International Business Needs to Calm Down about President Sheinbaum
President Sheinbaum’s administration will be a mild improvement for international business in Mexico.
End of the Story: Claudia Sheinbaum’s administration will be slightly better than AMLO’s for the international business community – which is admittedly not saying much. The business media and right-of-center pundits are treating her election as the End of Days, but there is much to be hopeful about.
Spoiler alert: It’s about the PRAGMATISM. Populist AMLO was a charismatic dreamer who was never held to account for anything he did or said. Sheinbaum will be held responsible for EVERYTHING that happens in Mexico, so I expect her real governing agenda will evolve to be much more realistic than AMLOs. (That’s where you come in.)
Her main priorities will end up being:
1. “The Relationship” with the US (and Texas)
2. The Mexican economy/finances.
3. Her vision of Social Justice (the LatAm version, NOT the Portland approach).
Pragmatism vs. Charisma
Sheinbaum is both more pragmatic and less popular than the outgoing Lopez-Obrador (AMLO), which is good news for international businesspeople. Her technocratic approach to governance will create important opportunities for the business community. Her management style stands in stark contrast to that of outgoing President Lopez Obrador - a charismatic populist who relied on his popularity to rule with little oversight.
Realist Priorities
Like any newly elected leader, she has a long list of ambitious projects and programs to transform Mexico. It is likely, however, that her agenda will be shaped by geopolitics, Mexican economics, and the multitude of demands from the US. Sheinbaum is a champion of both the environment and women’s rights – both of which are sorely in need of attention in Mexico. Unfortunately, these are unlikely to be her top priorities for long.
Here are the three challenges that will occupy most of her bandwidth and determine her success or failure in office.
1. The Relationship with the US.
The new administration must execute a course correction in the relationship with the US – and quickly. Under AMLO, the high-level relationship with the US was marked by ambivalence and half-measures. Sheinbaum has the chance to upgrade relations before Mexico starts getting vilified in the US Presidential campaign.
Mexico and the US are more than neighbors – our economies and cultures are deeply intertwined. One of AMLO’s quirks was a willingness to devalue the relationship with the US – to the point that Republican politicians routinely propose military action (against cartels, fentanyl, and migrants). NOT very pragmatic.
A quick list of top issues the new President will be discussing with Washington:
Border Security and the flow of migrants to the US-Mexico border.
Cartels & narco-crime
Fentanyl (which the US views as part cartel problem, part China problem)
China (there’s a lot here)
AMLO’s popularity and personality meant that he never took these issues as seriously as the US would have liked. Sheinbaum is unlikely to have that luxury.
What this means to you: If you think that the Mexican government is becoming too left-leaning and interventionist, then I have some disturbing news for you. Your big alternate offshore manufacturing centers are:
China
Vietnam
India
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If you were able to handle compliance in China and India, then you shouldn’t have much trouble dealing with Sheinbaum’s Mexico.
The US and Mexico need one another. This is obvious to you and me, but somehow politicians often miss the message.
2. Mexican economy is a glass half empty – half full deal.
Mexico was one of the few real beneficiaries of the US-China trade war, but under AMLO nearshoring has been a real estate play and little more. There haven’t been any significant efforts to integrate new technologies or create an entrepreneurial class among the general populace. A more tech-savvy administration may make better use of the resources lining up to enter Mexico.
Here are the big issues that will shape the Sheinbaum Administration's economic agenda:
Nationalized industries. The situation in Mexico is already pretty dire, but there are hints of some types of privatization in the energy sector. The verdict here – a bad situation will improve mildly.
Infrastructure. AMLO favored high-profile projects with big price tags, loose schedules, and questionable payoffs. International business needs CDMX to lead, follow, or get out of the way on realistic infrastructure projects that help streamline the flow of materials and people.
Security. Will still be bad, but better. She seems to have improved the security situation in CDMX, but it was a mixed picture. There is no guarantee that she will be as effective on a national level, but her efforts as Mayor are encouraging.
What this means to you: The Maquiladora economy is pretty well insulated from the larger Mexican economy, and our view of government policy is that less is more. Still, Sheinbaum will not be able to ignore the needs of the business community the way AMLO did.
3. Social Justice.
Sheinbaum's progressive programs focus on more schools and more doctors – not legalized shoplifting and complicated pronouns.
Her emphasis on environmental issues is also more pragmatic and grounded than other leaders – she is looking at controlling air pollution and managing Mexico’s chronic water problems. No word on gas ranges yet, but I think we’re probably good here.
What this means to you: Mexico already has a mild shortage of skilled workers, and it’s going to intensify as all of the new nearshorers finish building their factories and start hiring. Mexico has a very low HCI score (the World Bank’s Human Capital Index), which means that hiring and training are difficult. If the Sheinbaum admin can improve health and education, it broadens the labor pool and opens up more areas for potential development.
Here are the most recent HCI and GINI scores for Mexico, with relevant benchmarks:
Human Capital Index (HCI)
(Scale: 0 to 1, where 1 represents the maximum potential)
Gini Index (GINI)
(Scale: 0 to 100, where 0 represents perfect equality and 100 represents perfect inequality)
If Sheinbaum can lower Mexico's GINI and raise its HCI scores, you will have more people to hire, sell to, and buy from.
Final Word:
President Sheinbaum's agenda of social welfare, environmental responsibility, and fiscal responsibility will put Mexico’s house in order after 6 years of overspending and inattention.
This is exactly what the international business community in Mexico needs.