Thursday, July 19, 2012

Steffy: Stakes high as Mexico again talks of oil reform

Steffy: Stakes high as Mexico again talks of oil reform

Published 10:25 p.m., Tuesday, July 17, 2012
Enrique Peña Nieto isn't a bullfighter, but he seems to have mastered the verónica.A verónica is a maneuver in which the matador lures the bull close with his cape and then swings it away as the bull charges, much like Peña, Mexico's president-elect, is once again dangling reforms in front of U.S. oil companies, hoping to entice them to rush into his country with capital and new drilling technology.
"The talk of oil reform always gets national headlines," said George Baker, a Houston analyst who specializes in Mexico's energy industry. But nothing Peña's predecessors have tried has lured foreign producers into Mexican oil fields.
For both Mexico and the U.S., the stakes are high. While loosening Mexico's restrictions on oil investment would obviously benefit U.S. companies, the status quo could have dire implications for the U.S. as a whole.
Production for Mexico's state-owned oil company, Petróleos Mexicanos, or Pemex, has been sliding since 2004, although the rate of decline has slowed somewhat in the past few years. It remains the third-biggest supplier of U.S. oil behind Canada and Saudi Arabia, according to the U.S. Energy Information Administration.
If Mexico can't find a way to boost its reserves, it could hamper energy security in North America, forcing the U.S. to make up the difference from other sources such as OPEC. While our domestic production has increased, it won't be enough to offset the loss of Mexican imports.
"The task ahead for Mexico is to rethink the oil sector, not rethink Pemex," Baker said. "The problem is the general legal and institutional setup they have."
'A dead-end street'
Four years ago, Peña's predecessor hailed reforms that allowed Pemex to sell bonds to the public but stopped short of allowing foreign investment in the reserves, which is what most U.S. producers want.
"Pemex and the government use the term 'investment' in an ambiguous way to serve as a proxy for 'contractor,' " Baker said. "That's a dead-end street."
Now, as the Chronicle's Dudley Althaus reported recently, Peña hopes to succeed where his predecessors failed. It's not clear, though, how far his reforms will go.
To attract outside producers, Peña will have to convince Mexico's congress to support changes in the constitution, which forbids foreign ownership of the country's oil. That's not as easy as it sounds.
Oil is at the very core of Mexico's national identity. In 1938, President Lazaro Cardenas seized foreign oil company assets to form Pemex. Oil became a symbol of Mexico's independence, one that most citizens still hold dear today.
An oil importer?
Last year, I wrote about how countries like Egypt have gone from being net exporters of oil to net importers in the past 20 years. Mexico may make a similar transition in the next few years. A decade ago, I interviewed the head of Pemex, who was warning even then that Mexico's days as a net exporter could be limited.
Baker says that probably won't happen on Peña's watch, but it could come in the next decade or so.
"It will happen in the next administration," he said.
Expertise lacking
As production declines, Mexico lacks the technical expertise to tap into the most lucrative new prospects - deep-water reserves offshore and shale deposits on land.
Pemex, as a state-run company, has been beset by decades of politics, patronage and corruption, and Mexico's government depends on the oil company to fund the bulk of the national budget. That leaves little revenue to finance innovation. With the constitutional provisions precluding U.S. investment, Pemex had lagged in new drilling techniques.
Most of Mexico's shale deposits, for example, extend south from Texas' Eagle Ford formation. While 550 wells using hydraulic fracturing are currently producing oil on our side of the border, Pemex has drilled only five exploratory wells so far.
A large commercial discovery - such as a deep-water well or a major shale find - could force the need for better technology and create a stronger incentive for meaningful changes in oil policy, Baker said.
Without that, Peña may just be another president waving his cape at the idea of reform.

Wednesday, July 11, 2012

Per Forbes: Sorry Brazil, investors prefer Mexico

Sorry Brazil, Investors Prefer Mexico

Last year, Indonesia was the little darling of emerging market investors. This year, it’s Mexico.
English: Topographic and bathymetric blank map...
When strategists at big Brazilian investment firms like Itau steer their wealth management clients away from their home country and up north, to Mexico, it’s worth noting. Brazil is a big country. It’s got a diverse economy. But it’s no longer Latin America’s favorite growth story. It’s going to grow around 2 percent this year, worse than it did last year. It’s fortunes are tied to China, to some extent, an economy still facing a hardish soft landing and needing monetary stimulus.
Mexico, on the other hand, has the U.S., which is growing faster than Brazil this year. Plus, Mexico is cheaper now than China.
When it comes to portfolio investment, Mexico is the clear winner this year. The iShares MSCI Mexico (EWW) exchange traded fund is up 14.09 percent year to date ending July 10 while the MSCI Emerging markets index is up only 0.7 percent. The iShares FTSE China (FXI) ETF is down 7 percent. iShares MSCI Brazil (EWZ) is down 11.3 percent. And last year’s fave, the Market Vectors Indonesia (IDX) is down 5.6 percent.
The return of the PRI to Mexican politics, Mexico’s pricing powers, and its proximity to the largest market in the world has Nomura Securities saying on Tuesday that over the next decade, Mexico is poised to become Latin America’s largest economy, surpassing Brazil, and become one of the emerging markets’ most dynamic economies.
The PRI party and Enrique Pena Nieto have regained the presidency and the Lower House. Unlike in previous elections, the party supports structural, pro-market, reforms.
In relative terms, the Mexican banking sector remains one of Latin America’s smallest, particularly relative to the level of economic development. So there is a lot of room to grow. Private sector debt to GDP is barely 20 percent versus an average of around 50 percent for Brazil and as high as almost 80 percent in Chile.
Mexico’s economy and its banks are likely to be supported and even accelerated by positive demographics, hitting a sweet spot in 2020. Current projections point not only to Mexico showing one of the strongest levels of population growth among major economies, but also the greatest fall in the dependency ratio (proportion of young/old relative to the working age population). This means a greater relative increase in resources and potentially stronger GDP growth. Some of the benefits of this demographic dividend would not be automatic, but will likely depend on appropriate policy action and reform, members of Nomura’s banking and emerging markets team said in a report on Mexican banks dated July 10.
Audrey Kaplan, a portfolio manager for the $523 million Federated InterContinental (RIMAX) fund, told Forbes recently that Mexico is one of Federated’s favorites.
“The economy has been doing well and that’s got a lot to do with the U.S. Two years ago people said the U.S. would go into a flat growth or no growth environment.  It has not, and that’s been beneficial to Mexico,” she said.  “Plus wage growth in Mexico is flat and it’s rising in China. We’ve had an overweight there since the fall of 2009. A number of our shares in Mexico are up 40 to 70 absolute percent change since we purchased them,” she said, citing America Movil (AMX) as a top buy for Federated.
Brazil probably doesn’t have that much to worry about. The year 2020 is a long way off. A lot can happen in 8 years.
Brazil’s attractiveness as a top destination for foreign-direct investment was taken over by Indonesia last year, however, the United Nations Conference on Trade and Development said last week in an annual report.
Brazil is seen as the world’s No. 5 destination for foreign direct investment (FDI) over the next two years, UNCTAD said. Brazil used to be No. 4.
The top three “prospective host economies” for FDI were unchanged this year from 2011, with China holding the No. 1 spot, followed by the U.S. and India. Indonesia moved up two notches in the rankings to surpass Brazil at the No. 4 spot. UNCTAD’s figures are from a survey, not actual FDI numbers.
FDI to Brazil, which calculates what investors and corporations pump into a foreign economy, stands at around $45 billion, while Mexico FDI is not yet near $30 billion.

Monday, July 9, 2012

Tijuana leader: SD mega-region 'could become Hong Kong tomorrow'

Tijuana leader: SD mega-region 'could become Hong Kong tomorrow'

 — On a clear day, David Mayagoitia can spot Point Loma from the roof of the Tijuana Economic Development Corporation, or DEITAC.
Mayagoitia, chairman of the organization, points in different directions from that roof, indicating where several of Tijuana’s more than 570 industrial manufacturing facilities are spread. He also looks across the U.S.-Mexico border, which he sees as more of an opportunity than a barrier.
Mayagoitia doesn’t look at Southern California and Baja California as two disparate regions. He prefers to imagine them in the context of a larger “mega region” that includes the six uppermost states of Mexico and California, Arizona, New Mexico and Texas. The corridor stretching from Los Angeles to Tijuana marks the industrial center of this zone, he said.
“Tijuana owes its industrial development to California,” said Mayagoitia, who lives in Chula Vista.
Cross-border economic investment has long been the focus of his work: Mayagoitia has been with DEITAC since its founding in 1989. The group works to attract foreign investment to Tijuana’s large industrial sector — whether from companies in San Diego County or from countries as far away as Japan and Korea.
Mayagoitia recently spoke with U-T San Diego about DEITAC and dynamics of the “mega region.” Here is the edited conversation.
Q: Can you break down the main functions of DEITAC?
A: First is the continued attraction of industry to the region. Our primary focus on those types of industries has been in medical devices, electronics, aerospace and renewable energy — new types of industries.
The second focus is to bring together a closer working relationship with San Diego. While we have said it many times, the truth of the matter is that in the past, nobody in San Diego has really paid attention to Tijuana.
The third function is being able to innovate and produce our own products for export.
Q: How would you describe the relationship between Tijuana and San Diego County, and more broadly, California?
A: Over the years, (Tijuana’s) biggest partners have been California companies. That doesn’t mean that we’re limited to California companies, however. We have a very good presence of Japanese and Korean companies and, of course, companies from other states of the United States. About 70 percent of all companies in Tijuana are U.S. firms or related to U.S. firms.
Q: How does DEITAC attract and retain foreign companies’ investments?
A: When you come to a foreign country, there are two ways to arrive: Either without knowing anything and not having anybody to help you, or having a group of experts that can help you sort out all the issues from taxes and accounting to legal — the types of problems you face when you set up a business in a foreign location.
Q: What are some common misconceptions that stand between San Diego and Tijuana?
A: (Tijuana’s) biggest problem with San Diego and California is the perception of insecurity. The state government has invested a considerable amount of money in improving our police force, increasing our level of technology and collaborating with United States agencies. Things have quieted down, but people don’t know it.
The second perception is that we are somehow the third world, that this is a place of huge poverty. Tijuana is actually better off than most cities in Mexico. Our average annual income, while it is definitely not like the United States, is $14,000 to $15,000 a year, which is not bad for Mexico.
Q: Which sector is growing most steadily in Tijuana?
A: Medical device manufacturing has been growing at double digits for the past year in spite of everybody’s slowdown. This has to do with the fact that it’s an industry that’s related to things that happens all the time — people get sick, need to be operated on and need all sorts of appliances and hospital equipment. We’re the No. 1 cluster in the North American continent for medical device manufacturing, and we see that industry continuing to grow for us.
We’re probably going to get a sterilizing facility operating from this side (of the border) very soon. If that happens, many manufacturers who have product lines on the U.S. side, who have kept them on the U.S. side for sterilization reasons, will move them to Mexico.
Q: And if that industry moves to Tijuana, what does that mean for the United States?
A: The premise that moving “near shore” is going to take jobs away from the United States, is a mistake. Instead, the premise is this: If I become globally competitive, I will grow, and if I don’t become globally competitive, I will tend to disappear. We are partners with California and the rest of the United States in making American companies globally competitive. Why? Because we can bring to the equation a cost opportunity that they could not find anywhere else except for China.
Q: On a broader level, why is the “mega region” important?
A: If you look at the four southern states of the United States and the six northern states of Mexico, together they are 94 million people and have an equivalent gross domestic product to the fourth-largest economy of the world, Japan. If you look at this border, the largest industrial concentration is from Los Angeles to Tijuana. When you look at that block, it’s a completely different perspective and it’s a growth area.
Q: You’ve been with DEITAC since its founding. If you were to take a bird’s-eye view of the region, what trends do you see and what has been the larger trajectory of the area?
A: I’ve been saying for 20 years that San Diego and Tijuana have missed a lot of opportunities because we haven’t partnered together. We could become Hong Kong tomorrow if we wanted to.
Q: The 2007-2008 recession greatly impacted the U.S. economy. How did it affect Tijuana?
A: Our biggest shock came in 2002-2004, when we lost 35,000 employees and 150 companies to China. China roared and our companies, just like the United States’, ran to China. Our biggest partner is the United States, and if they’re hurting, we’re hurting. We’ve recovered some of our jobs from internal growth, but we haven’t been able to attract more foreign companies because they have slowed down their investment.
It seems to me the shock was like a brake: Our partners hit the brakes and we put on the brakes with them. And the coat-tails are really big. Now if you look at things, they’re very fragile.
Q: And what do you think of Mexico’s recent presidential election, which Enrique Peña Nieto has won?
A: What do I think economically? The country will continue to prosper and if Peña Nieto actually delivers what he promises — energy legislation that changes the core of energy in this country — and if he delivers labor legislation that facilitates employment in this country, we will see the country grow at a higher rate than it has been in the past year.
I think federal intervention and nationalistic-type attitudes have slowed our growth, rather than helped it. We’re growing at 4.5 percent or 5 percent, but we could be growing at 8 or 9 if we didn’t have these brakes on our economy caused by things that were established 50 or 60 years ago that are nonfunctional in today’s environment.

Tuesday, July 3, 2012

Peso is year's best currency

Airbus to open factory in US
Investors are confident in stable policies
Bloomberg News
MEXICO CITY – Mexico’s peso is the world’s best- performing major currency this year as the nation elects a new president, breaking with the losses that marked previous votes amid growing investor confidence policies will be maintained.
The peso gained 4.3 percent against the dollar in the first half of the year, the most among 16 major currencies tracked by Bloomberg and compares with a 6 percent tumble in the run-up to the previous presidential vote in 2006. Its rally helped hand investors in peso-denominated bonds a return of 12.9 percent in dollar terms in the period, compared with a gain of 1.6 percent for local-currency Brazilian debt, according to Bank of America Corp. indexes.
The Institutional Revolutionary Party’s (PRI) Enrique Peña Nieto, who said he won the presidency Sunday night, has vowed to increase private investment in the state-controlled oil industry to propel growth in Latin America’s second-biggest economy. The peso fell before the 2006 election on concern Andrés Manuel López Obrador, who said he would renegotiate the North American Free Trade Agreement, would win. He then occupied city streets to protest his loss to President Felipe Calderón by less than a percentage point.
“People have confidence today in a stronger electoral system,” Rafael Camarena, an economist at Banco Santander in Mexico City, said. Polls have signaled “stability” through the process, he said.
Peña Nieto won between 37.9 percent and 38.6 percent of the vote, topping 30.9 percent to 31.9 percent for López Obrador of the Democratic Revolution Party (PRD), the electoral authority said in forecasts based on a preliminary count. Josefina Vázquez Mota of Calderón’s National Action Party (PAN) garnered 25.1 percent to 26 percent of the vote.
Yields on peso bonds due in 2021 have dropped 115 basis points this year to 5.36 percent, according to data compiled by Bloomberg. International investors boosted their holdings of fixed-rate peso bonds by 4.2 percent in the past month to a record high 820 billion pesos ($62 billion) June 20, central bank data show.
Peña Nieto, 45, has pledged to support legislation making it easier to hire and fire workers, which would lure more people into the formal economy. He also said he plans to expand private investment in the oil industry, loosening state-controlled Petroleos Mexicanos’s (Pemex) grip. “While Enrique Peña Nieto isn’t” from the ruling party, “in theory he’s going to continue with the same economic style,” Roberto Ívan García Castellanos, a fixed-income trader at Casa de Bolsa Finamex SAB, said.

Monday, July 2, 2012

In returning PRI to power, Mexicans put faith in young democracy

In returning PRI to power, Mexicans put faith in young democracy

Enrique Peña Nieto won Sunday's presidential vote, returning the Institutional Revolutionary Party, or PRI, to office. Mexicans are betting their democracy is strong enough to warrant giving the once-authoritarian party another chance.

By Staff writer, Lauren Villagran, Correspondent / July 2, 2012
Presidential candidate Enrique Peña Nieto waves to supporters at his party's headquarters in Mexico City, early Monday, July 2, 2012. Mexico's old guard party, the PRI, sailed back into power after a 12-year hiatus Sunday.
(AP Photo/Christian Palma)
After falling in 2000, the party that ruled Mexico for 71 years consecutively, the Institutional Revolutionary Party (PRI), is back in power. It's a barometer of Mexicans' faith in their democracy: the once-authoritarian party, they believe, is today best positioned to bring back stability – and must govern under new checks and balances.
Its candidate, Enrique Peña Nieto, won Mexico's presidential election by about a five-point margin, according to preliminary counts, beating Andres Manuel Lopez Obrador of the leftist Party of the Democratic Revolution (PRD) and Josefina Vazquez Mota of the right-leaning, ruling National Action Party(PAN).
"Mexicans have given our party another chance. We are going to honor it with results," said Mr. Peña Nieto, a former governor of the State of Mexico, late Sunday night.
By a comfortable margin, Mexican voters seemed willing to risk that the future of their country could come to resemble its past – when the PRI kept relative stability with an authoritarian grip, handing out favors in return for loyalty, winning elections by rigging votes.
The reasons that Mexicans are willing to take such a bet after their long march from authoritarianism are contradictory. Some believe the party, with its youthful candidate, has changed; some don't believe in any political class but think the PRI is the best that they've got.
But most Mexicans appear willing to trust their democracy: They might not be sure what the PRI will do once it's in office again, but they do believe that in the 12 years since it has been out, society has changed in dramatic ways. The president no longer holds vast powers. With the opening of its economy, Mexico has also had to open its political system. And from a stronger federal electoral institute to the presence of influential civil society organizations, there is no way the party can get up to its old antics, they say.
“You have more counterbalances,”says Maureen Meyer, Mexico analyst with the Washington Office on Latin America. “You have a civil society that has been building its influence. You have stronger political parties in general.”
The PRI “won’t be able to go back to business as usual,” she adds.
One of the biggest sources of power for the PRI came from its ability to control the vote. In 1988, the party was widely accused of having rigged the elections, after a leftist candidate was coming out front. But in the wake of the outcry the government began the process of overhauling its electoral system, reforms that were strengthened throughout the 90s. By the time the PRI lost in 2000 for the first time, Mexico's Federal Electoral Institute (IFE) was considered one of the world's best.
The confidence in the electoral body was tested after Mexico's last presidential election in 2006, when Mr. Lopez Obrador, in his first presidential bid, declared fraud and refused to recognize election results, after losing the race by less than a percentage point. And the feeling that the election was “stolen” is still strong among Lopez Obrador's supporters.
“Of course the vote was robbed in 2006,” says Hector Galvan, a young resident of Mexico Citywho works in human resources. “Everything is corruptible here.”
But the reputation of the IFE hasn't budged among electoral experts. “Not only is electoral fraud virtually impossible under the IFE, but Mexico designed and implemented within a 12-year period of time the most professional, independent, impartial electoral systems in the Americas and one of the best in the world,” says Robert Pastor, director of the Center for North American Studies atAmerican University in Washington and author of the book “The North American Idea.”
While Peña Nieto is the clear winner, the victory margin was not as high as the 10- to 15-point lead most surveys had indicated throughout the campaign. 
Another accountability mechanism similarly emerged in a way that cannot be turned back: civil society. In fact, the Mexican civil organizations that pushed for democracy are now celebrating their silver anniversaries. Business groups are increasingly acting as civic watchdogs, pressing for greater transparency and accountability in government. Human rights groups have proliferated: The Human Rights Network boasts more than 70 member groups in 22 states; 10 years ago, there were fewer than 50, says Ms. Meyer.
Meyer points to Alianza Civica, one of Mexico’s longest-standing democracy organizations and business-backed organizations such as Mexicans United Against Crime.Newcomers like the peace movement headed up by poet Javier Sicilia and the recent student movement, #YoSoy132, which arose to protest what it called media bias in the positive coverage of Peña Nieto, have re-energized Mexican society around efforts to curb violence, reduce official corruption, and increase transparency. 
Yet others don't feel as assured, including Monica Tapia, executive director of Alternativas y Capacidades, a nonprofit that works to strengthen civil organizations. She expressed concern over the PRI's takeback of Los Pinos, Mexico's presidential palace, especially over the fate of freedom of expression, media independence, competitive funding of civil organizations by the government, and the retention of gains made in the legal frameworks that support civil organizations — issues that she called “subtle but very important.”
“We are all very worried about a triumph that returns practices of the past,” she says. “We are very aware of these issues… and concerned with ensuring that there is no backward movement.”
The PRI emerged in the wake of the Mexican Revolution and ruled Mexico as a single party from 1929 until 2000, a period famously dubbed “the perfect dictatorship.” Mexicans rejoiced when the PAN won the vote in 2000 but after 12 years in power, voters are disillusioned with slow economic growth and the brutal drug violence that has taken over 50,000 lives since Mexican President Felipe Calderon of the PAN took office six years ago.
Still others fear that progress will be reversed with the PRI in government. Carlos Aviles, who works in the lighting industry, cast his vote for the PAN, he says, as the only way to bring the country forward. “The PRI in power will be a return to the past,” he says, "because after all it's the same people in power."
One can't fault Mexicans for skepticism. Power is concentrated in a few hands. Mexico is hampered by oligopolies throughout the private sector. The television industry is concentrated in two main hands. Their coverage of Peña Nieto has been glowing, and even though #YoSoy132 rose to protest that, in many ways old narratives emerged. The PRI initially discredited the students, and then Peña Nieto refused to participate in a debate the movement organized, reflecting historical practices, says Hector Castillo Berthier, a sociologist with the National Autonomous University of Mexico.
“It’s difficult to conceive of a new PRI with such old practices or a society that can liberate itself from these structures,” he says.
While it's clear that a larger sector of society than ever before is alert and prepared to actively check the PRI's power, it's also true that many Mexicans are less concerned about power structures than they are with the government's ability to stimulate job creation and make the country safer.
The theme of the “old days” is one of the strongest takeaways of the 2012 race. Adriana Romo, who works as an administrator in Mexico, sums up the national zeitgeist: “I want this country to be what it was years ago, the Mexico of 20 or 30 years ago.