The New Role of National Content Promotion

Q: What is your general evaluation of the energy industry’s recovery throughout 2021?

A: If you look at the past 25 years, average annual economic growth has remained between 1.8 and 1.9 percent. During that same period, Mexico’s electricity industry grew by almost 5 percent. Therefore, national economic growth cannot be decoupled from the dynamism demonstrated by Mexico’s energy industry. Examining Mexico’s growth forecasts as predicted by both national and international institutions, from Banxico to the IMF, one can see that the invasion of Ukraine and the latest waves of the COVID-19 pandemic have resulted in significant downturns, which currently place us somewhere between 2.5 and 3.4 percent. This means that the electricity industry must grow close to 8 percent if it is to match its usual contribution to national economic growth. In this context, and as the President Lopez Obrador has emphasized to make a priority, a significant strengthening of both PEMEX and CFE is necessary.. As such, our general evaluation of the industry’s recovery in 2021 clarifies what must be accomplished in 2022 so that this reactivation can be as successful as possible.  

Q: How would you describe your office’s role in promoting and enabling these policies?

A: The Ministry of Economy’s perspective is that the energy industry should be considered in terms of its connection to the general rates of Mexico’s industrial development, along with its local content policies. In other words: energy policy also means industrialization policy. In 2021, we designed and published over 105 new public policy  guidelines in coordination with SENER, which could support the reactivation of national supply lines and the presence of local content in energy industry operations. 

The Ministry of Economy oversees the development of an unprecedented regulatory framework that can achieve meaningful yearly increases in local content levels within the energy industry. We want to add legal certainty to the 111 standing oil and gas contracts by defining this framework as precisely as possible so that the benchmarks to define compliance can be set in stone. We want contractors to unambiguously understand the local content and national supply development programs that they will be expected to conduct at each phase of their projects. This includes training and talent development programs. We need to technically evaluate these programs and transmit the findings to SENER and to CNH each step of the way, so that they can take this into account when approving the investments of contractors. We want to incentivize technological transfer, too. As Minister of Economy Tatiana Clouthier has emphasized, the technical evaluation standards should be as clear as day. 

Q: How has your office adapted its operations because of the pandemic’s impact? 

A: We are aware of the pandemic’s extensive damage to the various industrial and logistical supply chains that support the Mexican economy and the energy industry. The price for container shipments has increased sixteen fold, for example. National content should play a significant role in the rebuilding of these supply chains. As logistics become more localized, the risk becomes more manageable. Investors are eager to establish greater legal certainty by achieving these lower risk levels. We have divided this regionally so that we can localize our promotion and rebuilding efforts, while also promoting Mexican entrepreneurs in the process. The pandemic has changed our outlook by reminding us how much distance matters. In the previous neoliberal paradigm, the importance of distances was minimized since we believed in an increasingly globalized economy that would have ever-decreasing shipping and logistics costs. The pandemic taught us the value of practices such as nearshoring and national content in risk mitigation, which have become much more prominent for both national and international investors.    

The full degree to which we have been changed by the pandemic has yet to be fully determined. Our plans contemplate a new wave of COVID-19. Each country will deal with this in its own way and we will wait to see what Mexico’s guidelines will be. However, this next wave of the pandemic will arrive on our shores, just as it is now making its way through China, Germany and the US.

Marcos Ávalos is a specialist in competition, economic regulation and industrial organization. He has been part of the Ministry of Economy since December 2018, when he began serving as Coordinator of Advisers.