Mexican Energy Reform Lowers Manufacturing Costs

Expanding to Mexico may become even easier for U.S. companies if the country passes legislation that would allow private businesses to enter into the Mexican energy market. According to Reuters, the Mexican government plans to alter parts of the constitution to provide room for private investment in its energy sector, which would result in reduced manufacturing costs for companies that choose to offshore their production process to the county. If the legislation becomes final, low cost manufacturing would receive a boost as energy resources become more available and prices decrease from more competition.

Proposal may expand manufacturing market
According to The Wall Street Journal, energy reform has been a long time coming for Mexico. Recently, the National Action Party (PAN) and the Party of the Democratic Revolution (PRD) met with government officials about the proposal. The WSJ reported both parties partnered with the Mexican government and the ruling Institutional Revolutionary Party (PRI) in December 2012 to sign the Pact for Mexico, which made it easier for energy reform legislation to be proposed.

While all three parties are in agreement that Mexico needs to reform its energy sector, introduction of the plan has been delayed. According to The WSJ, President Enrique Pena Nieto said the postponement was made to give the government additional time to gain support for the plan.

"I continue preparing the presentation of the energy reform that will spur the nation's development," Nieto wrote on his official Twitter account, which was confirmed by the president's press office. "I have decided to announce it next week."

Challenges to energy reform
Reuters reported that while the plan would double private investment in the country's energy industry, it would change aspects of Mexico's constitution that constrain private ownership in the country's oil supply. Opponents argue that the plan would boost the country's energy sector by only 1 or 2 percentage points, according to Reuters. The plan is part of Nieto's economic reform package, yet many opponents said it wouldn't work. Before Nieto took office, Bloomberg reported in July 2012 that opponents protested the idea of a larger energy industry within the county.

According to Reuters, Nieto recently stated that the reform wouldn't create production-sharing, which is one of the main concerns of the plan's opponents.

"The reform neither promotes nor contemplates production-sharing contracts," Nieto said in a televised address. "What it seeks to do is reach profit-sharing contracts which allow the nation to keep total control over the oil."

If the energy reform proposal does pass, manufacturers may see costs drop even more as oil and gas prices decrease. The plan may allow for additional growth in the production sector as more U.S. businesses choose to offshore their production process to Mexico and increase their output. Not only does the plan hope to boost the energy sector, but the manufacturing one as well.