Guidance

Overseas Business Risk - Mexico

Updated 20 July 2015

1. Political Security

Mexico has a federal presidential system of government covering the 31 states and the Federal District (Mexico City) with powers separated into 3 branches: executive, legislative and judicial. The President is elected for a 6-year term and may not hold office a second time. Congress is constituted by Senate (6-year terms) and a Chamber of Deputies (3-year terms).

President Peña Nieto has implemented an ambitious programme of reforms since he took office in December 2012 and secured a pact with the three main parties (PRI, PAN and PRD) which allowed him to successfully pass legislation targeting structural issues of poor education, monopolies, taxation and energy production. Mexico’s structural reforms aim to boost economic growth. Education reform aiming to increase the quality of public education by evaluating teachers remains controversial amongst teaching unions, prompting large protests, and delaying implementation in some states.

Other reforms include fiscal reform to increase tax collection, financial reform to increase access to cheaper credit and telecommunications reform to break up the power of monopolies and increase competitiveness in the sector. Electoral reform aimed to ensure better representation through legislative re-election and independent candidacies. Energy reform bill opened the door for private capital to work in the sector, opening the market in various parts of the supply chain in the hydrocarbons, electricity and clean energy sectors. Since mid 2014 these reforms have been progressing well.

However later in 2014, the political agenda turned back to security after a series of concerning law enforcement operations against students and alleged criminals. At the same time allegations came to light of potentially corrupt deals involving the President’s family and cabinet. These sparked public protests focused on the security, human rights and corruption strategies of the government. In response President Peña Nieto launched an investigation into himself, his wife and his finance minister, pushed for anti-corruption reform and presented a security plan including actions on public security, justice, human rights, corruption and economic development which require legislative reforms that have yet to be passed.

Mexico held mid-term elections on 7 June 2015. The PRI (President Peña Nieto’s party) and its closest allies maintained a majority in Congress. There are some significant changes in state governorships, including the victory of an independent candidate in Nuevo León. All three of the largest parties lost seats in Congress, to the benefit of their smaller rivals. Information on political risk, including political demonstrations, is available in the FCO Travel Advice under the section Political Advice.

2. Economic Security

Mexico is an upper-middle income country with a population of around 119m. According to IMF forecasts GDP per capita for 2015 will be US$18,714 PPP. However, wealth is distributed very unequally, with 46% of the population living in poverty and 43% of the national income held by the top 1%. Mexico’s GDP is mainly driven by the services sector, which accounted for 61% of GDP in the first quarter of 2015. In terms of competitiveness, according to World Bank “Doing Business” index, in 2015 Mexico was the 3rd easiest place in Latin America in which to do business.

Mexico is the biggest exporter in Latin America. Mexico’s commercial structure is defined by large intra-industrial trade, as its main exports are in the same industries as its main imports: machinery, electrical equipment, automobiles, mechanical inputs, minerals, oil and gas. With 12 Free Trade Agreements covering 45 countries, including the US and the EU, Mexico is one of the most open economies in the world. Nevertheless, Mexico’s main trading partner remains the US, where around 79% of Mexican goods and services are exported (2013). Despite only 2.7% of Mexican products being exported to Canada, it is Mexico’s 2nd largest exporting destination, whilst the UK accounts for less than 1%.

The Mexican economy is highly dependent on US demand for imports (mainly manufactured goods). After economic activity fell by 6.2% in 2009, mainly as a result of falling international demand for Mexican goods, growth rebound and reached 5.5% in 2010, 3.9% in 2011 and 2012, 1.07% in 2013 and 2.1% in 2014. In 2015, the growth rate forecast for the country is 2.6%. The slowdown in the last years is the result of a fall in the domestic demand caused by the slowdown in the construction sector and the slow pace of United States economy.

Monetary policy is responsible and efficient. Inflation is low and within the limits of the Central Bank target (+/- 3%), with an average monthly general inflation of 4.01% in 2014. Underlying inflation is very low, with an average monthly rate of 3.18% for the same period. The interbank interest rate target has been 3% since the beginning of 2015, with a more relaxed monetary policy given a resilient financial system against the US’ Quantitative Easing (QE).

Public finances are sound and the budget deficit is under control. In 2014, the Government increased the budget deficit 1.5% as counter cyclical measure to boost the economy in the short run. Even so, net public debt as a proportion of GDP in 2014 (42%) is low compared to international figures (UK (84%), US (81%), Spain (65%), etc.).

Recent volatility in emerging markets caused by the decision of US FED to continue QE policy brought a depreciation of several currencies. However, given its solid macro fundamentals and its level of reserves, the Mexican economy suffered less than others and the Central Bank maintained a relatively low interest rate.

International Reserves are currently around US$193bn and represent an important shield against exchange rate volatility. Current account deficits are more than compensated for by large capital account surpluses. This, added to huge reserves, prevents Mexico from suffering a balance of payments crises or a sudden stop.

Mexico has considerable growth potential, and Goldman Sachs has predicted that it could become the 7th largest economy in the World within the next 40 years. Mexico has many advantages, including a large, young workforce, a privileged geographical position for trade, and stable macroeconomic indicators.

3. Bribery and Corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.

In addition, a commercial organisation representing a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere. In 2014, Mexico was ranked 103 (ranked 105 in 2012 and 106 in 2013) out of 177 countries in the Transparency International’s corruption perception index (CPI). See the full report.

Bribery and corruption are a significant problem in Mexico and there have been high profile allegations involving the President and his inner circle. Government tendering guidelines are being strengthened to reduce the risk of corruption in the awarding of contracts, but this can lead to the lowest bid winning without consideration of quality and also there are of course loopholes that many exploit. Numerous British businesses report successful business operations in Mexico that are free of corrupt practices or at least have managed to find ways to avoid this preventing them doing business.

Mexico is modernising its legislation against corruption, most recently with the creation of the National Anticorruption System. There will now be one independent body with the authority to coordinate cross Government efforts against corruption. It will give the Superior Auditor´s Office the powers to run ‘real time’ audits and to monitor resources transferred from the federal government to states. The Ministry of Public Administration and Court for Administrative Justice will be strengthened; the latter will be entitled to sanction both government officials and companies involved in corruption. All public servants are also required to declare their assets and interests, although these will not be made public.

Mexico ranked 99th of 144 countries in the Irregular Payments and Bribes indicator of the 2014-2015 WEF Global Competitiveness Index. See full report.

It is important to develop close business relationships with your potential clients but this should not be confused with corruption. A Mexican business partner or agent will be well placed to advise you on normal business practice, as will UK companies already in the market. You should familiarise yourself with British bribery legislation which, since 2002, also applies to UK registered companies and UK nationals committing acts of bribery wholly outside the UK.

Visit the Business Anti-Corruption portal which provides a variety of advice and guidance about corruption in Mexico and some basic effective procedures you can establish to protect your company from them. Also read the information provided on the UK Government’s Bribery and corruption page

4. Rule of Law and Human Rights

Despite a number of initiatives to address security, justice and human rights problems, Mexico’s human rights situation remains of concern. Since 2006, the military has played a leading role in public security and there is a high rate of impunity for crimes including human rights violations. Out of 59 countries, the Global Impunity Index 2015 ranked Mexico as second to last in impunity after the Philippines. See full report.

The Mexican National Institute of Statistics and Geography estimates that in 2014 impunity reached 93.8% with the vast majority of crime either not reported or not investigated. In Mexico there is an average of four judges per 100,000 inhabitants in Mexico (below the global average of 17 per 100,000). 46% of Mexico’s prison’s population has not been sentenced.

Cases of torture, enforced disappearance and extrajudicial execution have been particularly high profile during the last year. Amnesty International’s 2014/2015 Report highlights that more than 22,000 people remained abducted, forcibly disappeared or missing. See full report.

Human rights defenders and journalists face violence and intimidation, in person and online. According to Freedom House 2015 Index, Mexico is partially free. See full report. There are high levels of violence against women.

Mexico has ratified 78 ILO conventions and 7 of the 8 fundamental labour rights conventions, most recently the Minimum Age Convention on 10 June 2015. It has not ratified the Right to Organise and Collective Bargaining Convention. The Mexican Constitution sets out rights to organise unions and strike, to a living wage and to an 8 hour work day. It also sets out the right to compensation following unjustified termination of employment and protections for women and children. Union leaders in Mexico are a powerful interest group with sometimes hereditary or purchasable access to well paying jobs and benefits. Because of this, workers can be vulnerable to a lack of meaningful representation.

In Mexico there are concerns with the violation of economic, social and cultural rights as a result of large scale commercial projects. Projects are taken forward without adequate consultation of communities that will be affected. These projects are mainly developed in rural areas and affect the livelihood of indigenous and farming communities. Discrimination and extreme levels of inequality also play a role in how these cases unfold.

There are estimated to be at least 36 conflicts related to mining in Mexico. Most of these are because of contamination, damage to communities and dispossession of land in areas with mining developments. At least 70% of the companies involved in these conflicts are foreign. Good practice for consulting communities about developments is being developed by a number of civil society organisations and the Mexican Government is developing public policy in line with the UN Guiding Principles on Business and Human Rights.

See reference to Mexico in the Foreign and Commonwealth Office’s Human Rights and Democracy Report.

5. Organised Crime and Terrorism

The Foreign Office Travel Advice for Mexico is regularly updated and should be your primary source of information on the security situation and organised crime in Mexico.

Mexico was ranked 144 (ranked 138 in 2014 and 133 in 2013) out of 162 countries in the 2015 Institute for Economics and Peace’s Global Peace Index. See full report.

Mexico continues to be engaged in a fight against drug-trafficking organisations. The government of President Peña Nieto eased off aggressive tactics against cartels in comparison to his predecessor. However, insecurity remains the top concern for most Mexicans. Security has come back to the top of the political agenda after 43 students disappeared in the state of Guerrero revealing that in some cases, local government structures are infiltrated by criminal organisations.

During President Peña Nieto’s presidency, a number of cartel kingpins have been arrested and more federal resources are being mobilised to tackle insecurity. Since the homicide rate reached its peak in 2011, it has steadily been reducing (although they are now rising again in 2015). The number of kidnaps and extortions has risen. However, criminal activity varies widely geographically. We recommend seeking specific advice for your business in order to minimise operating and security risks.

Mexico benefits from friendly relations with neighbouring countries which makes geopolitical risk very low. Furthermore, there is a low threat from terrorism in Mexico. You should also be aware of the global risk of indiscriminate terrorist attacks, which could be in public areas, including those frequented by expatriates and foreign travellers.

Read the information provided on our Terrorism threat.

6. Protective Security Advice

The Centre for the Protection of National Infrastructure also provides protective security advice to businesses

Business Disputes

The vast majority of British businesses have not been prevented from operating in Mexico by the security risks although many Mexican and foreign businesses choose to hire private security.

Travelling Around

Millionsof foreign visitors, including 424,860 British nationals visited Mexico in 2014. British nationals, safely visit Mexico each year and the UK is Mexico’s third largest provider of tourists. Most victims of crime and violence in Mexico are Mexicans involved in criminal activity, but the security situation also poses risks for foreigners. Be alert to the existence of street crime as well as more serious violent crime like robbery, assault and vehicle hijacking. In certain parts of Mexico you should take particular care to avoid being caught up in drug related violence between criminal groups. See Crime and Violence.

Seek advice from local contacts, avoid travel off the beaten track, stay abreast of media coverage of events in the areas, to or through which, you intend to travel, and ensure that trusted contacts are aware of your travel plans. Be aware of your surroundings at all times and of the risks of travelling to certain areas. You should include security measures in all of your travel plans and register on Facebook or follow us on Twitter @ukinmexico. There is no evidence to show British nationals will be specifically targeted, although there is a risk of being in the wrong place at the wrong time.

7. Intellectual Property

Scope of Mexico’s IPR Problem

Both Mexican and international companies claim loss of sales and weakening of brands due to counterfeit products, which the Mexican Government has recognised as an issue.

Despite federal government enforcement efforts, Intellectual Property Right (IPR) abuses across Mexico’s industrial sectors continue. Anti-piracy efforts remain particularly weak at state and municipal government level, and losses to Mexican and international companies due to trademark counterfeiting, copyright piracy, and patent infringements lie in the hundreds of millions of dollars annually. Lack of IPR protection can affect a wide range of industries including, but not exclusively; film, music, software, pharmaceutical, literature and the clothing and textile industries. Solutions to the problem are often difficult to implement due to lack of resource, lack of communication between law enforcement agencies, slow court systems and a lack of deterrent sentences, and insufficient planning and coordination among industry sectors and government agencies.

The protection of IPR is also further complicated by Mexico’s extensive poverty. Black markets provide a significant source of employment in the informal sector. Illegally reproduced goods, sold at a fraction of the cost of their legitimate counterparts, also give consumers with limited resources access to otherwise unattainable items. Some government leaders are reluctant to crack down on piracy out of fear that this could lead to social unrest - although the fact that this is recognised as an issue and needs to be addressed is in itself a positive step forward.

IPR Protection in Mexico

Under NAFTA and the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), Mexico is obliged to implement certain standards for the protection of intellectual property as well as procedures to address infringements such as piracy and counterfeiting.

The Attorney General’s Office (PGR) is responsible for investigating and prosecuting IPR crimes. The Mexican Institute of Industrial Property (IMPI) is the government agency responsible for administrative enforcement of IPR. However, Mexican IPR laws are often poorly understood by both law enforcement agencies and there is a lack of expertise in the court system. This can make taking cases through the legal system a long drawn out process which with it brings prohibitive costs.

Mexico has a comprehensive set of IPR laws and an increasing number of seizures and arrests, but even so, the extent of IPR violations in Mexico remains significant. It is unclear if this is because of insufficient enforcement measures but what is encouraging is that the Mexican authorities have recognised this as an issue and are looking into how their IP framework can be improved.

Trademarks

In April 2012, the Mexican Congress adhered to the Madrid Protocol of the World Intellectual Property Organisation, providing certainty for international companies looking to register their marks for use in Mexico. This was the first instance of a Central or South American country signing up to the protocol and is a big step forward in bringing Mexico in line with the international IP community. In December 2009, IMPI and INTERPOL started efforts alongside WIPO, ICC, INTA and OMA to address cross-border piracy trade. As a result, in 2011, the Mexican Customs Agency and the Mexican Industrial Property Institute (IMPI) launched a new trademark scheme to identify pirate products and facilitate customs procedures.

Software

In the same theme, IMPI the Mexican body responsible for protecting industrial property rights has signed agreements with the Business Software Alliance. In 2012 Mexico become the first government body in the world to earn BSA’s Certification in Standards-Based Software Asset Management for Organizations, a program known as CSS (O). The credential demonstrates the Mexican government’s commitment to promoting legal software use by implementing internationally recognized best practices for maintaining compliance with software licenses. See more here.

Enforcement efforts by the Mexican government are improving (see below), however level of piracy are still high, which it is claimed by industry sources, has resulted in closure of legitimate copyright-related businesses. Counterfeit sound and motion picture recordings are widely available throughout Mexico, where piracy has shifted from traditional formats to optical discs (CD, DVD, and CD-ROM) and internet piracy. Industry figures estimated that in 2011, the economic impact of piracy could result in losses of around $80,000 million USD.

More information can be found here International Intellectual Property Alliance.

For further UK Government guidance read the information provided on our Intellectual Property.

UK Trade & Investment Contact: Andrew Morris