Monday, February 25, 2013

From The NYT: How Mexico Got Back in the Game

How Mexico Got Back in the Game

IN India, people ask you about China, and, in China, people ask you about India: Which country will become the more dominant economic power in the 21st century? I now have the answer: Mexico.
Impossible, you say? Well, yes, Mexico with only about 110 million people could never rival China or India in total economic clout. But here’s what I’ve learned from this visit to Mexico’s industrial/innovation center in Monterrey. Everything you’ve read about Mexico is true: drug cartels, crime syndicates, government corruption and weak rule of law hobble the nation. But that’s half the story. The reality is that Mexico today is more like a crazy blend of the movies “No Country for Old Men” and “The Social Network.”
Something happened here. It’s as if Mexicans subconsciously decided that their drug-related violence is a condition to be lived with and combated but not something to define them any longer. Mexico has signed 44 free trade agreements — more than any country in the world — which, according to The Financial Times, is more than twice as many as China and four times more than Brazil. Mexico has also greatly increased the number of engineers and skilled laborers graduating from its schools. Put all that together with massive cheap natural gas finds, and rising wage and transportation costs in China, and it is no surprise that Mexico now is taking manufacturing market share back from Asia and attracting more global investment than ever in autos, aerospace and household goods.
“Today, Mexico exports more manufactured products than the rest of Latin America put together,” The Financial Times reported on Sept. 19, 2012. “Chrysler, for example, is using Mexico as a base to supply some of its Fiat 500s to the Chinese market.” What struck me most here in Monterrey, though, is the number of tech start-ups that are emerging from Mexico’s young population — 50 percent of the country is under 29 — thanks to cheap, open source innovation tools and cloud computing.
“Mexico did not waste its crisis,” remarked Patrick Kane Zambrano, director of the Center for Citizen Integration, referring to the fact that when Mexican companies lost out to China in the 1990s, they had no choice but to get more productive. Zambrano’s Web site embodies the youthful zest here for using technology to both innovate and stimulate social activism. The center aggregates Twitter messages from citizens about everything from broken streetlights to “situations of risk” and plots them in real-time on a phone app map of Monterrey that warns residents what streets to avoid, alerts the police to shootings and counts in days or hours how quickly public officials fix the problems.
“It sets pressure points to force change,” the center’s president, Bernardo Bichara, told me. “Once a citizen feels he is not powerless, he can aspire for more change. ... First, the Web democratized commerce, and then it democratized media, and now it is democratizing democracy.”
If Secretary of State John Kerry is looking for a new agenda, he might want to focus on forging closer integration with Mexico rather than beating his head against the rocks of Israel, Palestine, Afghanistan or Syria. Better integration of Mexico’s manufacturing and innovation prowess into America’s is a win-win. It makes U.S. companies more profitable and competitive, so they can expand at home and abroad, and it gives Mexicans a reason to stay home and reduces violence. We do $1.5 billion a day in trade with Mexico, and have been spending $300 million a day in Afghanistan. Not smart.
We need a more nuanced view of Mexico. While touring the Center for Agrobiotechnology at Monterrey Tech, Mexico’s M.I.T., its director, Guy Cardineau, an American scientist from Arizona, remarked to me that, in 2011, “my son-in-law returned from a tour of duty in Afghanistan and we talked about having him come down and visit for Christmas. But he told me the U.S. military said he couldn’t come because of the [State Department] travel advisory here. I thought that was very ironic.”
Especially when U.S. companies are expanding here, which is one reason Mexico grew last year at 3.9 percent, and foreign direct investment in Monterrey hit record highs.
“Twenty years ago, most Mexican companies were not global,” explained Blanca Treviño, the president and founder of Softtek, one of Mexico’s leading I.T. service providers. They focused on the domestic market and cheap labor for the U.S. “Today, we understand that we have to compete globally” and that means “becoming efficient. We have a [software] development center in Wuxi, China. But we are more efficient now in doing the same business from our center in Aguascalientes, [Mexico], than we are from our center in Wuxi.”
Mexico still has huge governance problems to fix, but what’s interesting is that, after 15 years of political paralysis, Mexico’s three major political parties have just signed “a grand bargain,” a k a “Pact for Mexico,” under the new president, Enrique Peña Nieto, to work together to fight the big energy, telecom and teacher monopolies that have held Mexico back. If they succeed, maybe Mexico will teach us something about democracy. Mexicans have started to wonder about America lately, said Bichara from the Center for Citizen Integration. “We always thought we should have our parties behave like the United States’ — no longer. We always thought we should have the government work like the United States’ — no longer.”

From Wall Street Journal: Sequester Threat Moves North: Canada Exporters Worry About Border

February 25, 2013, 10:47 AM ET

Sequester Threat Moves North; Canada Exporters Worry About Border

By Paul Vieira

American states are tallying up the damage that Washington’s sequester standoff threatens. So, too, are Canadian manufacturers and exporters, who are worried that reduced American border security could make it harder to send goods south.
Across-the-board, $85 billion in U.S. budget cuts are set to automatically kick in Friday, assuming that Congress can’t agree to postpone them, which is now the odds-on outcome. For Canadian businesses, the potential cuts could make it harder to ship goods into the U.S., the last thing a lackluster Canadian economy needs as domestic headwinds pick up.
The Canadian Manufacturers and Exporters said Monday that without a deal between Congress and the White House to avert the cuts, also known as the sequester, U.S. border authorities are ready to shed 2,750 inspectors from their payrolls. That could cause longer delays at ports and congested crossing points such as the Detroit-Windsor bridge. The two countries have the world’s biggest trading relationship, with the equivalent of $1.6 billion a day in goods crossing the border.
Any logistical delay in sending Canadian-made goods to the U.S. would add further woes to Canada’s beleaguered export record. The latest data, for December, indicated Canadian exports to the U.S. declined 4% on a month-over-month basis; and 8.3% on a year-over-year basis.
Canadian policymakers are relying on exports and business investment to drive economic growth, as consumers are largely tapped out given their record levels of indebtedness.
Another spillover effect from the sequester? Delays in implementing a Canada-U.S. border pact, announced back in late 2011, that’s meant to integrate North American security efforts and accelerate the flow of trade across the border. That deal emerged after years of lobbying by the Canadian business community, which complained about a stiffening of border security and bureaucracy in the years following the Sept. 11, 2001, terrorist attacks. The Canadian government had previously estimated bottlenecks and compliance burdens at the border cost the economy the equivalent of 16 billion Canadian dollars (US$15.6 billion) a year.
“This gridlock in Washington has a spill-over effect for our members,” said Jayson Myers, president of the exporters group. “Every day that passes without an agreement brings us one step closer to an unnecessary crisis–a turning point that will not only affect Canadian companies, but our American business partners as well.”

From The IV Press: The waiting game: Outgrown and unfunded, cross-border economics suffer

The waiting game: Outgrown and unfunded, cross-border economics suffer

The waiting game: Outgrown and unfunded, cross-border economics suffer

Staff Writer
10:36 PM PST, February 23, 2013

CALEXICO — Mexicali resident Cecilia Soto has been crossing the border almost daily for 25 years.

Before obtaining her SENTRI, it would take her nearly two hours to get to work at the Calexico Chamber of Commerce, and she clearly recalls the one day she was reprimanded by her then-boss for being 20 minutes late.

“The line was so long and so slow. I remember him telling me, ‘It’s not my problem that you live in Mexicali, and you need to take your time or come like half an hour early or whatever,’” she said. 

Sometimes leaving at 5:30 a.m. to ensure she arrived at 8 a.m., she would load her young sleeping daughter into the car already dressed for school and then often read, did her make-up or nails as she slugged across the international border.

“I was always stressed and all mad, because the line was so slow, always trying to do something in my car during all that time,” she said. 

Soto has had SENTRI now for years and says it “is like winning the lottery,” allowing her to typically cross in minutes.

However, the majority of border crossers don’t have SENTRIs. Morning and night lines snake from the Calexico downtown Port of Entry as around 16,000 privately owned vehicles and 20,000 pedestrians go through the Calexico downtown port daily, making it one of the three busiest ports in the nation.

The familiar structure was built in the early 1970s, while the region evolved around it, the structure stayed nearly entirely the same, slowly but surely outgrown by the surging economic force that is the daily border crosser. 

The situation worsened following heightened national security following 9/11: what used to be 30 to 45 minutes mounted to multiple hours spent waiting to enter the United States and the two communities, at times seemingly only separated by a fence, taking an economic stab.

“There’s a tremendous economic reality that we are dependent on border-crossers from Mexico, and they’re dependent on us,” Calexico Border Issues Ad-hoc Committee Chair Carlton Hargrave said. “It’s a reciprocal relationship.”

“It’s changed enormously, and the nature of the operation has changed greatly since Sept. 11 with a new emphasis on security,” General Services Administration Senior Asset Manager Jonathan Ballard said.

The project

In response to the building’s inadequacy, the General Services Administration began a feasibility study for the Calexico downtown Port of Entry expansion project 10 years ago. 

The more than $300 million project, broken up into two phases, would ultimately increase southbound lanes from two to five, and northbound lanes from 10 to 16. It was originally projected that the first phase could begin by summer 2011 and be completed by this year. 

About $84 million was requested for fiscal 2011 to cover the first phase, but GSA still does not have that funding allocated despite a project design already being completed. 

About $24 million was appropriated for the project’s design and acquisition, but as to when the funds for the first phase, or even the roughly $190 million for the project’s second phase, will be made available is anyone’s guess.

“It could be appropriated anytime,” Ballard said. “We’re already in fiscal year 2013 so the earliest that Congress could feasibly appropriate it is for fiscal year 2014. When they actually will, we don’t know.”

GSA meets with the Office of Management and Budget annually to determine what funds might be available and for what projects it should requests funds for. While GSA owns the property, it’s leased to U.S. Customs and Border Protection. 

“We look to them to tell us what their priorities are,” Ballard explained. “We believe that Calexico falls behind Otay Mesa and San Ysidro (Ports of Entry.)”

The San Ysidro Port of Entry lies just over a hundred miles west of the Calexico downtown Port of Entry and is the busiest land port of entry in the world. It’s own expansion project faces funding issues with the first phase under way, but phases two and three have not had funding allocated. 

Ballard said that phases are planned and built with the possibility of not having the next phase funded.

“We’d be doing a disservice to taxpayers of doing a phase that wouldn’t work without the subsequent phase and then the funding never came through,” he explained. 

Mexico is far ahead of the U.S. on the project with preliminary work in Mexicali already finished and federal funding secured and committed.

Time is money

“There’s no question that an expansion of the Calexico Port of Entry would be a huge economic boom for the region,” Border Trade Alliance President Nelson Balido said. “Every time that we have to wait, that there’s people waiting in line, that’s people not spending money in the Imperial Valley, period.”

Trade with Mexico has a 6 percent year over year growth, Balido said, and one in four jobs are tied to trade in the U.S.

“Within the last 10 years, it’s doubled in capacity of goods and crossings, but your port hasn’t doubled in size. That’s absolutely why you have that horrendous wait time at the port of entry that’s really choking the community and having options is really the future of putting in something that makes sense,” he said.

He describes the port of entry project as “a one-time shot in the arm that will keep on giving.”

Balido doesn’t foresee any federal funding coming anytime soon, and frustrations with lack of funding for ports of entry prompted the Border Trade Alliance to draft a bill allowing for public-private partnerships, also known as P3s, to fund projects like this.

Right now federal law doesn’t allow for private funding to help build federal government projects such as the port of entry. 

He hopes it will be passed this legislative session or no later than next year.

“Anything zero-cost to the federal government takes priority,” he explained. 

But he stressed the need to have not only senators and members of Congress in favor of a P3, but also the local entities so that if and when federal law changes, everyone is ready to move.

“When that green light turns green, we want to step on the accelerator, not head to the gas station,” he said.

If the project could be financed through a P3, and hastens its completion, GSA is in support of it, Ballard said, and GSA has attorneys in Washington, D.C. that are prepared to respond with what’s required if it happens. 

“It’s not the means by which we ordinarily fund our projects, but we are very anxious to see that this project proceed because it’s important to our customer and to our regional economy,” he explained. 

Hargrave said that various members of government have told them the “estimated best case scenario we could be looking is 2015 or 2016 in the budget, and that’s just to be considered, not that the money would be allocated.” 

However, skepticism has followed the P3.

“There’s been people who have expressed reservations, but I don’t understand the reservations because it’s been very, very clear from the private entities that are pushing it, it would have no economic effect on our community,” Hargrave said. “This would be completely done through private sources through the federal government.”

He added that if legislation is changed to allow the P3 to happen, the project would be bid out regardless, not automatically awarded to any one company, regardless of its history with the project. 

“We all know at this point that the federal government is strapped for money and the public-private partnership is the vehicle that makes the most sense at this time to get it done,” Hargrave said.

Imperial County Supervisor John Renison said that while hope hasn’t been given up on federal funding, the P3 is being pursued “simultaneously so we have a fallback position.”

He added that within “immigration bills that are moving, a lot have language that border infrastructure is a must, so that’s promising and probably the most promising thing I’ve heard in a year. We just can’t be stuck on one track period.”

Staff Writer Chelcey Adami can be reached at 760-337-3452 or

Friday, February 22, 2013

From Globe and Mail: With eyes on trade, Canada courts resurgent Mexico

Canada is pushing to strengthen its relationship with Mexico, recognizing the country’s economic rise and importance as a trading partner and looking past its current struggles with violence and crime.
Mexico is trying to wrestle swaths of territory away from drug gangs, has a spotty justice system and is the subject of human-rights concerns. And getting closer has never been easy: both countries have trouble looking past the U.S. to each other.
The Harper government has made early efforts to get close to Mexico’s new administration, led by President Enrique Pena Nieto, who took power in December. In another move to improve relations, Canada recently took steps to remove its requirement for Mexican visitors to have visas.
Foreign Affairs Minister John Baird, who was in the Dominican Republic on Thursday winding up a tour of five Latin American countries, drew attention for making the first visit to Cuba by a Canadian foreign affairs minister in 15 years. He emphasized that Canada had not adopted the U.S. “blockade” strategy, but kept doing business with Havana – a message that Ottawa should not be lumped in with Washington.
But Mr. Baird described his stop in Mexico last week as the “anchor” of the trip.
“One of the things we wanted to do was engage very early with the new government,” he said, noting he met with Mr. Pena Nieto in Davos when he was still a presidential candidate, and that as president-elect, Mr. Pena Nieto visited Ottawa. “We’re pleased with where [the relationship] is, but the trajectory is more important.”
“Mexico, in our lifetime, is going to be a top-10 world economy, and potentially in our lifetime, a top-five world economy,” Mr. Baird said in an interview. “It’s tremendously important, not just that we look at it through the trilateral relationship with the United States, but that bilaterally we work with them on security, on jobs, and on values.”
Canada’s past interest in Mexico has blown hot and cold, even after the North American free-trade agreement went into effect in 1994. In Ottawa, the question has been whether to embrace an ally in the trilateral pact, or keep its distance for fear its border issues and other problems will taint Canada.
Mr. Baird went to Mexico as the Harper government announced a move to fast-track Mexican asylum-seekers through the Canadian refugee system – a key step toward dropping the visitors’ visa requirements that have irritated Mexico.
He noted that Mr. Pena Nieto has talked of domestic measures that could provide trade opportunities for Canadian companies – a reference to loosening the state-controlled energy sector to allow partnerships with foreign firms.
But there is another reason Mexico could be crucial to Canada’s trading interests: it may be a linchpin in Pacific trade talks.
The country is one of four, along with Colombia, Peru and Chile, forming a bloc called the Pacific Alliance that runs down Latin America’s west. And those countries – all of which have free-trade agreements with Canada – are looking to open free-trade arrangements in Asia, notably with the 10-nation ASEAN bloc in Southeast Asia.
While Mr. Baird was in Mexico and Peru, Diane Ablonczy, the junior foreign minister for the Americas, was on her own Latin American tour, including the two other Pacific Alliance nations, Colombia and Chile, displaying the Harper government’s reviving interest in the region, and the alliance.
Canada gained observer status in the Pacific Alliance in November, and is watching closely to see if it develops as a vehicle for its own pan-Pacific trade. The Harper government has not said whether it will attempt to gain full membership. And Mr. Baird said Ottawa views those four countries as “like-minded” democracies that it can deal with. “Open societies, open governments, and open economies,” he said.
Mexico, like Canada, also formally joined negotiations in October for a larger Pacific trading bloc, the Trans-Pacific Partnership. In those talks, both have common interests and fears, said Carlo Dade, a senior fellow at the University of Ottawa’s School of International Development, and former executive director of the Canadian Foundation for the Americas.
Both have to worry that the United States might deal away some of their NAFTA advantages, and play one neighbour off the other in the TPP talks, Mr. Dade said. The growth of the Mexican-American vote has given the country influence in Washington, too.
“We need Mexico once again,” Mr. Dade said.

From The Washington Post: Sequester means up to 14 furlough days for Customs and Border Protection

Sequester means up to 14 furlough days for Customs and Border Protection

By Josh Hicks , Updated: 

U.S. Customs and Border Protection will furlough its employees for up to 14 days this year if the automatic spending cuts known as the sequester kick in on March 1, according to a letter the agency sent to union officials this week.
The agency notified the National Border Patrol Council president on Wednesday of its plans for $754 million in spending reductions if lawmakers fail to come up with an alternative to the sequester in time for the deadline in eight days.
The letter said furloughs would be mandatory for all Customs and Border Protection employees, including management and workers without union representation. Notices would go out in mid-March, the agency said.
Other cuts would include an agency-wide hiring freeze, contract adjustments or delays, and reductions in travel, training, supplies, facilities, overtime and relocation reimbursement, according to the letter.
Figures included in the memo indicate that furloughs would save the agency about $234 million, while the remainder of the sequester savings would come through the other reductions.
Department of Homeland Security Secretary Janet Napolitano last week cautioned against the sequester, saying the reductions would roll back border security, increase wait times at ports of entry and airports, and produce a host of other consequences.
“Put simply, the automatic budget reduction mandated by sequestration would be destructive to our nation’s security and to our economy,” Napolitano said during testimony before the House Homeland Security Committee. “It would negatively affect the mission readiness and capabilities of the men and women on the front lines.”
Customs and Border Protection would require its workers to start paying the cost of voluntary relocations on their own if the cuts happen, and the agency would stop hiring new workers to fill vacancies in frontline positions as well, the letter said.
The agency already halted incentive pay for retention starting in December, according to the memo.
The letter to from Customs and Border Protection came at a time when sequester warnings are piling up and dozens of other federal agencies have warned of the potential for unpaid leave in the event that the sequester happens.
So far, only the Government Accountability Office stands out as a clear exception, having told its workers on Wednesday that it does not expect furloughs to be necessary if the spending cuts take effect.

Wednesday, February 20, 2013

From SD Union Tribune: Getting Back On Track


Freight rail projects aim to rebuild key link to allow transportation of finished goods, parts between Tijuana, Imperial County

Advocates of cross-border freight train service are cautiously applauding moves by groups of U.S. and Mexican investors to rebuild two key rail links that connect Tijuana and Imperial County.
The projects are being formed separately, and it could be several years before any trains ferry product parts and finished goods from Tijuana’s maquiladora industry into the United States. But proponents said that taken together, the efforts could restore a significant link to the main U.S. rail system.
The rail service would allow exporters from Mexico to avoid northbound truck delays at the congested Otay Mesa commercial crossing, as well as the need to switch drivers at the international border.
Preliminary estimates show that the two companies embarking on the rehabilitation plans could spend upward of $120 million.
The current situation “is very inefficient, it’s expensive, it just takes away from the competitiveness of the region,” said Joe Da Rosa, president of Toyota Manufacturing de Baja California, which assembles Tacoma pickups at a plant outside Tecate and then sends them by truck to the United States. The rail lines would also be valuable for importing components from the U.S. into Tijuana for the maquiladoras or other businesses, he said.
Built in 1919 by sugar magnate John Spreckels, the track created a rail linkage from San Diego to the east, dipping into Mexico before re-entering the United States at Campo and finally reaching Plaster City in Imperial County. Fires, floods and collapsed bridges and tunnels led to closure of the 70-mile stretch between Campo and Plaster City, known as the Desert Line, in recent decades.
The last operator, Lakeside-based Carrizo Gorge Railway, was able to re-establish limited service in 2004. Those operations stopped in 2008 after the San Diego Metropolitan Transit System, which owns the Desert Line, raised concerns about its safety and demanded repairs that Carrizo Gorge could not afford.
While economic difficulties, lawsuits by past investors and legal battles among Carrizo’s shareholders have stalled efforts to resume service on the Desert Line, groups on both sides of the border continue to see the rail link as offering much promise for the greater region.
“It is one of the emblematic projects that we’re promoting,” said David Moreno, director of the Tijuana Economic Development Council. “We are certain that if we start rebuilding the line, companies would increase their investments.”
Christina Luhn, director of the Mega-Region Initiative for the San Diego Regional Economic Development Corp., said she is “guardedly optimistic” about the latest attempts to reopen the rail lines. “It’s not a done deal, but it’s the best news I’ve heard since I learned about the rail issues,” she added.

$20 million investment

In Tijuana this month, directors of Baja California Railroad Inc. announced a plan to invest $20 million in rebuilding a section of the 44.4-mile line between Tijuana and Tecate.
Dimas Campos, owner of a group of gas stations in Tijuana and managing director of Baja California Railroad, said the sum would be used for “profound rehabilitation” of a 12.5-mile stretch of tracks between San Ysidro and El Florido in eastern Tijuana. The project is scheduled to start in May.
“We know the business is there, we’ve already sat down with a lot of companies. They are committed to coming on board and moving (products) by rail, but obviously they’re going to wait until the track is rehabbed completely,” said Alejandro de la Torre, a partner in the Mexican project.
The company was granted a 30-year contract to operate the line by the Baja California agency Admicarga. Jorge Monraz, director of Admicarga, said the line is owned by Mexico’s federal government and that the agreement was approved by the federal Communications and Transportation Secretariat. He said the contract, which was not publicly available, obligates Baja California Railroad to invest the $20 million for repairs and upgrades during the first five years.

Strings attached

No matter what happens in Baja California, cross-border service into California can’t be re-established until the Desert Line can also be opened.
In December, MTS and Pacific Imperial Railroad signed a 50-year lease — with an option to renew for 49 more years — for the company to rehabilitate that track.
“The deal has very tight strings associated with it,” said Paul Jablonski, chief executive of MTS. “It wasn’t just, ‘We’ll see you in 100 years.’ We have very specific milestones associated with this, and if they don’t achieve them, we’ll take it back.”
Donald Stoecklein, a San Diego attorney who is the president and legal representative for Pacific Imperial Railroad, outlined the proposal during a meeting with the San Diego Regional Chamber of Commerce’s Mexico Business Center this month.
“The primary goal is to move product out of the maquiladora region,” Stoecklein said.
His company is working with investment bankers to secure financing and has hired a contractor to calculate the expense of fixing the line, he said. “We have 57 bridges and tunnels that we have to fix,” Stoecklein said. “We needed 99 years so that our investors could get a return.”

‘A big step’

Charles McHaffie, former CEO of Carrizo Gorge Railway, is a main player in the new Desert Line venture. This has not sat well with some of his former associates who continue to battle him in court and oppose the new lease.
Jablonski defended the contract’s “very strict performance guidelines,” which require the trains to achieve a “minimal level of service” within the next 14 months and full service — four to five trains daily in each direction — within five years.
McHaffie “seems to be a fair way along in the process of securing the necessary investment to actually carry this out,” Jablonski said.
Informal estimates put the cost of repairs at close to $100 million, according to MTS. Toyota’s Da Rosa, whose company would be an important client of any future railway service in that area, called the agreement “a big step.”
“Previously, it wasn’t clear who really had control of the line, and now it’s clear. We have a group on the U.S. side that now has clear responsibility,” he added. “I have a group of about 10 large companies in this region that I meet with frequently. They would use the rail line the moment it becomes operational.”
© Copyright 2013 The San Diego Union-Tribune, LLC. An MLIM LLC Company. All rights reserved.

Tuesday, February 19, 2013

From The Wall Street Journal: Mexico's Economy Posts Steady Growth in Fourth Quarter

MEXICO CITY—Mexico maintained steady economic growth in the fourth quarter, roughly in line with expectations, as strong domestic demand offset weaker demand for exports from Latin America's second-largest economy.
Mexico's gross domestic product expanded 3.2% in the October-December period from a year earlier, after similar growth in the third quarter, the national statistics agency said Monday. GDP was up 0.77% from the third quarter in seasonally adjusted terms, equivalent to an annualized rate of 3.1%.
Full-year growth in 2012 was 3.9%, similar to the previous year, making Mexico a mid-performer in the region, far from the 6.3% growth in Peru but better than the faltering economies of Brazil and Argentina.
For some analysts, the data showed Mexico is entering a soft patch. "So far, domestic demand is giving some support. But we think it won't be for a long time," said Bank of America/Merrill Lynch's chief Mexico economist Carlos Capistran, who sees 2.8% growth for this year.
Mexican authorities expect economic growth to remain sluggish in the first semester and to pick up later this year, counting on a brighter outlook in the U.S. The central bank estimates Mexico's GDP will expand between 3% and 4% in 2013.
The slowdown during the fourth quarter was explained mainly by weaker exports, as Mexico continued suffering from weak demand north of the border. Activity was affected by the fiscal uncertainty that prevailed late last year in the U.S. and moderate growth in industrial production there.
Manufacturing output, a key indicator of the dynamism of Mexican exports, rose 2.6% in the quarter, the slowest pace of growth since the recession year of 2009.
Mexico's economic performance is closely linked to that of the U.S., where the Latin American country sends close to 80% of its exports, mainly manufactured products for the auto and other industries, but also crude oil and fresh food such as fruit and vegetables.
The importance of the export engine for Mexico is highlighted by the fact that the value of the exports and imports accounts for 60% of the country's GDP.
Household consumption, services, and agricultural production, key drivers of domestic demand, managed to limit the slowdown registered on the external front.
Services expanded 3.4% in the fourth quarter, slightly more than in the previous quarter, while volatile agricultural production jumped 7%.
Write to Juan Montes at

Monday, February 18, 2013

Upcoming Event: America Trades Produce Conference March 6-8

There will be an upcoming trade event next month focusing on produce into and out of Mexico.  Here are some details:

What:  America Trades Produce Conference
When: March 6-8, 2013
Where:  McAllen Convention Center, McAllen, TX

The information below about the event is from the organizer's website

The third annual America Trades Produce Conference is fast approaching, and promises to be as relevant as the two prior events.  Scheduled for March 6 – 8, 2013, at the McAllen, Texas Convention Center, this year the event committee has added a trade expo to the mix.  With the addition of a new and exciting EXPO event showcasing fresh in-season product, we are expecting an even stronger turnout this March.
As has been the trademark of the event, educational sessions will encourage direct dialogue between the industry and U.S. and Mexican government officials.
“Last year, we had top officials from FDA and SENASICA, including Mike Taylor and Octavio Carranza,” said John McClung, President of event co-host Texas International Produce Association. “We expect that some more details of the Food Safety Modernization Act will be public by March, and just how the new law will affect produce crossings at the border will be a major point of discussion.”
The event will also feature receptions and educational sessions on the expo floor in a new and exciting format. “Attendees will have the chance to view Mexican fruits and vegetables and learn a little bit at the same time,” McClung added.
This year’s conference will bring together individuals and organizations from throughout the produce supply chain and across international borders to discuss the industry’s hottest topics, political impact of the new administration in Mexico, and other critical topics.
“With the Pena Nieto Administration taking over the reins in Mexico, and potentially some new top leadership within the Obama Administration, we will have a session that gives a preview of how the industry can expect the governments to interact,” said Lance Jungmeyer, President of event co-host Fresh Produce Association of the Americas. “With the Tomato War, immigration and various trade issues in the forefront, it is crucial that our governments work together.”
Attendees will include many U.S. and Mexican representatives, including grower/shippers, retailers, processors, allied industry representatives, and city, state, and federal government officials.
In addition the new expo and historically dynamic topic and speaker line-up attendees have come to expect, attendees can participate in a joint tour of the Pharr/Reynosa Port of Entry and the Quanta Lab facility.  Throughout the event, several industry awards will also be announced, including:  The Packer’s Importer of the Year, The Produce News Rising Star and the Produce Business Exporter of the Year award.
The event is co-hosted by the Texas International Produce Association and the Fresh Produce Association of the Americas.
Visit to learn more about the conference.

Thursday, February 14, 2013

From Moneyweek: The New World: Why you should be excited about Mexico

The New World: Why you should be excited about Mexico - MoneyWeek

Last Thursday an explosion at the headquarters of Mexico’s national oil giant ripped apart one of the country’s biggest skyscrapers and killed 36 people. It was a devastating event. And the rumour mills quickly sprung into operation. US geopolitical analysts Stratfor suggested that Mexico’s drug gangs may have played a role. And these stories were picked up by mainstream international news outlets, who began speculating who was behind the attack.
In the end, however, it emerged that the cause of the disaster was much more prosaic, with investigators finding evidence of a gas leak and an electrical fault.
The speed with which the international press jumped on the violence rumours shows just how badly Mexico is perceived by the mainstream media. When I first told people to invest in Mexico back in July, it certainly proved controversial. Several readers pointed out the country’s problems in the comments section, with security and corruption topping the list.
But despite all these problems, the market tracker that I tipped is up 20%, breaching new highs. And to be honest, I don’t think British investors should be ignoring what is actually happening in Mexico. I’ll tell you why today.

$57bn pours into Mexico in three quarters

Now, in this issue of The New World, I’m not going to downplay the social impact and human suffering that the drug war is causing. And I’m not ignoring the unfairness and inequality created by the pernicious spread of corruption. But the fact is, Mexico’s economy is powering on regardless of these evils. And while high-profile accidents and drug battles are scaring away retail investors, a lot of the ‘smart money’ is already in the country. 
For example, during the first three quarters of 2012, institutional investors poured $57bn into Mexican stocks and bonds. That’s five times more than went to Brazil.
Why is that happening?
Firstly I’m not surprised. I’ve spent a lot of time in Mexico, including a stint reporting there for a US mining publication, and I’ve always been impressed how far removed life in Mexico City is from the drug problems. Indeed, if it wasn’t for the local press’s penchant for gory pictures of bloodstained drug lords lying sprawled on roadsides, I would have forgotten all about it. But it’s been a few years since I was last there, so I got in touch with one of my contacts, Eduardo González, a lawyer with Mexican firm Creel.
As a corporate finance lawyer specialising in mergers and acquisitions, Eduardo is involved in some of the country's biggest business deals and has a pretty good idea of the mood among international investors. And he had an interesting perspective. He told me that many foreigners have a misperception about the drug war.
“You have to understand that this is an issue related to certain specific towns in parts of the country. Most multinational companies can carry on with their business without problems. Sophisticated international investors know that, which is why they are so optimistic about Mexico.”
So what is it that has the ‘smart money’ so excited?

A great reason to buy Mexico

In a word: manufacturing. Over the last twenty years, Mexico has transformed itself into one of the world’s most competitive manufacturers. One reason is demographics. Mexico is currently in the midst of a huge demographic boom that is seeing the working-age segment of the population grow faster than children or pensioners. The mass of workers is keeping a lid on wages – exactly the opposite of what’s happening in China. As a result, the gap between Chinese and Mexican manufacturing cost is closing.
Free trade is another factor. Mexico is arguably the world’s most open economy, and has free trade agreements with more than 40 countries. Tariff-free imports keep factory input costs down, while the deals also give exporters free access to huge swathes of the world economy.
Mexico’s ability to make things for cheap has coincided with a boom in demand from its main markets. Since 2000, Latin American economies have enjoyed a commodity-fuelled growth spurt. And a significant chunk of that new-found wealth has been spent on fancy new imports. As a result, the Latin American share of Mexico’s total exports has shot up. Meanwhile, demand from the US, which is still the main market for Mexican exports, is growing too.
I am bullish on the US as it looks the most promising of all the developed world economies. And, as regular readers will know, I am also bullish on Latin America. So buying Mexico – which is one of the most competitive manufacturers and traders in the Americas – is a great way to play growth along the whole landmass. 

If you've enjoyed what you've read so far, I've got something you'll definitely be interested in.
'The New World' is MoneyWeek's FREE globally-focused weekly email, bringing you the most exciting investment stories from Asia and Latin America.


The oil problem

Paradoxically, another of the things that I like about the Mexican economy is that vast swathes of it are terribly mismanaged. One of the biggest problems is energy as Mexican oil production has steadily declined in recent years. That’s not because it’s running out of oil like the UK, but because the state oil firm, Pemex, is used as a government piggy bank and therefore unable to invest in new fields. Another problem is the cosy system of oligopolies and duopolies that drive up costs for Mexican consumers.
New president Enrique Peña Nieto was elected on a platform of tackling those reforms head on and if he could achieve significant success in just one of those areas, it would be a massive boost to the economy. For example, Capital Economics estimates that partially privatising Pemex could add almost 1% to annual GDP growth.
Don’t get me wrong, delivering these reforms won’t be easy. After all, the previous administration had similar goals and got nowhere in six years. Indeed there are serious obstacles to both. Oil is a populist issue and privatising Pemex would require a change to the constitution. “Many Mexicans believe they own the oil”, says Gonzalez, “and it is hard to convince them that it is more valuable to make money by selling it than leaving it in the ground”.
Another problem is that energy reform can’t come without a change to the tax system. That’s because if Pemex is no longer the government piggy bank, someone else is going to have to pay the bills. Unsurprisingly, politicians are cagey about confronting this – telling people they have to pay more tax is rarely a vote winner.
Then there are the oligopolies. Given that many of these supported Peña Nieto’s campaign, it is going to be a bit awkward when he tells them to break up their business.
But so far, Peña Nieto is making a decent fist of it. Just two months into the job, he has already passed some minor legislation to improve the country’s underperforming education system and private-sector unions. He’s also come up with a unique strategy for the more thorny problems. Realising he can’t take on the unions, oligopolies and populists alone, he’s convinced the other political parties to sign a 'Pact for Mexico'. While the wording of the pact is understandably vague, it basically commits to sorting the economy’s most obvious problems.
I’m not being naive, I don’t think that Peña Nieto has a magic wand that will suddenly solve Mexico’s problems. In fact I think he will probably fail with most. But he looks like the first Mexican politician in a long time that might just be able to fix one of them. And if he does, it will provide extra spice for an already sound investment.
Sorting the security problem is more complex. But readers shouldn’t wait for the situation to heal completely before investing. I think you should seize the opportunity now...

How you could invest

Obviously private investors don't have the same access to Mexican stocks as fancy institutional funds. But it is easy enough for you to invest in the Mexican story. In fact, Lars and I have nearly finished a report that spells out exactly what you need to know to invest overseas.
For the last few months, Lars has been working on a hugely exciting project that is almost ready to launch. This is a project that could deliver enormous gains over the next year. I’ve read the report he has put together and it’s hugely entertaining. There are run-ins with gangsters. There are riots. Lars has lived quite the life!
But the most important thing is that he has written one of the most exciting emerging-market investment stories I have ever read.
The point is, Lars and I believe that many British investors are ignoring hugely promising opportunities. Take Mexico. One of my favourite sectors is banking. At present, Mexicans are underbanked. The total sum of credit made available by banks and other financial intermediaries stands at just 34% of GDP, compared to 63% in Brazil and 93% in Chile. But in the last few years, as Mexico’s economy has picked up, more Mexicans have started to use banks. And in a big way!
Between 2006 and 2012 the total number of bank clients in Mexico rose 62% to 52 million! Indeed between 2009 and 2011, the share of the adult population that uses some form of banking or financial product has risen to 58% from 48%.
As a whole,total bank credit to the private-sector is growing at around 14% per year. This is good for the wider economy as extra credit fuels expansion. It is also good for Mexico’s banks, which are growing at great speed.
My favourite is Grupo Financiero Banorte (GBOOY:US). Despite a recent run up in the share price, it is still one of the cheapest Mexican banks on a price/earnings (p/e) ratio of 14.4. It is the only Mexican banking operation that is Mexican-owned and controlled. It has been at the forefront of a buying spree that has seen local investors snap up Mexican banking interests from retreating Europeans.
For example, it recently spent $800m to buy half of Spanish bank BBVA’s Mexican pension assets. Not having a struggling European parent company to support means that it can devote more attention to exploiting opportunities in the local market. And, judging from its latest set of results, it is doing just that. In the last quarter of 2012, profits rose 20% as the bank rolled out new products to consumers.
Another advantage with buying Banorte is that owning a well-run, diversified bank gives you exposure to growth across all sections of an economy. I’ll bring you more opportunities like this in The New World. But keep an eye out for Lars’ hard-hitting report.

From Wall Street Journal: Mexico Sees Energy as Key to Reset Economy

MEXICO CITY—For decades, Mexico's energy policy has largely boiled down to exporting oil for cash to fund state spending. Now the new government is negotiating with rival political parties to curb that practice and instead use state monopoly Petróleos Mexicanos to a different end: cheaper energy, said Pemex CEO Emilio Lozoya.
In an interview with The Wall Street Journal, the 38-year-old chief said the administration of President Enrique Peña Nieto was striving to overhaul tax and energy laws this year that Mr. Lozoya said would result in cheaper energy for consumers and companies that could drive a more competitive economy.
Now, the Mexican government relies on Pemex, one of the world's biggest oil firms, for 35% of government spending, leaving the company with little left over to invest in areas like natural gas. Private companies, meanwhile, are largely barred from investing thanks to Mexico's nationalistic energy laws.
The result is an energy-rich country where companies often pay higher prices for energy than elsewhere. Mexico has large reserves of natural gas, for instance. But since Pemex doesn't invest enough in gas, the country imports gas from the U.S.—raising costs to Mexican firms as they try to compete with global players like China.
"Energy ought to be looked at on a competitive basis and not as a foreign-exchange generator," Mr. Lozoya said, pointing to a prospective investment boost in industries ranging from gas to petrochemicals to fertilizers.
Complicating matters, Mexico's oil output has slipped to 2.55 million barrels a day from a peak of 3.4 million in 2004, as easy oil in the Gulf is replaced by more difficult reserves of deep-water oil and heavy oil onshore. To boost production, the company will need more money, technology and know-how.
For Mexico, beset by drug violence the past few years, such a move would send a powerful signal to investors, likely driving billions in foreign investment, economists say.Changing Mexico's energy laws is widely seen as an important test for a country that captured the imagination of investors for linking its economy in a free-trade deal with the U.S. in the mid-1990s, but which saw its star dim to other emerging markets like China and Brazil in recent years.
"This is all about regaining the reform momentum, and you don't see that that often in emerging markets today. Taking on those taboos, and those changes, it would re-establish the Mexican narrative as a reformer and be very positive," said Gray Newman, chief economist for Latin America at Morgan Stanley MS +0.34% .
Change won't be easy. The oil nationalization in 1938, by Mr. Peña Nieto's own Institutional Revolutionary Party, is seen as a key event in Mexican identity. Some leftist lawmakers, Mexican contractors and even some foreign oil-service firms that work with Pemex on a fee basis might see change as a threat, analysts say.
The freshly appointed Mr. Lozoya, the youngest ever Pemex chief and who is seen as close to the president, was careful not to discuss specifics about proposed changes to energy laws in the Tuesday interview, saying it was up to Mexico's political parties. But he did point out that political parties here from left to right had already come together in recent months on topics like education and labor reform.
"Obviously, our challenge is we need to deliver on the pending reforms and governing responsibly over the next years, but I do see this as a very good opportunity for Mexico to retake a path of higher productivity and higher economic growth," he said.
Mexico's conservative opposition, the National Action Party, largely favors a broader opening of the energy business to private investment, while the leftist Party of the Democratic Revolution has proposed a more limited opening for areas like refining.
Mr. Newman believes Mr. Peña Nieto may well deliver a broad-ranging reform. "I don't think the prospects for reform have been this strong in Mexico in over 20 years," Mr. Newman said.
The son of a former energy minister, Mr. Lozoya has had a tough start as head of Mexico's largest company, which had 2011 sales of $111 billion. An explosion at a Pemex office building at the company's Mexico City headquarters last month killed 37 workers. The company said the blast was caused by a buildup of methane in the building's cellar, but doesn't yet know what caused the gas to accumulate.
The investigation, led by the country's attorney general's office, will take a few more weeks, Mr. Lozoya said. "We are in mourning, but we're standing and looking forward, and working on our modernization plans," said the executive, who is the grandson of a revolutionary general and politician.
He pointed to the shale-gas revolution in the U.S., along with deep-water and heavy oil, as examples of how Mexico can benefit from new technologies that boost energy output, lower prices and create jobs.
Mexico may hold the world's fourth-biggest reserves of shale gas, according to the U.S. government. But Pemex has drilled only a few wells and not produced any gas. "Mexico ought to be producing more of its own gas, and eventually exporting it," Mr. Lozoya, a lawyer and economist who got his master's degree in public policy at Harvard said. "Clearly the geology that you have in some parts of the U.S. extends into Mexican territory. So it's a matter of just investing and getting it done."
Mr. Lozoya also envisions Pemex acting as a lever of development for the economy, spurring the development of a stronger oil service sector and promote new industries like ethanol.
"It is important we support medium-size companies, together with programs from national development banks, so they can access credit and be suppliers to Pemex, and make sure over the next few years that we develop a strong oil-servicing industry in Mexico that can grow and be regionally competitive," he said, speaking in English.
The government is considering slowly replacing additives like MTBE in gasoline with ethanol, he said. Pemex would act as the buyer and gatekeeper to the industry, Mr. Lozoya said.
Last year, Pemex had to abandon its second tender for ethanol to be used as a gasoline additive because the offers made were above the price the oil company was prepared to pay. Mr. Lozoya said Pemex would be prepared to pay "above average prices" to firms.
"Pemex may end up paying a little bit more, but it would have a positive impact on the environment and on jobs domestically, so it would be worth it," he said. "I foresee and I hope that in a couple of years we'll have a much stronger energy sector with many more medium-size companies present in it; and that Pemex becomes a much stronger development lever of the country."