Will an End to Pemex’s Monopoly Boost Economic Growth in Mexico?

The board members at Petroleos Mexicanos (Pemex), the state-run oil company of Mexico, have agreed that their company’s monopoly on oil production in the country must be ended in order to attract investment and see more development of new fields.

Mexico’s oil output volumes have been declining for eight straight years and it has been suggested that large reforms are needed to lure foreign investment to the nation’s oil and natural gas fields. The necessary changes are expected to be introduced by President Enrique Pena Nieto by the end of the summer, and it is estimated that they will encourage as much as $50 billion in investments each year.

Hector Moreira, who used to work in Mexico’s Energy Ministry, said; “we need far more investment, we need capacity in production and we need technology. We need to transform the energy sector in a very deep way. I think now is the time.”

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Mexico’s economic growth has been slowing in recent years, and this is putting pressure on Pena Nieto to make changes that will stimulate more growth. According to Bloomberg, Barclays predicts the economy to grow by 2.5% in 2013, the slowest rate since 2009, and JPMorgan predict GDP to increase by 2.8%. the country’s annual growth of 1.7% over the last five years is half the rate of Brazil.

Gabriel Casillas, the chief economist for Mexico’s Banorte, stated that “this administration doesn’t only have the willingness, but the political power and political capital” to make the needed changes that could ultimately result in faster economic growth, and a stronger currency.

Energy industry reforms, and changes to the tax laws are expected to boost growth to 6% if approved, although Eduardo Cepeda, the head of JPMorgan in Mexico warns that a failure to enact the reforms this year could see the national stock market fall by 10%.

By. Joao Peixe of Oilprice.com