Mexican'Reforms:'measurable'progress

Transcription

1 EMIandFranklinTempletonInvestments Collaboration MexicanReforms:measurableprogress SUMMARY Since December 2012, there have been more second stage reforms in Mexico thaninthe20yearssincefirststagereformswereapproved.theyalsodistinguish Mexicofromtheother33countriesintheOECD. Accordingto the OECD,fully implemented,thereformswillincreaseannual GDP growthby1%after5years. Reforms with most measurable advances are in energy, the financial system and telecommunications.judicial,labor,educationalandfiscalreformscouldhavean importanteffectbutaremorelongtermandlesseasytomeasure. Energy reform has produced structural change, with estimated additional future investmentofus62.5bn.,andlowerelectricityandgascosts. Financialreformhasincreasedsavingsandfinance,atlowercost. Telecommunications reform has produced structural change, with estimated additionalfutureinvestmentofus14bn.,andareductionincosts. The reforms have possibly had some effect on Mexican GDPgrowthinthefirst quarterof2015,andperceptionofmexicancountryriskinfinancialmarkets. It stoosoontotell 2ZhouEnlai(1972),ontheimpactoftheFrenchRevolution(1789) Firststagereforms Afterthefallofthe Berlin Wallin November1989,whichsealedthefailureofthesocialisteconomic model,therewereradicalchangesineasterneurope,latinamericaandasia.thesesoicalled first stage reformsinvolveda reconceptualizationof the mainelementsof aneconomy:private property andtrade.inmexico,thefirstreformswerepassedduringthesexenioofcarlossalinas(1988i1994), with major privatizations, symbolized by the reprivatization of the banking system between 1991I2, and trade liberalization, symbolized by NAFTA, which entered into effect in The reforms were successfulintermsofmoreforeign directinvestment(figure1)andgreaterintegrationwiththeus economy(figure2). Figure1.Mexico:ForeignDirectInvestment(FDI)1990I2014(USbn.).Source:WorldBank Figure2.MexicoandUS:GDPincrease(%)1981I2013.Source:BTGPactual

2 Monthlycommentary FranklinTempletonServiciosdeAsesoríaMéxico June2,2015 Secondstagereforms Toconsolidatethesuccessofthefirststagereformsitwasnecessarytointroducesecondstage,or structural reforms. But in spite of political change in 2000, when Vicente Fox was elected as the first nonipri President since1929,thereformprocessstalled.furthermore,inspiteoftheincreaseinfdiandthegreaterlinkagewith theuseconomy,therateofeconomicgrowthdidnotincrease. Withoutthedevelopmentofnewregulatoryagencies,taxreforminitiatives,adjustmentstotradepolicies,andenhancementsineducation, labor,andtelecommunications,theprospectsforeconomicgrowthengenderedduringthefirstistagereformsmightnotberealized 1. Itwas20yearsbeforesecondstagereformswerepassed,ironically,withthereturnofthePRItoLosPinosin After the Pact for Mexico was signed in December 2012, President Enrique Peña Nieto achieved the passageof9importantlegislativechanges(figure3). Figure3.Reforms:Nov2012 Aug2014.Source:SHCP According to the Organization for Economic Cooperation and Development (OECD), Mexico was the member countrywhichimplementedthehighestpercentageofitsrecommendationsbetween2013and2014(figure4). 1 EconomicPolicyReform:theSecondStage.Ed.AnneKrueger(UniversityofChicagoPress,2000). 2

3 Monthlycommentary June2,2015 Figure4.ProportionofreformrecommendationsbyOECDsubstantiallyadopted2013I2014.Source:OECD 2 FranklinTempletonServiciosdeAsesoríaMéxico Mediumtermeffects TheOECDestimatestheeffectofreformsafter5years(Figure5). Figure5.Reforms:economiceffectafter5years,assumingimmediateimplementation.Source:OECD ThesewerethemainconclusionsinrelationtoTelecommunications,ElectricityandGas,andPetroleum: Fullyimplemented,thePactforMexicoreformswillincreaseannualGDPgrowth1%after5years. Over the medium term, the effect on GDP will be threefold: growth in productivity, increased investment,andemploymentgrowth. Thestudyestimatesminimaleffectsoflabor,fiscal,andlegalreformafterthe5yearperiod,butthat, longterm,judicialandlaborreformscouldincreasegdpgrowthbyanadditional1%. Itisprobablethatfinancialandeducationalreform(notincludedinthetable)willalsohavesignificant effectsonlongtermgrowth 3. 2 OECDEconomicSurveys:Mexico(January,2015) 3 TheIMFdiffers,asitestimatesthat,owingtofinancialreform,GDPgrowsanadditionalaverageannual0.07B0.16%intheperiod2016B 2019.IMFCountryReportNo.14/319(November,2014). 3

4 Monthlycommentary June2,2015 Reforms:progressbyMarch,2015 FranklinTempletonServiciosdeAsesoríaMéxico InthisCommentary,weanalyzeprogressthathadbeenannounced(toMarch,2015)onreforms(Energy,Finance andtelecommunications).subsequently,weconsiderpossibleeffectsontheeconomyandmarkets. Energy Thereformhasthreeobjectives:a)maketheenergyindustrymoreefficientandproductive,byopeningituptothe private sector, b) give more financial and operational independence to Petróleos Mexicanos (Pemex) and ComisiónFederaldeElectricidad(CFE),openlysubjectingthemtoregulationbyindependentcommissions,andc) assignthesurplusgeneratedbytheenergyindustrytoalongtermfund. ConstitutionalchangewasapprovedinDecember2013andthesecondarylawsinAugust2014.InMarch2015, progresswasannouncedinvariousareas.pemexandcfehavebeenconvertedto productivestatecompanies, through changing 26 regulations and the strengthening of two regulatory Commissions, the Energy Regulation Commission (CRE), and the National Hydrocarbons Commission (CNH). In addition four new agencies were created: the NationalAgencyforIndustrialSecurityandConservancyfortheHydrocarbonsSector (ASEA), the NationalCenterforEnergyControl(CENACE),theNationalCenterforNaturalGasControl(CENAGAS),andthe Mexican Oil Fund for Stability and Development. Between 2014 and 2015, bidding rounds Zero and One have beenheldforhydrocarbonexplorationandexploitation. Figure6.Estimatedinvestmentinhydrocarbonsandelectricitycogeneration(USbn.)2014I2020.Source:MarcosyAsociados Asaresult,therewillbeanestimatedinvestmentofapproximatelyUS62.5bn.ingaspipelines,RoundOne investment, and electricity generation and transmissionj it is estimated that 212,000 total jobs (direct and indirect)willbecreated.thisestimateissubstantiallyreflectedinestimates(figure6)fromtheindependent energyconsultingfirmmarcosyasociados,whichweremadeafterthetworounds,andthe40%fallinthe oilpricebetweenjune2014andmay2015. Inaddition,partlyasconsequenceofthefallinenergyprices,electricitypriceshavebeenreducedby18I26% forindustrialuse,16%forbusinessuse,7.5%forhighconsumptionand2.5%fordomesticconsumption.gas costshavefallenby4%. 4

5 Monthlycommentary June2,2015 Financial FranklinTempletonServiciosdeAsesoríaMéxico Financialreformhasfourobjectives:a)increasecompetition,b)increasefinancingthroughthedevelopment bankingsystem,c)improveconditionssothatprivatefinancialinstitutionscanlendmore,andd)strengthen thefinancialsystem. Figure7.SavingsandFinanceSep2013ISep2014.Source:ComisiónNacionalBancariaydeValores(CNBV) Since the reform, which was approved in January 2014, savings and finance have increased (Figure 7 completedataavailableinseptember2014). Internalsavingsincreasedfrom61.5%ofGDPin2013to64.6%in2014. Internalfinancingincreasedfrom69.9%ofGDPin2013to73.9%in2014. Telecommunications Theobjectivesofthereformarethattelecommunicationsandbroadcastingservicesbeprovidedinconditions of competition, quality, plurality, universal coverage, interconnection, convergence, free access and continuity. ConstitutionalreformwasapprovedinJune2013,andsecondarylegislationinJuly2014.Therehasbeen progressonseveralfronts: Threeregulators(MinistryofCommunicationsandTransportISCT,FederalCompetitionCommission CFC,andFederalTelecommunicationsCommissionICofetel),havebeenreducedtooneentity withstrongerpowers,thefederaltelecommunicationsinstituteiift. América Móvil has been obliged to reduce its telecoms market share to 50%, a process that has begunwiththeentryofatttomexico,withaninvestmentofus4,375mn.throughthepurchaseof IusacellandNextel. NewnationalTVchainswereopenedforbidding. 87.6% 28.1% 33.4% Ahorro financiero como % del PIB 93.6% 29.7% 34.9% 26.1% 29.0% Sep 13 Sep 14 Captación de intermediarios Tenencia de valores de renta fija e híbridos Ahorro externo NewinvestmentofUS10bn.isplannedfortheproject RedCompartida. Nationallongdistancecostswerereducedtozeroandinternationallongdistancecostsreducedby 40.7%.Cellphonecostswerealsoreduced. 84.0% 28.4% Financiamiento como % del PIB 89.5% 29.3% 41.5% 44.6% 14.1% 15.6% Sep 13 Sep 14 Cartera de crédito Emisión de deuda interna Financiamiento externo 5

6 Monthlycommentary June2,2015 Possibleeffectoneconomyandmarkets FranklinTempletonServiciosdeAsesoríaMéxico Figure8.OECDcountries:GDPgrowth(%)1Q2015vs.1Q2014.Source:OECD(countriesreportingbyMay27,2015) Itisdifficulttoattributetothereformsanyimmediateeffectontheeconomy.However,the2.5%growthfigurefor Mexican GDP in 1Q2015 (vs. 1Q2014), although less than originally estimated at the beginning of 2015, was higherthanseveralothercountriesintheoecd(figure8).thefallinmexicanoilpricesandproduction,therise ofusinterestrates,andlowglobalgrowth,shouldalsobetakenintoaccount. Itispossiblethatthereformsalsoinfluencedthemarkets viewofmexicancountryrisk,reflectedinmexico scredit rating,thespreadonitslocal10yearbonds,andthepriceof5yearcreditdefaultswaps,allofwhichappearto becorrelatedwithalowercurrencydepreciationsince2012thaninothercountries(figure9). Figure9.Emergingmarkets:pesodepreciationvs.countryriskdataDec2012IApril2015.Source:SHCP 6

7 Monthlycommentary June2,2015 Conclusion FranklinTempletonServiciosdeAsesoríaMéxico Thereformsofthisadministrationaresignificant.Almosthalfwaythroughthesexenio,informationthathasbeen releasedonenergy,financeandtelecommunicationsreformispositive,anditispossiblethatthisisreflectedin GDPgrowthfiguresforthefirstquarterof2015,aswellascountryriskindicatorscomparingMexicowithother emergingmarkets.astheoecdanalysisrecognizes,legal/judicial,labor,educational,andfiscalreformsareless measurableintheshortterm,butofevengreaterimportanceoverthelongterm.thereisstillawaytogoforthe reformstobegenerallyacceptedandimplemented,andevidentlythisisthemajorchallengefortheadministration inthesecondhalfofthesexenio.itispossiblethatthemiditermelectionsscheduledforjune7willgivesome indicationoftheprobabilityofsuccessfulimplementationduringthisperiod. June2,2015 TimothyHeyman 7

8 Monthlycommentary IMPORTANTLEGALINFORMATION FranklinTempletonServiciosdeAsesoríaMéxico June2,2015 Thisarticleisintendedsolelyforinformationalandeducationalpurposes.Itdoesnotconstitutelegalortaxadviceandisnotanofferofany security, investment strategy or advisory services. Nothing herein should be construed as investmentadvice. Past performance is not a guaranteeoffuturereturns. Thisisnotacompleteanalysisofeverymaterialfactofanycountry,region,marketorsector.Allinvestmentsinvolverisks,includinglossof principal. FranklinTempletonInvestmentshasexercisedprofessionalcareanddiligenceinthecollectionofinformationinthisdocument.However, datafromthirdpartysourcesmayhavebeenusedinitspreparationandfranklintempletoninvestmentshasnotindependentlyverified, validatedorauditedsuchdata.theopinionsoftheauthorareexpressedatpublicationdateandaresubjecttochangewithoutpriornotice. Any research and analysis with respect to particular industries, sectors or companies contained in this document has been procured by FranklinTempletonInvestmentsforitsownpurposes.FranklinTempletonInvestmentsshallnotbeliabletoanyuserofthispublicationorto anypersonorentityfortheinaccuracyofinformationoranyerrorsoromissionsinitscontents,regardlessofthecauseofsuchinaccuracy, errororomission. Copyright 2015.FranklinTempletonInvestments.Allrightsreserved.Thisarticlemaynotbecopied,reproducedorredistributed(inwhole orinpart)withoutthepriorconsentoffranklintempletoninvestments. 8