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Fox: Energy is the key to Mexico’s growth

Former Mexican President Vicente Fox scored a historic presidential victory in 2000, bringing the National Action Party to power and ending 71 years of uninterrupted rule by the Institutional Revolutionary Party. Ahead of his appearance at our Global Summit 2017, Fox explains how Mexico’s energy reform can end decades of low growth and what the country can do to protect itself from a trade war with the US.

Q: What are you most proud of during your time in office? And conversely, what do you wish you had been able to achieve?

VF: One of the key achievements [of my administration] was putting an end to the profound and repeated crises affecting Mexico's economy, which had to do with record rates of inflation, huge debt and huge interest rates. At the end of my term, we decreased interest rates from 16 to 9 percent. We also aligned the fundamental variables of Mexico's economy with the US's and since then we have not had repeated crises or devaluation.

Secondly, we were the only administration in Mexico to reduce poverty [by 35 percent] during our six-year term and we recorded the strongest increase in the middle class. Thirdly, we improved financing conditions for businesses and private individuals, extending loan terms provided by Mexican and international banks from seven to 10 years. And we vastly expanded the population's access to healthcare.

I don't feel particularly bad about anything [we didn't accomplish] because in the end you can only do so much in six years.

Q: The World Bank expects Mexican GDP growth to have weakened to 2 percent in 2016 and highlights the economy is now fully dependent on private consumption for growth. It points out that weak investment and export demand – in addition to falling oil revenues – are driving this decrease. What needs to happen to boost economic growth?

VF: Mexican growth has averaged around 2 percent a year for the last 30 years or more, so something is clearly not working well. I do think that the energy reform that was achieved in President Enrique Peña Nieto's administration is the key for Mexico to start growing at a faster rate. Unfortunately, this energy reform came at a time when the oil price declined from $100 a barrel down to $20. We are now back to around $45 a barrel, but that is limiting the accomplishments of the energy reform.

However, we also need to tackle the problem of drugs and violence. The cartels are a huge problem in Mexico. We need to legalise drugs. This needs to be done responsibly, but the state is not able to stop drug consumption. We've been trying for the last 50 years and drug consumption has only been growing worldwide.

And corruption is another big concern all over Mexico, because it is eating away at the fabric of our nation.

Q: Are you happy with the implementation of 2014's energy reform?

VF: The move from a monopoly to an open market in energy is moving at a good pace. The government has transferred assets from Pemex into private hands in 18 months and we have already reaped big advantages. Today, global oil and energy corporations are, for the first time, working in the Gulf of Mexico – there's drilling along the entire coast of Mexico – and we are building pipelines to import gas from Texas and to channel our own gas production.

But we are not moving at the same pace to build the new ports that we need to import raw materials from Asia for our manufacturers, or to ship products to the US market. And we need roads and rail in addition to ports.

Energy and infrastructure have to move at the same place [but] all sectors – manufacturing, agriculture and so on – need energy. Manufacturing is a good example. We have the most competitive manufacturing cluster in the world right now – as large as all of Latin America's manufacturing clusters put together. We have become very productive and competitive, which is what [US President] Donald Trump is complaining about, but to further expand that manufacturing cluster, you need energy. And [to develop] energy you need infrastructure – pipelines, general infrastructure for fracking, as well as roads and hotels. But again, the drop in the oil price and the 2008 financial crisis have reduced the speed with which we can develop [our] energy [resources] and expand our manufacturing cluster.

Q: Speaking of President Trump, you've been an outspoken critic of some of his policies. Given his protectionist views, how do you think the Mexican economy will fare if, for example, tariffs for imports are put in place?

VF: Unfortunately, President Trump doesn't seem to have any fundamental knowledge of how the world economy works and what international trade is about. Putting the US behind a wall and imposing taxes and tariffs on imports is the most negative idea you can bring to a global world. I think the US will fall behind and will not be competitive enough to force corporations to manufacture in the country.

For example, just five years ago, the three main automobile corporations in the US – General Motors, Chrysler and Ford – had to be rescued with taxpayers' money. This President now proposes to force those corporations to manufacture in the US. He is absolutely ignorant of how manufacturing jobs are being lost. It is technology and automation that are reducing manufacturing jobs, not auto investment in Mexico, which is boosting the competitiveness of these corporations.

Yes, we are highly interconnected with the US at all levels. We have, for years, built this great partnership between our two countries. So in the end, we will all lose. If there is a trade war because of NAFTA [the North America Free Trade Agreement], Mexico, the US and Canada will lose. If there is a trade war with China, both countries will lose. Also, Trump doesn't understand that NAFTA has created hundreds of thousands of jobs in the US – same as it did in Mexico and in Canada.

Q: But given that Mexico exports north of $500 billion to the US, what can you do to counteract these potentially detrimental measures?

VF: It depends on Trump. We are prepared to negotiate constructively with the US, but we are also ready to defend our sovereignty and our nation. We have partners and trade agreements all over the world so we will find our path, if need be. If he wants to reduce US leadership in the world, so be it, but Trump cannot be allowed to provoke crises around the world.

Q: Finally, what advice would you give to a first-time investor eyeing Mexican infrastructure?

VF: There are big infrastructure opportunities in Mexico, generating great returns. So come in, explore the market, talk to the authorities, look at our infrastructure programme [and] the areas where we need that infrastructure. We are one of the 10 largest consumer economies in the world. Mexico is a big market, closely linked with the US and Canada, so it's a great place to do business and invest in.

*President Fox will be a keynote speaker at our Emerging Markets Forum 2017, part of Infrastructure Investor's Global Summit 2017, to be held at the Hilton Hotel, in Berlin, on 20-23 March.