• The fat bottom lines of some of the country’s biggest companies suggest you can ignore the howls set off by President Andres Manuel López Obrador’s recent takeover of a billionaire’s railway concession.

By Eduardo Porter

Mexico’s business community apparently freaked out following the Mexican navy’s seizure last month of 75 miles of railway in the state of Veracruz operated under a government concession by billionaire Germán Larrea’s Grupo México.

Soldiers in camouflage swarming a private railroad will inevitably bring back memories from Latin America’s military-heavy, expropriation-friendly past – the kind of imagery that can give investment bankers on Wall Street a bad day.

But there is a risk of reading too much history into what, once the excitement dies down, is less the expression of a sweeping ideology of the left than a ham-fisted variation of a regular tactic deployed by President Andrés Manuel López Obrador in the service of some narrow, immediate objective.

While the show of muscle to disrupt this or that corporate business plan to further some government goal is a shoddy way to do policy, it’s not like Fidel Castro taking over the Cuban assets of North American Sugar Industries. One thing the Mexican president has not done is to stop businesses – especially Big Businesses – from making money. They are making lots.

Take Grupo Mexico Transportes, whose chunk of railroad was taken over to serve López Obrador’s vision of a railway across the Isthmus of Tehuantepec to connect the Atlantic and Pacific oceans and spur economic growth in Mexico’s impoverished south. Its revenue rose nearly 8% in the first quarter of the year, compared with the first three months of 2022. Earnings before interest, depreciation, taxes and amortization hit a record 48.1% of sales.

Beyond trains, the consolidated revenues of 48 nonfinancial Mexican firms tracked by GBM Research increased 6.6% in the first quarter compared to a year before. They rose 15% in the transportation sector, 12% at consumer goods firms and almost 8% at building materials companies.

One can go on. Mexican revenues of multinational bakery Bimbo rose nearly 20%, faster than they grew in Europe, Latin America or the US and Canada. Banks? Forget about it. The net income of Grupo Financiero Banorte was up over 46%. At Inbursa it was up over 30%. “Who is the victim of this administration?” asked Mario Delgado, who heads López Obrador’s Morena party. “There is no businessman that has done badly. Among big business, you won’t find one.”

The Mexican peso shuddered following the railway seizure only to resume the upward drift it has experienced since the middle of last year. The Mexican stock market fell some 4% in the first three days after the takeover. But it recovered half the loss in the next four.

Fact is, there is a lot of smoke to the Mexican administration. And lots of mirrors, too.

The image of a left-wing firebrand eager to bring neoliberalism to heel serves López Obrador’s political agenda, burnishing his reputation as the hero in a death struggle with a corrupt ruling elite. And yet his liberal credentials are, for the most part, pretty solid.

“Everything is directed to serve a narrative,” said Guillermo Ortiz, who served as finance minister in the government of Ernesto Zedillo in the 1990s. “For all his criticism of neoliberals he has preserved neoliberals’ framework in fiscal and monetary policy and Mexican trade policy is the same as it was.”

The president framed a fight against Spanish energy company Iberdrola as resistance to Spanish colonialism. He proposed slashing the duration of mining concessions – from 50 to 15 years – arguing that mining companies were destroying ecosystems and polluting entire regions with “the complicity of governments” of the “neoliberal period.”

And he justified seizing the railway as a natural response to an intransigent oligarch who probably got a sweet deal from the Zedillo government to run 7,500 miles of government-owned railways, of which he now wants just 75 back. “Let’s do an audit” of the railway deals back in the day, he threatened, though adding: “revenge is not my strong suit.”

Indeed. Once López Obrador has scored his political points, he usually makes a deal to soften the blow. In the end, he just trimmed the length of mining concessions to 30 years. He offered a $6 billion deal to buy a bunch of power plants from Iberdrola. And he extended a different Grupo Mexico rail concession, from the Isthmus to the port of Veracruz, by eight years. “He throws a bomb, people freak out and he deactivates it,” Ortiz said. “And everybody is happy.”

Perhaps most bizarrely for a president promising to fight for the poor and put an end to an era in which powerful economic interests held sway over the public sphere, he has refused to raise business taxes.

This is clearly not to say that AMLO’s idiosyncratic policymaking is good for Mexico. The $6 billion spent on Iberdrola’s mostly fossil fuel power plants didn’t add a single watt to the generation capacity of a country in dire need of clean power. His Dos Bocas oil refinery will end up costing twice as much as what he originally announced. He wasted multiple billions by nixing a halfway-built new airport for Mexico City to build another one that no airline wants to use.

This doesn’t include the cost, economic and social, of dismantling Mexico’s public institutions in order to fund López Obrador’s preferred social programs without raising much in the way of additional tax revenues. Nor does it capture the hard-to-measure losses from deterring companies that might otherwise be eager to invest in Mexico and squandering an opportunity offered by the rising hostility between China and the US.

And yet despite the damage, perhaps the business class is a bit too quick to lament its misfortune. Its distaste for López Obrador flows not from his policies but from his rhetoric and demeanor. As the Mexican political commentator Javier Tello points out, “he hasn’t touched them, but he won’t pick up the phone when they call.” They seem less harmed than offended.

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Eduardo Porter is a Bloomberg Opinion columnist covering Latin America, US economic policy and immigration. He is the author of “American Poison: How Racial Hostility Destroyed Our Promise” and “The Price of Everything: Finding Method in the Madness of What Things Cost.” Energiesnet.com does not necessarily share these views.

Editor’s Note: This article was originally published by Bloomberg Opinion, on June 6, 2023. All comments posted and published on EnergiesNet.com, do not reflect either for or against the opinion expressed in the comment as an endorsement of EnergiesNet.com or Petroleumworld.

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energiesnet.com  06 14 2022