
Mexico’s new president,—Andres Manuel Lopez Obrador, frequently referred to by his initials—AMLO—was elected in a landslide. He is sometimes described as a leftist populist politician, although he is different from the typical Latin American populist and won the presidency by cobbling together support from leftists, unions, far-right conservatives and religious groups.
Still, his predecessor, Pena Nieto, was behind the massive deregulation of Mexican industries and lawyers whose practices who have reaped the rewards of the last few booming years of investment are concerned that AMLO will reverse course.
“As a general rule, Nieto was a friend to international business and investment and certainly AMLO has given initial signals that he plans to be much less of a friend to investors and business,” said Christopher Tillson, a K&L Gates partner whose practice specializes in commercial transactions with Mexican clients.
And in some ways, AMLO has delivered on the fears. In October, he scrapped a $13 billion airport project, one of the biggest infrastructure ventures in Mexico. The move was seen as part of his promise to cut waste and corruption. But it incensed investors, and economists worried that more policy shifts could dampen investor confidence in the country. The shutdown of the project is now on hold, but commercial property sales volumes have dropped, and borrowing costs are climbing.
Tillson has seen some signs that change in Mexico has dampened investment appetite, with some clients and investors “waiting on the sidelines.”
“We’re seeing less of the on-the-ground investment into infrastructure,” Tillson said. “We’re sort of in a cautionary wait and see.”
Less investment means less commercial work, and later down the road, less arbitration work — a staple for Miami’s blossoming international arbitration legal community. Attorneys have racked up millions advising on infrastructure deals since the overhaul and deregulation of Mexico’s previously untapped energy sector in 2015. Foreign direct investment in the first half of 2018 was up 14 percent over the same period in 2017, according to Mexico’s Economy Ministry. U.S. clients represented a third of all the investment.
However, Jose Sariego, a corporate partner at Bilzin Sumberg, is still bullish on Mexico. Investors should be cautious for a few months to see where AMLO takes the country, but unless Mexico “goes the way of Venezuela,” he doesn’t see a derailment of investment into Mexico—a point of view shared by many in Miami’s international commercial practices.
“I don’t think there’s been the slowdown that people would have thought,” said Yosbel Ibarra, co-managing partner of Greenberg Traurig’s Miami office and co-chair of the firm’s Latin America and Iberia practice.
Mexico is the most open economy in Latin America and an important trade partner with the United States, he said. Even when some U.S. investors get cold feet, investors from other countries in Latin America are more willing to stomach some uncertainty. The firm advised a Colombian client who recently invested in Mexico.
Conversely, the changes that sidelined some U.S. investors have begun to drive more inbound investment into the U.S., as wealthy Mexicans look to diversify their portfolios and get money out of the country.
Both Tillson and Sariego have seen an uptick of Mexican investment into Miami. While South American clients have long invested in South Florida (Sariego points specifically to the Brazilian aircraft company Embraer), Mexico has preferred border states such as California and Texas.
“It’s a very good sign for South Florida and the attorneys that advise them on their inbound work,” Sariego said. “Florida is always the beneficiary of any nervousness in Latin America, particularly Mexico.”
Regarding NAFTA renegotiation, experts say the newly proposed deal — known as the United States-Mexico-Canada Agreement or USMCA — will not have too noticeable an effect as the agreement differs little from NAFTA. In fact, a provision in the deal may force parties looking to resolve a dispute to go through either the U.S. or Mexican court system before seeking arbitration, said Jennifer Smith, a partner at Hogan Lovells’ Houston office. If so, the new system would drive even more legal work.
“This will provide a lot of work for attorneys because change always does and the new deal is more complicated,” Smith said.