There is a rising star in Latin America. And it is not the a member of the BRICs, but Mexico.
Mexico has received consisten attention regarding its security challenges, but things have started to change over the past few months. In August, Nomura published a report that forecast Mexico would become Latin America’s number-one economy by 2022, stating that “the recent relative outperformance of the Mexican economy to Brazil could prove to be long lasting."
That’s a controversial argument when considering Brazil’s explosive growth during the past years. While its recent economic performance has been weak, this does not imply that South America’s giant will not be able to recover. Or does it?
Brazil’s rapid economic growth was not only due to a favorable macroeconomic outlook and the timely implementation of much-needed reforms, but also, and more importantly, to China’s insatiable appetite for natural resources. The Chinese government has been progressively increasing its presence in foreign markets to guarantee a steady supply of resources, especially energy. This is critical for the Chinese Communist Party, as its legitimacy rests on providing good economic prospects to its population.
Mexico’s successful deep-water drilling of wells “Trion-1” (August 29) and “Supremus-1” (October 5) in the northwestern Gulf of Mexico has caused national euphoria. It has shown the country’s considerable oil potential and revamped public confidence in state-owned company Pemex (Petróleos Mexicanos), whose reputation had dwindled for the past years following a decrease in production, corruption scandals, an inability to stop criminal groups from stealing oil, and drilling failures.
The news has brought a much needed respite for President Felipe Calderón, helping him to balance a record that has been severely undermined over the past years due to his security strategy and the situation of the economy. In fact, the drilling of both wells would have turned into ammunition for his detractors had there not been any positive results, as it follows a 528-percent increase in investment for exploration. Now, however, the outgoing administration has had no qualms in affirming that the discovery may be part of an oil system with an overall production potential of up to 10 billion barrels of oil.
Yet, what has become a “golden egg” for President Calderón may quickly rot for President-elect Enrique Peña Nieto.
The high expectations produced by the discovery will be difficult to achieve due to Pemex’s lack of technological capabilities and the prohibitive cost of deep-water drilling. Indeed, it would be a mistake to take the successful drilling of the aforementioned wells as a sign that Pemex has recovered from decades of managerial excesses, corruption, vested interests, inefficient populist policies, and discretionary policy-making.
The negative effect of these factors, along with the government’s dependence on oil exports for revenue, have resulted in a severe decrease in Pemex’s efficiency.