Can Claudia Sheinbaum deliver stability to Mexico’s business community?

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Eduardo Garcia, Sandra Dibble, Alfredo Corchado | Puente News Collaborative

Because of gangland violence, Víctor González fears for his safety every time he drives to meet potential clients outside his central Mexico city of Aguascalientes.

“If I go to Guadalajara, I’m scared to death,” he said in an interview. “It’s very complicated to leave Aguascalientes. There are flights between Aguascalientes and Zacatecas, a laughable 20-minute flight, just to avoid the roads. It’s extremely dangerous.”

Despite his love for Mexico, where he built a $4.4 million annual revenue automation and precision machine-making company called Solinda, González is relocating with his family to El Paso.

If things go well, Gonzalez might later move some of his manufacturing north of the border. He was one of more than 60 Mexican investors who gathered in El Paso last June to explore such relocation.

At least four Mexican businesses — two from Aguascalientes and two from Chihuahua — already have formally begun opening operations in El Paso, according to Sugey Hernández, a consultant with the Economic & International Development Office of El Paso. Others, she added, are looking at locations throughout Texas and beyond.

Proponents in Texas and elsewhere hope to capitalize on those business worries, compounded by newly-passed constitutional judicial reforms.

Recently, the Texas Public Policy Foundation, a non-profit, non-partisan research institute, let Mexicans know that Texas offers refuge.

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“Texas is ready to welcome investment dollars that may be looking for a new home as result of uncertainty surrounding Mexico’s radical judicial reform”, the foundation said in a widely disseminated ad.

Gonzalez’s decision to relocate underscores the challenges incoming president Claudia Sheinbaum faces with the business community, both Mexican and foreign.

The first woman to be elected president in Mexico, Sheinbaum, 62, will be sworn in on Tuesday, Oct. 1. Her center-left Morena party, after the June 2 elections, will control the national Congress and most of the country’s 32 state governments, providing Sheinbaum enormous political capital.

Sheinbaum and other Mexican officials are counting on a wave of companies relocating to Mexico from China and elsewhere to boost the economy and help millions climb out of poverty.

Mexico’s proximity to the U.S. market, its raft of free-trade agreements and its low wage labor have made it a magnet for companies seeking to avoid geopolitical tensions between China and the US. The country’s attractions only grew with the Asia supply chain disruptions exposed by the COVID-19 pandemic.

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To successfully entice factories from Asia, a process called near-shoring, Sheinbaum must tackle insecurity. Skittish manufacturing executives already eye U.S. cities such as Dallas, Austin and San Diego as alternatives.

“If we talk about Tijuana, the issue of public security is critical,” said Carlos Jaramillo, an industrial park developer and business leader in the Mexican border city, across from San Diego. “We’re seeing organized crime gain ground.”

Mexico became the U.S.’s largest trading partner in 2022, surpassing both China and Canada. Deepening U.S.-Mexico trade ties have been driven by the North American free trade pact, re-negotiated under the Trump administration. That agreement is up for tri-lateral review in 2026.

The United States and Canada together take nearly 90 percent of Mexico’s exports. Shipments from Mexico comprise more than 15 percent of the U.S. imports, while goods bought from the United States total nearly half of Mexico’s annual imports.

Once dependent on oil revenues, Mexico’s manufacturing heavy economy is now the world’s 15th largest.

To take on organized crime Sheinbaum has turned to Omar García Harfuch. He proved largely successful as Sheinbaum’s public security chief during her previous tenure as Mexico City’s governor.

Many hope that García Harfuch can adapt his strategy to a national scale. Criminal gangs are estimated to control as much as a third of Mexico, besieging communities and extorting an increasing number of companies, including large corporations.

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Security is not the only issue worrying investors these days. The recent overhaul of Mexico’s judicial branch, putting most judges and magistrates to popular vote, has many concerned.

Critics believe the judicial reforms ― adopted this month and taking effect beginning next year ― could further erode Mexico’s already fragile legal institutions.

Despite embedded corruption and political pressures, an independent judiciary has provided investors some refuge against government interference.

Critics see the judicial reforms as part of a strategy to solidify the hegemony of Morena, which was founded only a dozen years ago by departing President Andres Manuel Lopez Obrador. A similar political machine ruled Mexico for most of the past century, until the opposition won the presidency in 2000.

The critics fear that Morena’s unfettered grip on power could threaten market-friendly reforms and free-trade agreements that began transforming Mexico’s economy in the mid-1980s.

Consolidation of power augurs the “erosion of what we call democracy broadly,” said Tony Garza, the U.S. Ambassador to Mexico under George W. Bush.

“Mexico’s ability to continue playing a starring role as a strategic partner in economic security initiatives and nearshoring could evaporate,” wrote Ryan C. Berg, senior fellow at the Americas Program of the Center for Strategic and International Studies, in a recent report.

Should they violate trade agreements, the judicial changes could make Costa Rica, the Dominican Republic and Panama as viable alternatives for nearshoring, Berg and other critics contend.

“In the worst-case scenario, it could prompt a reconsideration of Mexico’s role in the North American bloc,” Berg said.

Sheinbaum dismisses such warnings as exaggerated, insisting that both Mexican and foreign investors have nothing to fear.

Rather, she and her allies say, the judicial reform aims to eradicate corruption in Mexico’s courts.

Legal experts and political observers remain unconvinced. They say so far, many remain hopeful that her proposals will differ — if but slightly — from those of López Obrador, a charismatic nationalist who favors firm state control of the economy.

Under Lopez Obrador private energy investments have been curtailed in favor of bolstering the two state-owned energy companies — Comisión Federal de Electricidad, or CFE, and Petróleos Mexicanos, called Pemex.

Sheinbaum has long championed renewable energy. And hopeful bets are being laid that she’ll loosen private investment in the electricity generation.

Her promotion of solar energy as Mexico City’s governor can Sheinbaum to foment “an attractive strategy for generating electricity from renewable sources,” said Antonio Ocaranza, head of consulting firm OCA Reputación.

Some already read other positive signals.

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They argue that Sheinbaum’s administration may prove more professional and technically proficient than the current one, which is often seen as whimsical.

Among other capable moderates, Sheinbaum has named Marcelo Ebrard as Economy Minister, Juan Ramón de la Fuente as Foreign Minister, and Emilia Calleja as CFE chief.

“There have been key appointments that suggest she will follow more technical guidelines,” said Jaramillo, the industrial park owner in Tijuana. But for now, he said, “obviously, we see that certain investment decisions are on hold.”

Puente News Collaborative is a bilingual nonprofit newsroom, convener and funder dedicated to high quality, fact-based news and information from the U.S.-Mexico border.

Eduardo García established Bloomberg’s Mexico bureau in 1992 and served as its leader until 2001, overseeing the agency’s award-winning coverage in the country. In 2001, he embarked on a new venture by founding his own news organization, Sentido Común. For nearly 18 years, he guided Sentido Común to become one of Mexico's most esteemed financial websites. Later, he merged his company with the local financial news agency Infosel, assuming roles as editor-in-chief and subsequently Chief Content Officer.

Alfredo Corchado is the executive editor for Puente News Collaborative and the former Mexico/Border Correspondent for The Dallas Morning News. He’s the author of “Midnight in Mexico” and “Homelands.” @ajcorchado

Sandra Dibble has reported on the U.S.-Mexico border since 1994, and for more than two decades was the Tijuana-based correspondent for the San Diego Union-Tribune. She is currently working as a freelancer, and writes a monthly newsletter on the San Diego-Tijuana border for the nonprofit news website Voice of San Diego.

Omar Ornelas, a Mexican photojournalist based in Ciudad Juárez, Mexico, works for the El Paso Times. For the last 20 years, he has been reporting on and photographing farmworker labor, education, health and housing issues in California, Texas and Arizona, as well as border security and Mexican and Central American migratory flows at the U.S.-Mexico border, for the USA TODAY Network. @fotornelas

Dudley Althaus has reported on Mexico, Latin America and beyond for more than three decades as a staff newspaper correspondent. Beginning his career at a small newspaper on the Texas-Mexico border, Althaus had an award-winning 22-year stint as Mexico City bureau chief of the Houston Chronicle. After a four-year run as a Mexico correspondent for The Wall Street Journal, Althaus covered immigration and border issues as a freelancer based in San Antonio for Hearst Newspapers. He has covered every Mexican presidential election since 1988, when Mexico's troubled transition to democracy began. @dqalthaus

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