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Mexico has attracted lively interest in the wake of a trend to diversify supply chains away from China, but recent moves by President Lopez Obrador are likely to stir second thoughts among would-be investors.

He ordered the seizure of some 120km of a private railway and confiscation of private land to build commuter train stations for a line to Felipe Angeles International Airport, to be the prime gateway for freighters serving the Mexican capital.

Mexican military showed up this month in the state of Veracruz to take over the facilities of freight rail company Ferrosur on the 120km stretch of track, which the administration had decreed to be of public utility and was transferring it to a government entity tasked with building a rail line to connect the Pacific with the Gulf of Mexico on a narrow isthmus.

The plan to bolster freight and passenger traffic between the coasts is a pet project of the president and, according to one report, the rail line will eventually be operated by the Mexican navy.

The Ferrosur concession is held by Grupo Mexico, a $13.9bn conglomerate that oversees one of the world’s largest copper mining groups. Its owner, billionaire German Larrea, is seeking compensation from the government. The president told a press briefing that when he had discussed a possible sale of the line, the tycoon asked for MP9.5bn ($531m). He added that a valuation process would determine what should be paid to Grupo Mexico.

The seizure of the track appears to have derailed Mr Larrea’s bid to acquire the Mexican retail banking arm of Citigroup. Reportedly the reclusive tycoon concluded that pursing this would be too risky in light of what happened with the Ferrosur concession.

Three days after the expropriation of the rail line, Mr Lopez Obrador struck again, seizing privately owned land in three communities for commuter train stations. This presidential order followed a request from Mexico’s Infrastructure, Communications & Transportation Ministry, which is tasked with securing connectivity to Felipe Angeles Airport.

It is one of the three airports designated to handle air transport service to Mexico City and is the prime choice for freighter operations after the administration decreed that all-cargo carriers must quit the city’s chronically congested Benito Juarez Airport before 7 July.

The confiscations have shocked Mexico’s business community, which had been convinced by assurances during the presidential election campaign that this would not happen. Now, the Global Business Council has warned of growing concern about legal certainty, necessary for investments, pointing to firms looking to Mexico for near-shoring.

Mexico’s exports reached a new record in March, rising 3.2% over March 2022, while US imports from its southern neighbour rose 5.7% that month, reflecting rising cross-border flows that are benefiting from near-shoring moves.

And more firms are poised to jump in: Unilever is planning to invest $400m in Mexico over the coming three years, which will include a factory in the state of Nueva Leon. Its directors are not likely to be thrilled by Mr Lopez Obrador’s actions.

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  • Andrew Bayuk

    May 30, 2023 at 2:25 pm

    This sets a very bad precedence and indicator to the entire private free enterprise of businesses in Mexico and external investors interested in expanding their business and investing in Mexico.

    A government seizure of private land and infrastructure in particular is telling and should raise pause and question of a business plans and interest moving forward.

    This is quite unfortunate with such promise in Mexico, but these types of moves are what you’d expect to find in a totalitarian communist regime.