Analysis: Mexico aims for NAFTA-style growth boost from energy reform

Sun Aug 11, 2013 9:06am EDT
 
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By Krista Hughes and Michael O'Boyle

MEXICO CITY (Reuters) - Mexico's plans to break a 75-year state monopoly on energy could boost flagging growth and double foreign investment, potentially providing the biggest leg-up to its economy since the North American Free Trade Agreement two decades ago.

The government is finalizing proposals to lure private investors into the oil, gas and electricity industries in order to boost production and lower energy costs for manufacturers, which are up to twice as high as those paid by U.S. companies.

The plan is expected to be unveiled and sent to Congress this week. It is likely to include tweaking articles of the constitution that prohibit private ownership of Mexican oil.

The level of access to private firms, including foreign oil majors like BP (BP.L: Quote) and Exxon Mobil (XOM.N: Quote), will be crucial to the reform's success.

A half-hearted effort could wreck high expectations that centrist President Enrique Pena Nieto has the will to apply shock therapy to an ailing energy industry and beyond to other moribund sectors of the economy.

But a best-case scenario could add between 1 and 2 percentage points to potential growth, economists say, a vital prop for an economy expected to grow just 2-3 percent this year while global demand for Mexican exports remains sluggish.

In the decade after Mexico joined NAFTA in 1994, exports to the United States and Canada tripled and foreign direct investment quadrupled. Growth rates rose to 4.8 percent or more in four of the first five years of NAFTA, although the impulse then faded.

The energy overhaul is the cornerstone of a far-reaching reform package that Pena Nieto hopes will ramp up growth, boost credit and formal job creation and modernize Mexico's oil, gas and electricity industries.   Continued...

 
Mexico's state-run oil monopoly Pemex's platform "Ku Maloob Zaap" is seen in the Northeast Marine Region of Pemex Exploration and Production in the Bay of Campeche April 19, 2013. REUTERS/Victor Ruiz Garcia