This analysis considers some of the contemporary operational obstacles for investing in Mexico, and suggests some ways in which they could be overcome.

Corruption and Due Diligence
Mexico’s anti-corruption law (implemented 2012), is strict and mostly consistent with the guidelines of the Organisation for Economic Cooperation and Development (OECD) and the UN. However, it suffers from chronic enforcement deficiencies (PWC, 2015).

By signing off the new National Anti-Corruption System (SNA) (April 2015), Congress has taken a step in the right direction for improving implementation. However, the SNA has its own limitations.

In 2015, PwC noted that while third-party local consultants can help mitigate compliance risks, it is not uncommon for them to be former Mexican government officials, meaning that their ‘connections’ with agencies can lead to greater risks in the long term. This is particularly applicable to the energy sector (PWC, 2015).

In addition, due diligence and monitoring of Mexican business partners is challenging, as operating procedures and ownership transparency can easily differ between different states and sub-regions. Electronic public databases are irregularly updated to a poor standard; and while vast chunks of government records still await digitisation, key information on individuals and organisations may only be accessed by physically visiting government agencies and state offices (PWC, 2015).

Another challenging investment obstacle is communicating an alternative business culture that addresses Mexican employees’ lack of knowledge – or customary beliefs – surrounding corruption; i.e., to correct the misperception that bribery or conflict of interest forms part of normal business practice.

A strategy for achieving this might include exploiting other elements of Mexican business culture – such as the powerful status and guidance of top executives (especially those from influential blood kinship networks) – to relay a strong anti-corruption tone from the highest level. Other tactics include setting up internal anti-corruption training programmes or easy-to-use ‘hotlines’ (PWC, 2015).

Security and Operational Risk
The risks posed to executives, employees, assets and operations by criminal activity are real and widespread. The nature of obstacles such as theft, kidnap risk, extortion or assassination will heavily depend on the industrial sector, the area of operation and local political dynamics. As federal government efforts to squeeze the flow of illicit drugs have intensified, criminal exploitation of the private sector (particularly energy, mining and occasionally tourism) has increased. Although SMEs are the most vulnerable, MNCs are certainly not immune to criminal exploitation.

Before December 2013, the Federal Electricity Commission (CFE) was the sole entity with authorisation to operate and renovate electricity transmission lines. Upgrades have historically been slow, meaning that existing infrastructure struggles to handle large projects. Although the energy reform law now allows private sector participants to develop and construct transmission infrastructure, the CFE will still plan the national grid (Norton Rose Fulbright, 04.2016).

In August 2015, Greentech Media also noted that despite Mexico being ‘one of the most promising solar markets in the world,’ the existing (old) designs of buildings in prime locations (e.g. the states of Baja California and Chihuahua) are inadequate for installing solar panels (Greentech Media, 26.08.2015).

Lack of Flexibility
In terms of the energy sector, as noted by El Daily Post’s Dwight Dyer on 21st March 2016, ‘the lack of exit options and the weak investment protections could provide pause for investors with access to other opportunities worldwide.’

The Undersecretary of Hydrocarbons, Lourdes Melgar, has repeatedly stressed that the Mexican government will not be in a position to renegotiate contracts, posing a ‘take it or leave it’ scenario for investors (El Daily Post, 21.03.2016).

Legal and Regulatory Challenges
Since economic reforms were passed in 2013, Mexico has been in a state of regulatory flux as it decides how its new institutions and clearing houses should operate. As noted by Paul Hastings LLP (via the Financial Times, 08.12.2015), the business advisory capacity of international lawyers has become paramount, as they have had to correctly forecast the legal, regulatory and structural landscaping of deals while the Peña Nieto administration finalises its implementation strategy (particularly in the energy sector).

This, in turn, is made possible by the absence of tight restrictions that would otherwise limit the ability of global law firms to practice local law (as is the case in Brazil, for instance). However, large projects that involve multiple layers of legal processing, such as local operating permits or landowner contracts, require on-the-ground expertise and familiarity with local customs that can be difficult to acquire (Bloomberg BNA, 05.2015).

On 3rd May 2016, at the Offshore Technology Conference in Houston, Weatherford International’s Vice-President of Secure Drilling Services, Ian Cook, explained that while Mexico’s contract strategy continues to be fully outlined, ‘international service companies will have to figure out how to manage risk while doing business under new Mexican energy policy…level-headed’ (Oil & Gas Journal, 05.04.2016).

Finding Reliable Partners
Mexico’s state energy companies will take years to wriggle out of operating habits forged by over 70 years of monopoly status. In this sense, contract migrations play into staffing issues at Pemex and the CFE, posing obstacles to closing a deal. With Pemex continuing to buckle under low oil prices (the company has lost $58 billion since 2012), it still has a way to go in learning how to collaborate with private partners while keeping itself afloat (El Daily Post, 30.04.2016).

Because of this, foreign investors may be wise to seek partnerships with the younger generation of Mexican companies in tune with the local business landscape, allowing them to commit resources with the confidence that they understand the risks associated with insecurity, bureaucracies and corruption.

Crony Capitalism
In Mexico, one of the most powerful elements of Shadow Governance is the role of elite blood kinship and familial networks, which are interconnected through the shared ownership of assets, boards of directors or intermarriages. Monopolistic conglomerates still exert significant commercial influence in Mexico, which emerged within the top 10 countries by crony-sector wealth (6th) in The Economist’s 2016 ‘crony-capitalism index’ (The Economist, 07.04.016).

Inevitably, this has a noticeable effect on resource distribution, which becomes a key obstacle for investors. Systems of patronage and bid rigging negatively affect competition; and although Peña Nieto has partially answered to public pressure for reform, elite network expectations still influence the political trajectory.