As Mexico’s first woman president and first leader of Jewish heritage, Claudia Sheinbaum Pardo is breaking new ground. But for international business investors, her close association with her mentor, outgoing populist president Andrés Manuel López Obrador, threatens to be a barrier to needed reform. S-RM Americas associate director Felix Cook examines the challenges and opportunities the new administration represents for international businesses operating and investing in Mexico.
If politics is the art of conceiving positions, holding to them, and driving them forward, Andrés Manuel López Obrador leaves office as the most successful Mexican president of modern times. Universally known as AMLO, he has been a charismatic and controversial national politician for over three decades. After AMLO’s first run for president in 2006 was narrowly defeated amid widespread electoral fraud, a second defeat in 2012 led him to found a new political movement, Morena, built around his personal blend of socialism, populism, and nationalist rhetoric. Elected in a landslide in 2018, his administration oversaw labor reforms, minimum wage hikes, and welfare expansion that led to meaningful reductions in poverty and income inequality, while his willingness to publicly spar with the United States, international business, and domestic elites delighted his working class base. For critics, AMLO’s domestic programs came at the cost of ballooning deficits, stalled foreign investment, and faltering rule of law. In Morena’s dominance and AMLO’s attacks on ‘elites,’ they see an authoritarian ambition to return Mexico to its past as a one-party state. With AMLO’s transfer of power to his chosen successor, Claudia Sheinbaum, international investors are watching closely to see if the new president will distance herself from the more contentious aspects of AMLO’s legacy and better capitalize upon Mexico’s structural opportunities.
Packing the courts?
Characteristically dismissive of convention, AMLO used his lame duck period to force through contentious reforms of Mexico’s courts. Under the legislation, all of Mexico’s judges will now be elected by popular vote, which AMLO argued would increase the accountability of a judiciary plagued by corruption. His critics denounced the move as an assault on judicial independence, replacing expert judges with Morena apparatchiks. AMLO’s reforms also eliminated mechanisms by which plaintiffs could suspend the application of laws pending judicial review. For businesses investing in Mexico, these changes add additional risk to an already opaque and convoluted legal landscape, increasing the possibility that judicial proceedings may be influenced by the government or third parties, including organized criminal groups. Key sectors for foreign investment, such as mining and energy, may be particularly affected by this erosion of checks and balances. Earlier this year, Mexico’s supreme court blocked AMLO’s proposed reforms of the electricity sector, finding them to be unfair, anticompetitive, and potentially in violation of the US-Mexico-Canada (USMCA) trade treaty. An elected court, beholden to Morena’s populist agenda, may now vote to approve these reforms and similar programs in future. Elected courts are also likely to be more hostile to foreign investors in labor and land disputes. Even where interference is not a concern, complex commercial litigation may now be decided by less qualified and experienced judges.
For businesses investing in Mexico, these changes add additional risk to an already opaque and convoluted legal landscape.”
Challenges and opportunity
In his final days in office, AMLO offered a forceful defense of his reforms, assailing “corrupt judges” and foreign companies that “loot and rob” Mexico. Many of those foreign companies are voting with their feet, with the Wall Street Journal reporting that USD 35 billion in international investment has been shelved since the reforms were announced. It is an unwelcome development for the wider Mexican economy, which has struggled to recover from a sharp contraction during the global COVID-19 pandemic. At the same time, the pandemic has also created opportunity for Mexico, as US firms look to ‘nearshore’ their operations to reduce risk and complexity in their global supply chains. In May 2024, a Deloitte study found that Mexico would double its level of foreign investment if it could capture just 15 percent of the foreign capital currently being withdrawn from China. Mexico’s tax and trade agreements with 50 countries, including the USMCA, make it an attractive option for nearshoring, but to fully take advantage of these trends, the Sheinbaum administration will not only need to reassure international investors that Mexico’s courts remain competent and impartial, but also make progress on long-term challenges unresolved under AMLO, including combatting cartel violence, addressing water scarcity, and renewing crumbling port and energy infrastructure.
An unknown new president
Sheinbaum is a pioneer as Mexico’s first woman and Jewish president, but the path of her ascent through the Mexican political machine has been more traditional. A longtime AMLO protégée, she first worked for the former president during his mayorship of Mexico City, following him into Morena, and serving as Mexico City mayor herself from 2018 to 2023. During the most recent election, Sheinbaum and AMLO frequently campaigned together, to the extent that opponents accused her of being merely a figurehead for his ongoing agenda. Despite winning a landslide victory, Sheinbaum’s own priorities remain largely opaque. International investors will hope that Sheinbaum, a scientist by education, brings a less combative and more data-driven approach to business issues. At her inauguration, Sheinbaum promised that “investments of national and foreign shareholders will be safe” in Mexico, and pledged to respect the independence of the judiciary and central bank. Her appointment of respected economist Rogelio Ramírez de la O as her finance secretary was positively received by those hoping to see more fiscal prudence from the government. Markets and investors will be looking to Sheinbaum’s first budget, due in November, for targeted investment in key areas such as security, and more business-friendly policy and regulation. In the long term, the renegotiation of the USMCA in 2026 offers Sheinbaum the opportunity to put her own stamp on the fraught but vital topic of US-Mexico trade.
International investors will hope that Sheinbaum, a scientist by education, brings a less combative and more data-driven approach to business issues.’’
Conclusion
In the medium term, the outlook for international investors in Mexico is likely to remain uncertain. Business must adapt to the recent judicial changes, and keep watch as Sheinbaum’s government establishes itself and the US goes through its own presidential transition. This itself will have implications for US-Mexico relations, particularly if Donald Trump – who has threatened to bomb Mexican cartels and impose fresh tariffs on Mexican goods – regains the White House. Following AMLO’s changes to the Mexican courts, foreign investors may be increasingly reliant on expensive arbitration under international investment treaties. With inconsistency likely to define the legal landscape, in-country knowledge, comprehensive due diligence, and expert disputes and investigations support will be more vital than ever to businesses operating in Mexico. In the longer term, a more technocratic approach from Sheinbaum may increase investor confidence, and unlock the potential of nearshoring to strengthen Mexico’s economic growth and development.
