Waking tiger, roaring cub: the effect of reform in Mexico

The Mexican economy is much like a slumbering tiger. Sedated for many years by violence, corruption, and monopolies, it’s been woken recently by the unfamiliar noise of a reformist government shaking things up. Still somewhat groggy, having slept for too long, the tiger can smell change.

If the Mexican economy is a tiger then the country’s consulting market is arguably its gently purring cub: worth $550m in 2013 it’s growing slightly faster than the rest of the economy, though by no more than about 2%, and seeing healthy demand across all services.

At any minute, though, we expect the cub to roar for the first time. That’s because unprecedented reforms are reshaping politics and economics in Mexico to accelerate modernisation, and no institution is deemed too big for the government to take on. People who have built empires in the energy, telecoms, media and financial services industries have found themselves subject to sweeping reform, with one idea behind it all: increasing competition.

Competition is something that has been singularly absent from the Mexican economy. The situation was so bad that in 2009 the World Bank even wrote a book about it called ‘No growth without equity?’, arguing that Mexico was in essence a closed economy, ruled by a small number of monopolies. Perhaps the new president read this book, which used the oil and telecom industries as case studies, and thought, “May as well start with the big guys.”  Pemex, the state oil company unchallenged by any competition since the 1930s, will have to share a small part of the known oil reserves, but importantly, is only entitled to 21% of possible reserves. This throws the market wide open to new players, and it’s expected that private investment in the oil industry will bring $50bn to the economy in the next three years alone. Likewise, telecoms tycoon Carlos Slim will now need to bring the market share of America Movil down to below 50% to allow other companies a chance to compete.

The break-up of monopolies and the push for greater competition will have consultants’ phones ringing for the full spectrum of consulting services, from improving creaking operations and outdated technology, to divestment advice and market entry strategies. Consultants may not see a huge uptick in 2014 while the detail of reform is still fleshed out, but if the government succeeds in pulling its plans off and competition becomes a reality, the cat will certainly be out of the bag for the country’s consulting industry.