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Legal expert looks at the impact of Mexico’s reforms

Interview - March 9, 2016

A partner at one of the most prestigious law firms in Mexico, Yves Hayaux-du-Tilly takes a look at the impact the country’s reform programs – especially in the energy sector – are having and explains how a local partner, such as Nader Hayaux & Goebel, can help both local and foreign investors looking at doing business in Mexico.


How do you view the structural reforms of the current administration of Mr. Peña Nieto, in telecoms, education, tax, energy, etc., and how is the legislative effort favoring better performance in Mexico’s economy compared to other economies in the region?

Mexico is not a new player in the global environment. While structural reforms are extremely important, they do not change the essence of the country. Mexico began its economic opening in 1986 with its entry into the GATT, then the WTO. It was then that it began the process of liberalizing its economy.

When I started working as a lawyer in 1991, Mexico was a different country. In fact, corporate offices such as Nader, Hayaux & Goebel are a product of the economic opening up of Mexico. Previously, foreign investment was restricted. For example, in 1993 the Foreign Investment Law allowed foreign investment up to 49% in the financial sector, which was key to the beginning of this liberalization movement, and extremely important for Mexico.

Then it continued. The North American Free Trade Agreement (NAFTA) has created the most economically dynamic region in the world, obviously with our main trading partner, the USA, the world’s largest economy. This has been an extraordinary opportunity for Mexico because it has allowed us to benefit from an extremely large market, and integrate this region.

In the 1980s nothing but local things got here. The opening up has been brutal and the domestic industry has suffered, but now we are fully integrated into a global economy. We are one of the countries with free trade agreements, creating a sales network economy of more than 44 countries. Now, the important thing is what you do with them and how you make the most of them, and here we still have much to do. The backbone is the North American Free Trade Agreement.

At that time there were certain reforms that were not carried out, mainly political reform. Unfortunately then came the crisis of 1994, among other things, to affect the economic liberalization of Mexico. In the financial sector, for example, increased participation was limited and subject to stages, and market share limits, to protect the domestic industry.

Before the 1994 financial crisis, Mexico had to accelerate that process, hence BBVA, Banco Santander and Citi, arrived to rescue the Mexican financial system. What happened in 2008 in the world happened in Mexico in 1994. It was a severe crisis. Mexico went ahead. There were brutal austerity measures. The crisis of 2008 tested the strength of our financial system.

Now, certain reforms were pending. The energy reform is clearly one of them. At the Oil & Money conference a couple of years ago in London, the comments of the oil industry were that anything can happen in the energy sector; it is an industry where anything can happen and it surprises you every day; and that the opening up of the energy sector in Mexico is the biggest example. No one could have imagined the extent of the reform. In fact, the first draft of reforms Congress passed with the President was very discreet.

These reforms are an additional step to finishing something that had not been completed, allowing private and foreign investors to participate in this sector.

The education reform is crucial. In my opinion it is the most important of all the reforms. And there is still much work to do and will take time to evolve and transition Mexico into a country of knowledge and innovation.

The telecoms reform was very good because it gave a clear signal that competition in telecommunications is encouraged. To reform the system, economic competition is very important.

Now we are in an era of implementation. There are reforms that are being put in place faster than others – and in a very complex global environment in which Mexico continues to consolidate as an economy, that gives certainty, because it is a country that has already opened up to foreign investment many years ago. Foreign investors have been doing business here for 25 years. We are likewise at a time when we need to refine the rules.

As for the financial reform, which is looking to reactivate credit, it is still too early to confirm whether this reform will achieve its objective. I see what is happening in the world as more interesting than the reform itself. The evolution of Fintech for example will be much more beneficial for the country’s financial reform: crowd-funding, online platforms, business to business – they are transforming economies more quickly than governments can do through reforms.


Mexico has an open and friendly legal framework, and when foreign investors come to do business they are treated as if they were Mexican. What else is needed?

President Enrique Peña Nieto clearly did something no one imagined he would be able to do, and passed his structural reform agenda. Surprisingly, I think within 16 months he had passed most of the reforms that had been raised. Now we have to see how these reforms are to be transformed into economic growth, investment, more jobs and economic benefits that reach across the country and reduce the great inequalities.


I guess the success or failure of the energy reform will really be seen if all Mexicans have cash in their pocket. What would be, from a regulatory point of view, the main challenges of this reform right now?

It is being applied in a flawless manner. The government is reacting very quickly and refining the processes. We just represented one of the participants in round 1 and our customer has won in most of the field. It was quite easy to understand the process; it is quite friendly to investors.

There will be challenges, but they will be practical challenges of community outreach, and technical hazards. Non-technical risks are what our customers are more concerned with addressing. And it’s not reform that is needed; you need to have good advisors and a full commitment. From the government’s the point of view, simply ensure that the rule of law is respected in the implementation of projects. We will see how that unfolds, with new investments, new projects...


How can partners like NHG benefit the entry of players willing to participate in the opening of Mexico’s energy market?

First of all you have to have technical knowledge. In other words, you have to understand the rules of the game. You must be able to explain to your customers and give them the reassurance and certainty of how you have to prepare to face whatever comes. It would be unfair to think that we are the ones who win the tender, because with all humility I recognize that there is an element of luck that our customers have won. We are fortunate that our customers have been those who had the winning positions.

The work is the same, we work just as hard. In the case of Nader, Hayaux & Goebel, we are studying, understanding and visualizing how the laws will be put into practice since before the reform came out. We have been very close to the authorities to understand their vision and how they are implementing the legal and regulatory framework. We have been helping our customers resolve their worries and concerns.

We have been very actively telling the world what is involved in the reform and how to understand it both at conferences or with customers who want to have strategic information to make decisions. We certainly have a lot to learn and we are studying it a lot. Humbly recognize that, as a new market for foreign investment, we do not know everything. We have the discipline to keep studying and openness to learn from our customers; clients who trust us and allow us to learn.


What is most important at this time, not only for investors but for customers that you already have in Mexico, to understand about the Mexican energy sector or understand Mexico itself?

We help them understand Mexico, but not only that, but we help them do business in Mexico. Especially in the energy sector; we really are experts and I have been doing this all my life. We help them to move, to understand the environment and all the complexity it entails. These are complex projects. They require understanding various legal matters such as the ownership of the land, ways to partner, how to protect against possible inconvenient situations for your business, and how to ensure secure financing. We do not like to be too optimistic; we must be objective and realistic and help our clients identify opportunities and what the law allows. Those who want to be successful here, they will have really to understand Mexico.


The United States is the largest investor in Mexico. What is the relationship between the office and US investors?

Many who are going to make Mexico’s energy reform a reality are in Texas. There is a close relationship between Texas and Mexico. The energy reform will benefit the triangle of the northeast of Mexico, Texas and New Orleans: that whole area has oil. There will be large companies participating; but there is also going to be, gradually, greater participation of small investors.

MX Oil is in a consortium with Geo Strata, a company that has been working for many years with Pemex and knows Mexico very well. Here we have a company listed on the AIM Market in London in partnership with a Mexican partner, who knows the country, who has worked extensively with Pemex


How will the energy reform be an opportunity to benefit the whole country in all areas, beyond infrastructure and industry?

On the one side is Pemex, which holds all the talent, which is the people who have worked in the sector over the years. And on the other side are the new companies who will have to hire talent. Or they will bring it from Houston or they will bring Venezuela, Colombia, Aberdeen or Spain. There are many people looking for opportunities as well.

Pemex is reaching cooperation agreements with many universities in the world for personnel training. I see the education sector in Mexico as slow; but it is moving. We see universities offering technical petroleum engineer courses and considering opening oil-centric campuses in Tabasco and other areas.

In the development of social infrastructure, it will open up many opportunities. The virtuous circle is to put money in the pockets of Mexicans, create jobs, (which should be the number one priority), increase consumption and the economy will grow.

For the economy to grow we need to export more, get more foreign investment and have more consumption. They are the only three ways to grow. Here you have the advantage that the energy reform can generate all three. Because if you have higher salaries and jobs, consumption increases; if you have more foreign direct investment, that will grow the economy. That is where energy reform will have a major impact on the price of electricity, which is one of the most significant costs of the manufacturing industry, which will make the sector more competitive. It is very good and virtuous circle. However, we must be patient as it will take several years to see results


Without legal certainty as, for example, in Venezuela, it makes it complicated for a person to venture and invest. How do you see this scenario? Can we really ensure that Mexico offers full guarantees to those investors or potential international partners who want to invest in Mexico?

In the case of large infrastructure projects in energy and the world of multinational companies, we have a system that works extremely well. We’ve been seeing foreign direct investment in them for 25 years. Overall there has been greater dissatisfaction in resolving conflicts when they have arisen. I could not answer with the same certainty at the local level. There have been companies that have initiated arbitration proceedings against the Mexican government with favorable results. At these levels, things have worked and the government has responded.


What does it mean to you to have the responsibility and commitment to helping people in Mexico?

Our responsibility as professionals and lawyers is to solve the problems of our customers and help them succeed in their business. I have done this continuously for 25 years and it has enabled us to achieve what we have achieved and become who we are. We are certainly grateful to our country that has given us so much and made us who we are. If our country were not so noble and had so much to offer, we would not have the opportunity to serve our customers and to help them.

But at the same time we thank our clients, who trust us to help them navigate the complexities of Mexico. It is a great responsibility and a great privilege. For us that’s what we like to do, and we want the people who work in this office to feel the same as us. All the time we are thinking about how to help our clients achieve the success they seek. We are convinced that through what we have done over all these years, we have greatly benefited the people of this country, through job creation, through attracting foreign investment, through increasing the country’s exports. That is our role in society and we will continue doing it so our country and the people who live in it will continue progressing and we all do better.