By Bryan Livingston
Managing Partner and CEO
The United States-Mexico-Canada Agreement (USMCA), which replaces the North American Free Trade Agreement (NAFTA), should stimulate trade between Mexico, the United States and Canada and increase cross-border energy investment and M&A activity.
The new trade agreement, signed by all three countries in November, improves and enhances what was in NAFTA. It includes updates related to technology and requires better labor conditions and higher wages for maquiladora workers along Mexico’s border, among other things.
Although USMCA doesn’t specifically contain an energy chapter, we believe the new trade agreement will facilitate cross-border energy investment, especially U.S. oil & gas investments in Mexico.
Mexico implemented a pro-active energy reform plan under former President Enrique Peña Nieto, which Andrés Manuel López Obrador (AMLO) has promised to continue, but there must be substantial foreign capital available for Mexico to implement its energy reforms.
The USMCA establishes an environment of growth that should create better economic conditions and more certainty for investors who want to put their money to work in Mexico.
Direct foreign investments in Mexico will also benefit the country of origination, which in many cases will be the U.S. energy sector. We think the trade deal could benefit renewable generation investments and natural gas-fired generation investments in Mexico, as well as oil & gas investments in Canada. At the minimum, we believe the new trade deal will have a neutral effect on investments flowing into those two countries.
The trilateral agreement won’t take effect until the first day of the third month after all three countries complete their respective implementation requirements, which may not occur until later this year or 2020.
Even though the trade deal hasn’t yet been ratified, it is already giving many investors the confidence to move forward on potential cross-border business deals.
Capital Alliance Corporation is a Dallas-based investment banking firm with a four-decade history, and deep operational and M&A experience across many sectors, including energy. Capital Alliance is affiliated with Oaklins International, the world’s most experienced mid-market M&A advisor, with 800 professionals globally and dedicated industry teams in 40 countries worldwide. We have closed over 1,500 transactions in the past five years.