Underpinned by very strong macro fundamentals, investment opportunities and a stable local regulatory environment, the years 2012-2018 saw one of the most impressive investment periods in energy the country has seen. And this is across the energy spectrum: pipelines, power generation (both thermal and renewables), storage and even E&P.
The reason, many say, was the Energy Reform. And yes, of course, the reform was the match that ignited the investments. But when looked at closely, the reform itself, a great, yet imperfect, advancement for the country’s sector, really only provided the playing field required for market participants. The fundamentals of the game, the opportunity itself, had to be there for any successful investment, and those fundamentals persist perhaps even more so today.
The Energy Reform, without the vast infrastructure and energy gap in Mexico, would have been useless. Similarly, the reform without the stable growth environment in the global markets we had in those years would have been much more challenging.
So what will happen once COVID-19 passes? How will Mexico’s Energy space react once macro stability returns and global investors seek smart long-term investments? Fundamentally, the gap continues to exist. How can Mexico, and more specifically the federal administration, provide the match to ignite a new wave of investments?
Banking institutions and global institutional investors alike seek certainty. Whatever that may be or look like, whatever the playing field is, what’s required is a clear sense of how a long-term investment will perform. The regulatory landscape plays a huge role in that. A price can always be set, a value on an asset can always be estimated so long as clarity is provided. Without clarity, the decision becomes binary and that’s the real problem.
The coming years will likely see a rebound in growth. A natural rebound from the impressive lows of 2020, with clear headwinds globally (the US elections and trade tensions, to mention a few), but growth nonetheless.
Furthermore, Mexico should still be able to position itself as a perfect investment opportunity: we are and will continue to be the No. 1 trading partner of the largest economy in the world, we continue to be an Investment Grade jurisdiction and are one of the largest emerging markets for investment opportunities by population, growing middle class and infrastructure gap.
So, that’s two out of three critical components. We just need the match. We just need the certainty that whatever we sign and execute will be maintained, upheld legally and respected for the coming 20-plus years. Ultimately, the reform provided that, but without the reform or a reshaped version of it, Mexico can still find significant growth through energy investment in whatever shape or form the administration seeks to propel it.
Hopefully, we can find ways to position Mexico for the opportunity that lays right in front of us. We just need a match. Whatever the rules of the game will be, let’s just set them.