REPOST: Mexico energy reforms expected to boost Texas economy

Mexico’s recent economic performance and reforms are attracting the attention of its neighbors further north. David Hendricks of the San Antonio Express-News writes how the neighboring country’s energy reform can have a big impact on the southern border regions of the United States.

Image Source: cnbc.com

AUSTIN — Texas stands to profit the most in the United States from Mexico's energy reforms, and gains along the border will transform the region, an economist told state lawmakers Friday.

From 2015 to 2018, Texas will add 217,000 jobs from Mexico's opening of its energy sector to foreign and private investments, Nathaniel Karp of BBVA Compass Bank said to a Texas Senate subcommittee.

State revenues will increase by $3.4 billion, he added, and Texas' economy will grow by $45.4 billion.

However, a University of Texas at San Antonio researcher later said more information may be needed to bear out BBVA Compass' projections.

BBVA Compass' predictions assumes Mexico will purchase up to $10 billion a year in Texas energy-related goods and services and that the state's oil and gas companies' gains will have a ripple effect in housing, durable goods manufacturing, retail and recreation.

Image Source: clineshalecentral.com

The projections also assume Mexico's economy will grow at least 0.8 percent from its energy reforms, and that there will be a smooth roll-out of the changes and adoption of new technologies.

“Faster economic growth at the border will narrow the socio-economic disparities between Texas' border cities and big metropolitan areas,” Karp said. “If these border towns effectively seize the opportunity, the Texas-Mexico border could see one of the (most) dramatic transformations in history.”

South Texas should garner sizable gains from Mexico's law change, initiated late last year.

“South Texas and the Mexican states of Tamaulipas, Nuevo León, and Coahuila have a combined (gross domestic product) of more than $300 billion,” he said. “If the energy reform adds an extra 1 percent to real GDP growth, the region would generate $60 billion in additional economic activity during the next 10 years.”

Others witnesses took a more conservative approach to gauging the potential impact of Mexico opening oil and gas exploration to foreign companies.

“I was impressed that (BBVA Compass) was willing to go out on a limb like that,” said Thomas Tunstall, research director at UTSA's Institute for Economic Development, who also testified to the Texas Senate Natural Resources Subcommittee hearing at the Capitol.

“We are more cautious about the speed for this to proceed. I think it will be more incremental than that, perhaps over 10 years,” Tunstall said of the 2015-18 projections.

“There's a lot of uncertainties,” he added. “Forecasting is a treacherous business. I'm not saying they are wrong. We just don't have enough information. The earliest we will see private companies active in Mexico will be in the middle of 2015.”

The UTSA institute has teamed up with the National Autonomous University of Nuevo León for a report on Mexico's energy potential. The report will be issued in nine to 12 months, Tunstall said, and will include its own economic projections.

Image Source: res.dallasnews.com

The report also will explore the legal aspects of Mexico's energy reforms and provide a roadmap for Texas energy companies doing business south of the border, he said.

Other speakers Friday outlined the steps Mexico plans to open its energy sector to foreign participation for the first time since 1938.

Mexico's state oil monopoly, Petróleos Mexicanos, or PEMEX, will continue to dominate conventional drilling and shallow-water fields, said José María Lujambio, an Austin-based lawyer for the San Antonio law firm of Cacheaux, Cavazos & Newton LLP.

Incoming foreign investments will dominate shale oil and gas drilling as well as deep-water offshore activities, Lujambio said.

PEMEX currently operates all the gasoline and diesel stations in Mexico, but different brands can start operating in Mexico by 2016. By 2018, prices will be determined by the market instead of the government and its use of subsidies, Lujambio said.

Private companies can start propane sales in competition with PEMEX in 2016, he added.

Additional opportunities exist for companies foreign to Mexico to build pipelines and power transmission lines, he said.

For more on President Enrique Peña Nieto’s activities, initiatives, and projects, visit the Mexican presidential website.

REPOST: Mexico Auto Industry: Why Are Kia Motors, BMW, Nissan, And Mercedes Headed South of the Border?

In a vote toward the nation’s skilled workforce, Korean automobile company Kia is setting up shop in Mexico. This article examines why more and more carmakers are looking to manufacture their products in the developing country.

The development was so important to Mexico's economy that the president made the announcement himself. On the same day that General Motors Co. (NYSE:GM) said it would be calling home Cadillac SRX crossover production from Mexico in a deal worked out with the United Auto Workers union, South Korean automaker Kia Motors Corp. (KRX:000270) said it will spend more than $1 billion to construct its first auto manufacturing plant in Mexico, according to the Spanish-language El Financiero news agency.

President Enrique Peña Nieto delivered the news Wednesday in Mexico City, highlighting the country's determination to attract automotive investment.

“The Kia plant in LaGrange, Georgia, is working at capacity, and they had a choice to expand capacity there or follow what the industry has been doing in recent years,” Dean Barber, founder of Barber Business Advisors, a corporate site-selection adviser, told International Business Times by phone after the announcement was made. “Kia is building at the doorstep of the United States. Another good thing about that is Mexico has more free trade agreements than the United States, about 40.”

Image Source: ibtimes.com

Employees work at a production line after the opening of Honda's new automobile plant in a suburb of Celaya, Guanajuato state, February 21, 2014. Reuters/Henry Romero

Bordering the world’s second-largest auto market to its north, Mexico has long been an ideal location for car manufacturing, especially after Canada, the U.S. and Mexico began dismantling protective trade barriers starting in 1994 with the North American Free Trade Agreement. At the time, Mexico produced a little more than one in 20 cars in North America; the most recent figures from the INEGI, the country’s statistics and census bureau, puts that figure at closer to one in five.

“Having a Korean company enter Mexico will mean that practically all global automakers will be represented in the country,” Armando Soto, president of Kaso y Asociados, a Mexico City auto industry consultant, told Bloomberg Businessweek.

Automakers have been attracted to Mexico’s low labor costs to produce small sedans, which offer slim profit margins compared to trucks, SUVs and luxury cars. In February, Honda Motor Co. Ltd. (TYO:7267) began making its Fit at a new $800 million plant in Celaya, Guanajuato state, marking the first time the five-door subcompact – popular among price-conscious empty nesters and first-time new-car buyers – is being built in North America. In February, Mazda Motor Corp. (TYO:7261) opened its first wholly owned plant in North America, a $770 million facility in Salamanca, Guanajuato state, that can make as many as 175,000 Mazda2 supermini cars and Mazda3 compacts.

“The Forte compact, Soul subcompact or Rio subcompact could be among the possibilities to be built [at the Kia plant],” reported Automotive News. Reuters confirmed Wednesday afternoon the Kia Forte would be the first car made at the plant.

In recent years Mexico has begun attracting the attention of companies seeking to build more high-end vehicles, a nod to the country’s improving workforce, which 20 years ago might not have been considered reliable or experienced enough to put together a BMW X5 or an Infiniti Q.

In June, Daimler AG (FRA:DAI), the maker of Mercedes-Benz, and Nissan Motor Co. (TYO:7201) announced plans to spend about $1.36 billion building a plant near Nissan’s existing one in the Mexican state of Aguascalientes. The project would see production of the Nissan’s Infiniti luxury cars by 2017 and future Mercedes models as part of an expanding alliance between the German luxury carmaker and Japan’s third-largest car company.

A week after that announcement Daimer rival Bayerische Motoren Werke AG (ETR:BMW) said it was spending $1 billion to build another plant in Mexico, one that will produce about 150,000 vehicles a year beginning in 2019. The German carmaker will make four of its popular models for the North American market in the central industrial city of Toluca.

“BMW and Mercedes are going to be building cars down there. They traditionally might have focused on lower end cars, but BMW, Mercedes, Infiniti – these aren’t low-end cars,” said Barber.

Mexican automotive workers make in a day roughly what U.S. car factory worker make in an hour, and there are more than a half-million of those Mexican automotive workers. Since 2011 Mexico has attracted nearly $10 billion in foreign direct investment (including commitments that have not yet been fulfilled) from the automotive sector, according to the Center for Automotive Research in Ann Arbor, Michigan.

Here’s a list of automotive assembly facilities in Mexico, including ones that have already broken ground but aren’t ready yet for production.

BMW AG
Bayerische Motoren Werke de México S.A. de C.V.
Toluca, State of Mexico
BMW 3 Series compact sedan
BMW 5 Series mid-sized sedan
BMW 7 Series full-sized sedan
BMW X5 mid-sized luxury SUV

DAIMLER AG
Mercedes-Benz México S. de R.L. de C.V.
Santiago Tianguistenco, State of Mexico
Freightliner trucks

Monterrey, Nuevo León state
Urban and touring buses

Saltillo, Coahuila state
Freightliner trucks

FIAT CHRYSLER AUTOMOBILES
Saltillo Truck Assembly
Saltillo, Coahuila state
Ram pickup truck

Toluca Car Assembly
Dodge Journey mid-sized crossover
Fiat 500 city car

FORD MOTOR COMPANY
Cuautitlán Stamping and Assembly Plant
Cuautitlán Izcalli, state of Mexico
Ford Fiesta supermini

Hermosillo Stamping and Assembly
Hermosillo, Sonora state
Ford Fusion mid-sized sedan
Lincoln MKZ mid-sized luxury car

GENERAL MOTORS COMPANY
San Luis Potosí Assembly
San Luis Potosí, San Luis Potosí state
Chevrolet Aveo subcompact cars

Silao Assembly
Silao, Guanajuato state
Chevrolet Silverado
GMC Sierra

Ramos Arizpe, Coahuila state
Opel Corsa
Chevrolet HHR station wagon
Cadillac SRX crossover (production will move to Tennessee)

HONDA MOTOR COMPANY
Honda De México S.A. de C.V.
El Salto, Jalisco state
Honda CR-V compact crossover

Celaya, Guanajuato state
Honda Fit five-door subcompact
Honda HR-V subcompact crossover

NISSAN MOTOR COMPANY
Nissan Mexicana, S.A. de C.V. Aguascalientes
Aguascalientes, Agusacalientes state
Nissan March supermini
Nissan Versa subcompact sedan
Nissan Sentra compact car
Nissan Frontier pickup truck

Nissan Mexicana, S.A. de C.V. Cuernavaca
Cuernavaca, Morelos state
Nissan Sentra
Nissan Versa
Nissan Frontier pickup truck
Nissan NV1200 light commercial vehicle
Nissan NV200 taxi for New York City

TOYOTA MOTOR CORPORATION
Toyota Motor Manufacturing de Baja California S. de RL de C.V
Tijuana, Baja California Norte state
Tacoma pickup truck

VOLKSWAGEN AG
Volkswagen de México, S.A. de C.V.
Puebla, Puebla state
Jetta sedan
Golf compact five door

Grooming a strong, world-class automotive industry is one of President Enrique Peña Nieto’s aspirations for Mexico. To read about the president’s government plans and programs, visit his administration’s official website.

REPOST: Mexico’s Resources Fuel The Texas Startup Economy

Mexico's economic potential has a positive effect not only on its own growth prospects but also that of its nearest neighbors. Sara Inés Calderón of TechCrunch discusses the growth opportunities made possible by Mexico to the neighboring U.S. state of Texas.

Image source: techcrunch.com

Everything is bigger in Texas, and thanks to Mexico, that may be also soon be true of the state’s growing tech sector. Flush with cash, Texas’ proximity to Mexico gives the state’s tech companies distinct advantages over other regions, according to entrepreneurs and others involved in the state’s tech industry.

Mexico is Texas’ number one trading partner, a fact leaders from both regions often proudly tout in speeches. Historically much of this trade has revolved around maquiladoras, which in the 1990s were geared largely toward textile manufacturing, or auto parts. With Texas’ rising tech scene, startups are looking south to meet their manufacturing needs, or otherwise benefiting from the close proximity to Mexico.

“They say that San Antonio is the northernmost city in Mexico,” says Lorenzo Gomez, director of San Antonio startup incubator Geekdom. “We in Texas get the benefit when immigrants come into our country — it’s an injection, an infusion of entrepreneurs that most other places don’t get.”

Brownsville — at the tip of Texas, on the border and the Gulf Coast — is a great example of how companies may leverage Mexico’s manufacturers. SpaceX is set to build a rocket launch site there, and the maquiladoras that thrived in this region of Texas may be easily adapted to the type of high-tech needs a company like SpaceX would have, according to one local official.

“SpaceX would be hiring and developing 600 rocket scientists. We’ve already been contacted by a string of space-related and hi-tech companies wanting to expand their operations here,” said Gilberto Salinas, Executive Vice President of the Brownsville Economic Development Corporation (BEDC).

Plans for Brownsville include luring into town some of the 250 suppliers working with SpaceX in Texas, working with the local university to create a pipeline of talent to high-tech jobs, commercializing university innovations and more, Salinas tells me.

El Paso’s biomedical sector is growing by leaps and bounds, and the manufacturing facilities in Ciudad Juárez, on the other side of the border, are a part of that equation, said Emma Schwartz, President of the Medical Center of the Americas Foundation. The foundation is working on creating a cutting-edge medical center facility, biomedical infrastructure and talent pipeline in El Paso. Large companies are already manufacturing high-tech equipment in the area, she said, such as Johnson & Johnson employing about 8,000 people making pacemakers and heart stints.

“We have a strong manufacturing industry here; it was mainly textiles back in the 1980s, but there’s definitely a high-tech component that can be adapted as well,” Schwartz tells me.

A startup incubator in El Paso, the Hub of Innovation, has even created a special manufacturing partners program to help startups meet their manufacturing needs by finding facilities in Mexico, said Cathy Swain, the president and CEO. The region, she said, has one of the largest collections of advanced manufacturing in the country.

“For the first time in modern history the lines have crossed where China is no longer the obvious option — you have to look at Mexico,” said Alan Russell, president and CEO of Tecma Group, located in El Paso. Tecma has 20 manufacturing facilities in Mexico ranging from aerospace to medical devices to electronics.

China is no longer always the best manufacturing solution for a variety of reasons, Russell told TechCrunch, and this is great news for Texas’ biggest trading partner. Labor and shipping costs in China are rising at the same time that shipping times are longer, whereas in Mexico products can be shipped in the afternoon and delivered by morning. So Mexico is seeing more refurbishing of electronics that used to be done in China, he said, as well as manufacturing of fiber optics, coils, and transformers.

Proximity to Mexico has been a boon to Austin-based entrepreneur Anurag Kumar, for different reasons. The CEO of iTexico, an IT solutions company with most employees based in Guadalajara, is an ardent advocate of Mexico as a source for tech talent, and was recently awarded the 2014 National Entrepreneurship Award (Premio Nacional del Emprendedor) by the president of Mexico for making a positive impact on the economy.

Texas businesses have some very tangible benefits by working with Mexican talent and companies, according to Kumar, including: geographic proximity, cultural affinity, strong infrastructure and governmental support, low attrition, bilingual expertise in a growing market (Latin America) and a trained workforce. In a white paper he co-authored on the subject, Kumar noted that there are about half a million IT professionals in Mexico, making the country the fourth largest provider in the world.

But not all startups have found a benefit in Mexico’s resources.

Laura Bosworth is the CEO of TeVido Biodevices, a company that uses 3D printing technology and a person’s cells to print new nipples for breast cancer survivors. TeVido’s technology was created in El Paso, and after completing its first round of tests there, Bosworth said the region just doesn’t have the biotech facilities the company needs to continue to grow.

“I was hoping that the Medical Center of the Americas would have their facility ready to go,” Bosworth said. “I think maybe a year from now they might be ready.”

As far as Mexico goes for TeVido’s needs, she said maquiladoras aren’t well suited to startups that don’t need large scale production from the get go. So, TeVido is set to move to Austin, where there’s more biotech infrastructure available.

Texas has awarded about $205 million to early stage companies to pursue their ideas via the Texas Emerging Technology Fund, and many other entities throughout the state are doing their part to foment tech companies —from startup accelerators to university programs for student entrepreneurs. As Texas’ tech scene grows, Mexico is bound to play a part somehow, said Geekdom’s Gomez. Whether it’s Mexican startups and entrepreneurs, outsourced labor or maquiladoras, Mexico may just be Texas’ secret weapon in its race to out-innovate everyone else.

Visit the Presidential Wesbite for more on Enrique Peña Nieto and his initiatives for the government of Mexico and its role in regional economic growth.

REPOST: Reforms will have a positive impact on the Mexican Economy in the long run, but an adverse short term effect

Due in part to the efforts of the current administration to reform the economy, investors remain confident about the state of the Mexican economy in spite of the challenges that remain. Rodolfo Ramos Cevallos, writing for The Yucatan Times, discusses these successes and how the country itself can overcome the temporary setbacks it faces along the way.

Image source: TheYucatanTimes.com

Many investors had high hopes for Mexico’s market this year given an improving global economic outlook and a slate of planned domestic reforms, but some of the enthusiasm seems to have faded and economic growth has been subdued there year-to-date.

I have faith in Mexico’s future, even though there are likely to be a few short-term bumps as Mexico’s reform efforts continue to be implemented—and some challenged. I’ve invited a member of my team based in Mexico City, Rodolfo Ramos Cevallos, to share his insights on our investment outlook for Mexico and the potential opportunities we see there.

We believe there was a reform euphoria being priced in equity markets in Mexico in the last couple of years, notably in 2012, when Enrique Peña Nieto won the presidency and outlined an ambitious agenda of sweeping changes, many pro-business. His “Pact for Mexico” managed to drive through a number of structural reforms that had proved intractable for decades. Most people agree that, overall, these reforms are likely to have a positive impact on the Mexican economy in the long run. However, in the short term, some reforms could have an adverse effect, including higher tax rates that are likely to hinder consumption as they are assimilated. Another reform that is expected to have a short-term negative impact on parts of the economy is telecom reform; it may create adverse conditions for mobile communications operators.

In our opinion, the suite of reforms currently underway in Mexico offers the potential to shift the economy to a new growth path and provide a positive example for other countries. Opposition to reform from vested interests in Mexico is inevitable, but we believe persistence could bring potentially significant positive outcomes, both for the country’s people and for investors.

We think the most exciting reform in Mexico to date is the liberalization of the energy sector. The most difficult part of the approval process was a Constitutional Amendment, which was completed last year. Congress is currently debating the secondary legislation; this legislation, together with the later-to-be published standards, will give further detail on the reform implementation.

Over the last few months, we have had an opportunity to meet with different companies in Mexico and elsewhere in the Americas in the energy sector (among others), including exploration and production companies, as well as energy regulators. All these players are eagerly waiting for the legislative process to conclude so they can participate in what could turn out to be a great opportunity. It is clear to us that energy sector reform could be the most important development in Mexico since the adoption of the North American Free Trade Agreement (NAFTA) 20 years ago, and we continue to closely monitor any new developments. We believe successful implementation could lead to a positive spillover effect into the broader Mexican economy in the next few years.

Market Valuations

Despite weakness in Mexico’s stock market thus far in 2014, many investors have remained at least somewhat positive; its market has been trading at a valuation premium to many other markets in Latin America, according to our analysis. In the short term, investors seem to have become more cautious on the timing of an economic recovery. Last year was very challenging, with economic activity coming in well below what many forecasters were expecting, partially due to adverse weather, lower government spending, financial distress at three of Mexico’s largest homebuilders and the uncertainty from Mexico’s fiscal reform, among other events. GDP growth came in at a mere 1%1 in 2013. Some investors are concerned that a pickup in economic activity will continue to be delayed and 2014 economic growth could again disappoint. The International Monetary Fund (IMF) currently expects GDP growth of 3% this year.2

Mexico’s fiscal reform had an impact on companies and individuals alike. At the end of 2013, prior to the implementation of the tax reform, we saw a high level of uncertainty among corporations and many of them stopped investing and hiring. Now a quarter into 2014, and with companies already operating under the new fiscal rules, we are more comfortable with many companies’ ability to cope with higher taxes. On the consumer side, there were excise taxes levied on sugary drinks and foods with a high caloric content, among other items, which had a negative impact as Mexico ranks among the highest in the world in terms of soft drink consumption. Additionally, higher-earning individuals saw their income tax rate increase. In spite of these tax hikes, we believe consumer spending should be able to recover toward the second half of 2014 as we begin to see more clarity regarding the new rules and, we hope, the overall economy picks up.

Image source: TheYucatanTimes.com

Our Investment Focus and Process

As Mexico is currently one of the countries in Latin America with the lowest banking penetration, companies in the financial sector present attractive potential opportunities to us. We believe the financial sector to be a good proxy for the overall economy and also a good vehicle to obtain exposure to potential growth in consumption. We expect the sector could continue growing and operating at attractive profitability levels.

The mining sector is another area that we follow closely. Even after accounting for recently implemented royalties, we believe there are low-cost producers with interesting production growth profiles in base and precious metals.

Meeting management and visiting companies’ operations are an integral part of our investment process. We also talk to regulators, customers, suppliers and competitors as a reference check. This process has proven critical, especially when trying to assess the impact of the various reforms including telecom, financial, fiscal and energy reforms. Companies we speak to appear to willingly take on the challenges and opportunities that these regulatory changes bring, and they are focusing on the variables they can control. We also look for companies that clearly and promptly communicate with investors and that have good corporate governance practices.

Security concerns are valid in Mexico, and it is an issue that should continue to be addressed, in our view. It has been hard for us to assess the extent of the problem, since there have been cases of retaliation from drug cartels against media outlets in recent years. However, these issues have been concentrated in border cities with the United States and two states in southwest Mexico. For example, life in Mexico City, and in other large cities, has largely been business as usual. The current administration has been closely working with the United States in the apprehension of several high-level drug cartel leaders. While we continue to see acts of violence in some areas in Mexico, we expect bilateral cooperation with the United States to continue to try to tackle this problem.

Mexico is a challenging market because investor expectations are generally high but, at the same time, the country is experiencing weak economic growth. Historically, Mexico’s growth has been unexciting, averaging less than 3% over the last 20 years.3 President Peña Nieto’s new administration is trying to achieve higher sustainable growth rates by improving the country’s political and economic institutions. These changes are expected to encourage innovation, give entrepreneurs access to credit, increase competition in key sectors and make the political system more pluralistic, among other benefits. We are optimistic that at least some of the administration’s lofty goals and reforms can be achieved, and we believe improving economic trends in the United States, Mexico’s neighbor to the north, could also offer added support. These are a few reasons why we are enthusiastic about Mexico’s long-term outlook.

What are the Risks?

All investments involve risks, including possible loss of principal. Foreign securities involve special risks, including currency fluctuations and economic and political uncertainties. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets. Currency rates may fluctuate significantly over short periods of time and can reduce returns.

The Administration of Mexican President Enrique Peña Nieto continues to work toward comprehensive economic and social progress and reform. Visit the Presidency's website for more details

REPOST: Mexican Economy Approaches Developed Nation Status

Defying all previous expectations, particularly from its northerly neighbors, Mexico is slowly but surely emerging as a new major player in the economic stage. Morris Bechloss of The Desert Sun writes.

Image source: commons.wikimedia.org

While most media headlines regarding the impact of Mexico among world nations seems to dwell on such negatives as drug gang wars, climatic disasters, and immigration problems, America’s southern neighbor, and partner in the North American Free Trade Authority (NAFTA) is reaching economically developed nation status. With a 120 million strong population, a fast-growing middle class, a rehabilitated oil production complex (PEMEX), and an expanded manufacturing base has caught attention where it counts, the world’s leading credit analysts:

1) Moody’s has recently elevated Mexico to A3 status from BAA1. Only Chile has reached that exalted elevation in Latin America.

2) Standard & Poor’s, which was roundly criticized for lowering the U.S.A.’s standing because of its debt problems a few year ago, moved Mexico up to BBB+ in recognition of that nation’s impressive economic progress.

While America’s often-maligned southern neighbor has always had the potential for economic dynamism-- a) natural resource abundance; b) an active working class within a 100 million plus population, and c) a growing trillion dollar gross domestic product of goods and services, it took the year old presidency of young, Kennedy-esque and former television communicator, Enrique Peña Nieto’s Administration to put Mexico’s underlying economic strength into high gear.

Image source: commons.wikimedia.org

Nieto has initiated unexpected growth accomplishments by concentrated awakening of Mexico’s dominant industry, bringing it up to standards suitable for major export dynamics. He has partially done this by opening the doors of PEMEX to foreign investments, thereby overcoming Mexico’s early 1940's ultra-nationalism, which had since witnessed the slow deterioration of a leading global oil potential growth.

Nieto’s Administration has already taken a giant forward step by signing the “Tequila Agreement” with China, a bilateral commerce contract, aimed at leveling the quantity of exports and imports with the Asian behemoth-- with Mexico reaping a heavily favorable balance in the import/export equation. Mexico has also greatly benefitted by the rapid upgrading of its industrial quality and quantity.

In this, Mexico has been greatly rewarded in intensifying its exports to the U.S. by its cost effectiveness and greater servicing capability to the U.S. This has happened at a time when growing U.S. economic requirements have created shortened demand time periods, which America’s southern neighbor is much more able to requite than China or other global suppliers. Mexico has also closed its global cost margin because of higher labor rates overseas, and the need for major domestic U.S. inventories. President Nieto’s policies continue an even more favorable approach and enlargement for U.S. “Maquiladoras,” which allow tax and duty-free manufacturing havens for industrial products strictly directed toward U.S. markets.

Image source: commons.wikimedia.org

Last, but not least, it puts to rest the confrontational dialogue of the immigration problem, as Mexican job opportunities have created a net reversal of “illegal immigrants” into this country for the past decades, due to lack of job opportunities in Mexico. Most of all, these favorable circumstances south of the border have given NAFTA two dynamic U.S. neighbors, who are already making this pact, passed in 1993, a poster child of how regional trade pacts can really be made to work for the global benefit.

Visit the Mexican Presidential Website for more on President Enrique Peña Nieto's initiatives for economic development.

REPOST: Mexico Economy Recovering With Inflation Easing, Carstens Says

Bloomberg’s Eric Martin reports that, with inflation rates easing up since peaking in early 2014, the Mexican economy can resume its track toward continued growth.

Mexico’s economy is showing signs of strengthening after disappointing early this year and inflation has passed its peak, said central bank Governor Agustin Carstens.

Image Source: www.newamericamedia.org

Increasing exports and government spending will help reactivate an economy that has already seen improved consumer confidence, Carstens told the Senate in Mexico City. After climbing to an eight-month high of 4.48 percent in January following a tax increase, inflation slowed to a “suitable zone” at 3.89 percent in the first half of March, he said.

“In the latest figures we’ve seen much more clearly a reactivation” in the economy, Carstens said. “We think the convergence of inflation to our 3 percent objective will happen very quickly next year” as gasoline price increases are pegged to the broader inflation, he said.

Image Source: blog.gasbuddy.com

Banco de Mexico forecasts the economy will expand 3 percent to 4 percent this year, rebounding from 1.1 percent growth last year that was the lowest since the 2009 recession. Carstens said the bank will review its forecasts and economic data in preparing its first-quarter inflation report.

Image Source: www.flickriver.com

The consumer confidence index rose to 88.8 in March from 84.5 the month earlier, the national statistics agency reported on its website today.

Read about the economic policies and other platforms being carried out by Mexican President Enrique Peña Nieto from the presidential website.

REPOST: How El Chapo Arrest Will Affect Mexican Economy; Tourism And Foreign Investment Expected To Increase

The capture of the notorious criminal El Chapo is set to create a positive ripple effect in the Mexican economy, reports Patricia Rey Mallén of the International Business Times. More details below. 

Workers sort the freshly printed afternoon daily PM, with the headline reading
"El Chapo captured", at the newspaper's printing house in Ciudad Juarez, MexicoImage Source: www.ibtimes.com

MEXICO CITY -- The arrest of drug lord Joaquín Guzmán Loera, “El Chapo,” the most wanted criminal in the world, has set Mexico into a frenzy. The capture, the outcome of a joint operation of U.S. and Mexican forces, brought warnings of caution that the war on drugs is certainly not over. But it also gave President Enrique Peña Nieto cause to celebrate a win against organized crime and a welcome boost for his administration.

Indeed, the arrest marks an end to an era of criminal power in Mexico, and while it does not mean the end of the Sinaloa cartel, let alone drug trafficking in the country, it will left Mexico’s image, said Tourism Minister Claudia Ruiz Massieu.

“Just like any good news, this strengthens the vision that Mexico has a strong leadership in the president,” Ruiz said Monday at the opening of the XII National Tourism Forum in Mérida, Yucatan.

The ministry expects an investment of $1.4 billion in tourism in 2014 -- $100 million more than last year. Tourism makes up 9 percent of the country’s GDP.

This positive view is a change from the latest United Nations report in 2013, in which Mexico dropped in the ranking of popular vacation destinations, from 10 to 13 out of 50 countries listed. Last year was the first in five that Mexico had fallen out of the top 10, due mainly to drug-related violent crime and the global economic slump.

Not only tourism is expected to benefit from the arrest. Mexican entrepreneurs showed their enthusiasm at the prospect of a safer national environment, more focused on bringing in investment. Gerardo Gutiérrez Candiani, president of the Consejo Coordinador Empresarial (Entrepreneur Council, or CCE), said the arrest of El Chapo was “a show of strength from the government, and a decisive step toward a safer, fairer Mexico, a country ready for foreign investment.”

Mexican columnist Leo Zuckermann illustrated the change in attitude with an anecdote: Peña Nieto attended the recent World Economic Forum in Davos, Switzerland, for the first time. While he was deep into a passionate speech on the progress made by his administration on political and economic reforms, a member of the audience asked the Mexican president what his plans were to fight crime. Peña Nieto, visibly uncomfortable, was rendered mute by the question.

“It was obvious that foreign investors are still worried about violence, further than the political reforms. The capture of Chapo Guzmán is the answer to that question. It sends the message that this government is working to solve the problem of organized crime,” Zuckermann wrote.

Despite the trepidation voiced by some, investment in Mexico is at historical highs. The country drew a record $35.2 billion in foreign direct investment in 2013 – nearly double the level seen the previous year.

Right after Davos, three major companies announced major investments in the country. Pepsico (NYSE:PEP), Nestlé (VTX:NESN) and Cisco (NASDAQ:CSCO) will together invest over $7 billion in the country.

El Chapo Guzmán has already been taken to the top-security Altiplano prison, in the state of Mexico, where he awaits trial. The U.S. is asking for him to be extradited, but the Mexican ambassador to the U.S., Eduardo Medina Mora, said the drug lord should face the many charges against him in Mexico first.

For more updates on the administration goals of President Enrique Peña Nieto regarding the economy of Mexico, visit the presidential website.

REPOST: For Mexico, Economic Growth Hinges on Justice

While prospects remain high for Mexico's economy, growth is not without its lingering obstacles. Viridiana Rios, contributor to Forbes.com, writes about how sweeping reforms of justice is in order to maximize its potentials for growth.

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We thought these were the good times for Mexico, but its economic growth has fallen short of expectations, with estimated 2013 growth at 1.3 percent. Why has Mexico performed so poorly? A number of recent studies point to the presence of a poor justice system as a major contributing factor. Weak rule of law in Mexico has inhibited investors, who struggle to understand bankruptcy proceedings and lack confidence in the court’s ability to impose punishments on delinquent borrowers.

In order to pave the way for economic growth, Mexico must address four issues.First, its business community and entrepreneurs must be shielded against crime. A 2013 study by Tishay and Pearlman found that, due to high crime rates, Mexican entrepreneurs are less likely to plan expansionary business ventures, and firms pay quite high monetary costs in order to avoid crime. A 2010 study by the International Finance Corporation revealed that 42.8 percent of Mexico’s firms paid for private security, spending about 2.2 percent of their annual sales on these services. Extortion, which some studies show affects between 19 percent and 38 percent of Mexico’s middle class creates multi-million dollar losses which must be contained and treated as a national security problem. Furthermore, police must focus their efforts on reducing the theft of merchandise that occurs during transportation.


Second, Mexico must make sure that its justice system creates stability among economic actors. Confidence in the certainty of contract enforcement is a fundamental element in the healthy growth of the market system. According to a 2010 OECD study, “it takes 421 days and costs 20 percent of the contract value to enforce a contract in Mexico whereas it takes only 75 days and 5 percent of the contract value in Korea.”

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To create a system where justice is predictable, Mexico must create a professional career service for prosecutors, public lawyers and local judges. As of now, prosecutors are appointed and removed at the discretion of the judge, they are underpaid and standardized procedures to evaluate them do not exist.

Third, Mexico needs to develop a legal system that encourages entrepreneurship and competition. The process of liberalizing Mexico’s economy resulted in extreme concentration of wealth and economic control. The design, approval, and implementation of antitrust law will be crucial for allowing smaller firms to thrive.

Finally, Mexico must enforce rules against economically damaging activities such as corruption, predatory behavior, and informality. According to The Economist, in 2010 Mexicans paid 32 billion pesos ($2.5 billion) in bribes. Corruption affects the economy by changing the country’s composition of capital inflows in a way that makes it more susceptible to a currency crisis triggered by a reversal of international capital flows (Wei and Wu 2002). Informality is also a major challenge for the economy. It is estimated that Mexico’s productivity would rise between 30 percent and 50 percent as a result of moving informal workers to the formal sector.

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In Mexico, effective enforcement of laws targeting corruption, predatory behavior, and informality requires that innocent people are kept out of prison, and that the guilty pay a just penalty for their crimes. Only 57 percent of all inmates in Mexico have been sentenced, the rest (about 99 thousand) are still awaiting trial. As a result, Mexico spent $460 million dollars on keeping potentially innocent citizens imprisoned, in 2012 alone. Such resources could pay for the college education of around 184 thousand Mexican citizens.

These challenges are profound and diverse, but each presents an opportunity to apply the rule of law in such a way that encourages economic growth. Mexico’s moment will only become sustainable if both society and the economy become far more predictable and certain.

The presidency of Enrique Peña Nieto aims to make social reforms to stamp out crime at the grassroots level. Get updates on the president and his activities from the Mexican presidency's official website.

REPOST: Opening development of oil sector catapults Mexico as leader of emerging markets

While no country can face economic rewards without the hurdles, Mexico has the winning stats that could help overcome them.  Patrice Hill of the Washington Times writes about the recent diversification of Mexico's oil industry that, coupled with the recent legislative reforms, can push Mexico upward on the economic leaderboard.

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Mexico is gaining stature as an invigorated leader among the world’s major emerging markets thanks to the speedy enactment last month of far-reaching energy reforms that are expected to boost economic growth by opening development of its vast oil and gas resources.

While other emerging-market titans such as China and Brazil are faltering and casting about for new sources of growth, Mexico has gained a rising reputation and prospects. Last year under President Enrique Pena Nieto, the slumbering Latin American giant tapped its potential by enacting an overhaul of its state-owned energy sector and a series of reforms in taxes, labor, education and telecommunications. The rush of reforms has, among other things, swept aside 75-year-old restrictions against foreign investment in the state-controlled energy sector that have stifled development.

Mexico’s revival as a leader among developing nations promises to produce major dividends for the U.S. by increasing its wealth and appetite for American imports and by strengthening job prospects for Mexicans at home. As a result, the flow of illegal labor across the U.S. border will continue to slow.

“This is a watershed moment for Mexico,” said Lisa M. Schineller, an analyst at the rating agency Standard & Poor’s Corp.

The agency announced an upgrade of Mexico’s credit rating and economic prospects last month shortly after its Congress and state legislatures approved a constitutional amendment to open the energy sector to private investment.

“Tapping into Mexico’s vast oil potential should energize investment and growth throughout the economy,” she said, echoing renewed enthusiasm on Wall Street for all things Mexico.

Although much remains to be done, economists estimate that the reforms will increase Mexico’s annual growth rate in the next few years to as much as 6 percent on average, led by surging exports of oil and gas.

A good bet

“If Mexico is able to make its legislative changes stick and harness its geostrategic potential, the country will excel over the next five years, benefiting its people and making it a good bet for investors,” said Shannon K. O’Neil, senior fellow at the Council on Foreign Relations.

Even before enactment of the reforms, she said, Mexico was making an economic comeback. Its textile and apparel industries were decimated a decade ago by competition from China when the Asian giant joined the World Trade Organization.

“The low-skilled, low-paid jobs are likely gone from Mexico for good,” she said. “But rising wages in China, combined with higher Mexican productivity; increasing energy costs, which make shipping more expensive; the proximity of Mexican factories to the United States, reducing delivery times; and worries about intellectual property rights have led a number of manufacturers to choose Mexico over China.”

Moreover, major advanced manufacturers such as Bombardier, Honda, Nissan and Volkswagen have plans to locate plants in Mexico, contributing to the rise of a middle class of 40 million to 60 million people, she said.

The increased economic opportunity in Mexico slowed net migration across the U.S. border to essentially zero last year, and trade with Mexico — the second-largest export market for the U.S. — skyrocketed to more than $500 billion in 2012. More than $1 billion worth of goods cross the U.S.-Mexico border each day.

Investment analyst Erik Gholtoghian said the net return of migrants back to Mexico in the past few years is evidence of the U.S. economic slump and the renaissance of Mexico’s economy and manufacturing sector. Mexico has particularly benefited as the value of China’s currency and wages surge, sending many manufacturers in China scurrying back to Mexico, he said.

“International capital flows are already starting to cause major changes in Mexico,” he said, while “the Mexican government has begun recognizing its potential as a world export leader and has started making serious progress” by reforming critical markets and by derailing several drug cartels in export-sensitive seaport areas.
Legal transformation

Mexico’s prospects grew even brighter in December 2012 after the election of Mr. Pena Nieto, whose administration, aided by a rare consensus of the country’s major parties, has pushed through a series of sweeping reforms of the country’s calcified labor, education, telecommunications and energy sectors. The labor reforms, for example, aim to reduce the size of Mexico’s “informal economy,” or underground markets, by enabling businesses to more easily hire and fire workers in the formal sector.
“Pena Nieto’s administration has focused on major political and energy reforms,” taking on and defeating “sacred cows” such as labor unions and the 1938 ban on foreign oil companies, said Ms. O’Neil. Its accomplishments “have the potential to chip away at Mexico’s many barriers to broader, more inclusive growth.”

Key components of the energy reform, which required amending the national constitution, will permit private contracts for global giants such as Exxon Mobil and BP to explore and drill for oil and gas. The government also will be able to auction oil and gas licenses, mostly for deep-water projects, and collect taxes and royalties for the amount extracted.

“With a stronger domestic economic base and a richer society, Mexico can take advantage of its greatest potential,” said Ms. O’Neil.

Still, she said, Mexico faces “daunting hurdles” such as a high crime rate, corruption, inequality and weak infrastructure.

In an interview with the Council on Foreign Relations for the January/February issue of Foreign Affairs, Mr. Pena Nieto said he was able to secure sweeping reforms that eluded his predecessors by first securing agreement to a “Pact for Mexico” that committed all three of Mexico’s major political parties to the reforms.

“This government has come not to manage, but to transform,” he said, “and that is exactly what has been happening throughout this year.”

With enactment of the energy reforms in particular, he said, Mexico’s economy will revive this year and grow by 4 percent to 5 percent on average in the future.

“The most important changes are about to come” with implementation of the reform laws, he said. “Internal success will allow Mexico to project a different face to, and have a better position in, the world.”

Enrique Peña Nieto is the president of Mexico. Visit the Mexican presidential website for more updates on him and his economic platform.