MORENA’s Weaker Grip on Congress Brings Greater Certainty

With the advancement of President Andrés Manuel López Obrador’s constitutional proposals and reforms at stake, voters went to the polls to determine if the president's MORENA party would maintain its majority in Congress. It fell short, and that is good news for private industries.

On June 6, millions of Mexicans went to the polls to cast their vote for 20,000 popularly elected positions throughout the country, including 15 governorships and seats in the Chamber of Deputies. López Obrador's coalition headed into the midterms with a two-thirds or qualified majority in the 500-seat lower house. That number is expected to drop to 265-292 seats, which means MORENA will lose its qualified majority, according to preliminary figures from the National Electoral Institute (INE).

The party, however, will still maintain budgetary control through its alliances with the PT and PVEM parties. MORENA won 197 seats in the Chamber of Deputies. Adding those of the PT (37) and the PVEM (44), the coalition would hold 278 seats to control the Federal Expenditure Budget (PEF), according to INE. Meanwhile, the PAN, PRI and PRD coalition will hold an expected 198 seats and Movimiento Ciudadano (MC) will have 24 seats to counterbalance leading coalition.

Faced with this scenario, López Obrador said that he does not rule out the possibility of reaching an agreement with the opposition. “If we wanted to have a qualified majority, we could reach an agreement with lawmakers from PRI or any other party, but we do not need many to make a constitutional reform,” he said in his morning conference on June 8. 

A Good Sign

A more balanced house would help reduce political uncertainty in the coming months, according to an analysis by Monex, a view that is also echoed by MBN contributing experts. “The results reaffirm Mexico's rule of law and democracy, providing more diversity in the power balance, which is a good thing for all industries,” said Founder of Rising Farms Pablo Ricaud. “This will generate a positive outlook for investment and development in the country,” he added.

According to an analysis by CI Banco, the opposition's breakthrough can be seen as a counterweight to MORENA and López Obrador's administration. The bank added that given MORENA's need to negotiate with other parties, some reforms should be limited and greater scrutiny over the budget and public appointments is now expected. Both Monex and CI Banco agree that the election results will not have a negative impact on the national currency.

"Seats lost by the ruling party create counterbalances, which are always positive as different perspectives are now considered during the decision-making process, which will involve a lot of analysis, research and negotiation,” said Nazareth Black, CEO of Zacua. “I see a positive scenario as counterbalances in Congress will reduce uncertainty for companies and investors, which will help many investment projects to flow, many of them in the automotive sector.”

In agreement, René Espinosa, Plant Manager of Metal Finishing Co, said that global issues such as the pandemic, trade wars and disruption in supply chains open up the opportunity for Mexico to position itself as a strategic destination for large companies looking to relocate their operations.  "The election results send a positive message to the industry, business partners and countries that have an interest in Mexico. We are a country that offers high experience in manufacturing and engineering and is considered a best-cost country, with a privileged position for the most important markets in the world," he said. However, Espinosa added, the government must continue to work to reinforce the message of confidence to investors through public policies.

The current lower house, last shaped in 2018, has 61.6 percent representation of the Juntos Haremos Historia coalition formed by the MORENA, PT and PES parties. This means an over-representation of 15.7 percent, according to the National Electoral Institute (INE). To avoid this situation, the Superior Chamber of the Electoral Tribunal of the Supreme Court (TEPJF) endorsed at the end of April a restriction approved by INE to prevent the majority party from achieving over-representation in the Chamber of Deputies by nominating its own members as candidates of another party with which they are in coalition. This new restriction states that the effective membership of each of the winning candidates according to the principle of relative majority shall be verified at the time of the candidate's registration. 

A Breath of Fresh Air for Energy

The election results also likely put a brake on López Obrador's agenda in the energy sector, which in recent months has faced an uncertain environment. The main amendments proposed by the president in the energy sector focus on the Hydrocarbons Law and the Electricity Industry Law, which the opposition has called unconstitutional and which are suspended by appeals. One industry leader, who spoke to MBN on condition of anonymity, said the election results might very well influence the final decision regarding these reforms. “There is a higher probability that the Court confirms the cancellation of these initiatives after these elections left the government in a weakened state. The companies that are already here and have infrastructure will continue and maybe expand their activities,” the CEO said.

The CEO also pointed out that foreign companies might still be weary of developing new projects in Mexico until further certainty can be provided. But Edmond Grieger, Partner at Von Wobeser y Sierra, S.C., said the overall impact of the election should be positive. “We should see some positive impact in the investment climate surrounding the electricity sector in Mexico, mainly in generation, transmission, and infrastructure projects,” said Grieger. “There have been concerns of a potential constitutional counter-reform in the energy sector that would limit the participation of foreign and national investors in the generation of clean and renewable energy, as well as in the supply of energy to end-users. Under the new panorama, a constitutional counter-reform on energy matters will be more difficult to achieve.”

For Zacua’s Black, the new composition of the lower house will make it possible to continue with the agenda of generating sustainable mobility solutions supported by clean energy, something that was not possible with the previous Congress that supported presidential decisions “without proper analysis.”

Mining Still Faces Uncertainty

The government's vision for mining has also generated uncertainty in the sector. That position has shown no signs of shifting recently and industry leaders believe that not much is likely to change with the legislative redrafting. “We were very concerned about some of President López Obrador’s proposals, not the least of which is his push to bring back the oil sector under state control. If a government can unilaterally break existing contracts and nationalize an industry, foreign investors will generally reduce or avoid investing in all sectors of the Mexican economy,” said Bradford Cooke Founder and CEO of Endeavour Silver Corp.

Women in Mining (WIM Mexico) Secretary Ana Muñoz, however, said this new landscape opens the door to a dialogue between all the players involved in reaching an agreement. "This would allow the strengthening of sustainable and environmentally and community responsible mining," she said. Muñoz added that the direction the current government will take with respect to mining will be reflected in the actions taken in the states of Zacatecas, Sonora and Guerrero, which will now be under a MORENA administration. “Mining in these three states is very important at an economic level because of the contributions through taxes, social security and jobs generated. I hope that these new governments will take the opportunity to learn about what mining is like today. Instead of attacking it, they can establish work programs that will lead to a good boost for the benefit of all the sectors involved.”

“There is still uncertainty about the situation of local mining activity, as the federal government has implemented some policies and decisions that have not favored the development of the sector. We believe that if there is no will from the new governor to defend our industry, Sinaloa could lose its attractiveness for new investments, slowing down, in the worst-case scenario, the development of new mining projects and compromising those that are currently operating,” said José Luis Castro Insunza, President of the Sinaloa Mining Cluster (CLUMISIN).