2014 is done. Business in Mexico was quite active in response to reforms in progress by Peña Nieto Administration. Some industries like energy, telecom, antitrust and financial services are on the spotlight, but all together with education, tax and judicial pretend to set a backbone for a new Mexican economy. Of course, foreign investment caps were reduced in some areas.
Mexico kept investment attraction with its free trade strategy, some governments with remarkable interest were UK, China, Japan, Singapore, California and Los Angeles. This strategy was fueled by negotiation efforts with the Pacific Alliance and TPP, and efforts to integrate more with the US.
Most of the attention was attracted to oil and gas, the Mexican Eagle Ford, the solar potential and the liberalization of clean energies, and the moves of related industries to the opportunities. Here is a summary of the energy reform to see the big picture.
Telecoms was another industry that was shaken by the reforms. Historic reform indeed, specially on broadcasting. Reform tried to set fair market conditions for everyone, and some were taken to court. Regulator learned the high cost of constitutional autonomy. All these changes deserved an ethical hacking on the new telecom law and regulation, specially on three hot topics: Telmex on TV, the arrival of Virgin Mobile and telecom antitrust.
Sectors like automotive and manufacturing grew strong during 2014, as expected. Aerospace is now following that path. Mexico is living a manufacturing momentum and if combined with R&D, could take it to the next level: a technology hub. During 2014, the Government announced a $590 Bn infrastructure plan, which is expected to boost in 2015.
The business opportunities are creating great expectations around the services industries. Lawyers, among other services firms, are moving to Mexico. Some of them under new law business models, as the global law industry is being shaken. Mexican legal market will have a very different landscape at the end of 2015. Quite diverse if new law moves from experimentation to business phase.
2015 is expected to be great for Mexico and those who believe in this momentum. Have you found an opportunity yet?
Mexico is building an auto nation. I wrote about it here. However, another of its manufacture industries is increasing global visibility. Aerospace manufacturing has been growing steadily in Mexico over the last decade.
Whereas the number of aerospace factories was 150 in 2007, it reached 260 factories in 2011 and is expected to grow to 300 by the end of 2014. As a result, aerospace exports would exceed 2007’s $2.7 billion worth of low-level airplane parts and 2011’s $4.3 billion. In fact, with President Enrique Peña Nieto vowing his support, the industry’s forecasts predict double the exports in 2015 and $12 billion worth of exports come 2020.
Mexico’s aerospace factories are spread across sixteen states, but the industry is mainly clustered in Sonora, Baja California, Chihuahua, Querétaro, and Nuevo León. Each of these five areas boasts its own set of specialties. For example, Sonora is the Mexican hub for precision aerospace machining. However, when it comes to the activities taking place there, companies carry out manufacturing (79% of the activities underway), maintenance, repair and operations (11%), and design and engineering (10%).
While the factories are contributing to Mexico’s economy and creating jobs for over 30,000 workers, their foreign investors are getting their money’s worth as well. For starters, their ventures can generate more profit through lower costs. Recent research shows that foreign companies manufacturing in Mexico can easily save 28% to 34% of the costs they would incur in any other country. One of the biggest costs they save is that of labor; Mexican workers are willing to work for as low as $4 per hour.
Another advantage of Mexico’s aerospace industry is the federal and state governments’ efforts to pool their resources and educate Mexican laborers. As a result, the country’s world-renowned inexpensive labor will include a larger number of university-educated professionals, giving them a competitive edge and proving them to be more profitable for newly built factories.
Lower costs and skilled labor aside, foreign aerospace manufacturers are focusing on Mexico due to its geographic location. The country is neighbors with more established aerospace markets in the United States and Brazil. In addition, thanks to a large number of free trade agreements, the country allows its businesses and manufacturers to trade with some of the biggest buyers across the world such as Canada.
It is these advantages which continue attracting foreign investors to Mexico’s aerospace industry despite the nation’s crime rate. In fact, 47,000 Mexicans were killed in response of the drug war policies introduced by former President Felipe Calderón. However, foreign direct investment in this sector continues to rise. Analysts expect 2015 to reel in $1.4 billion, which $0.2 billion more than 2010.
Regardless, Mexico’s popularity as the next aerospace hub would mean that profit-hungry companies from established markets may try taking advantage of its cheap labor. The upside, however, is that the country will jump on the globalization bandwagon. Currently, it is getting there with international companies opening factories in Chihuahua. Some famous names are Nordam from the United States, Manior Aerospace from France, and Fokker Technologies from the Netherlands.
In an effort to highlight Mexico’s aerospace industry and find ways to overcome its issues, the country has hosted a number of summits and conferences to bring together leaders of this industry from across the globe. The last Mexico’s Aerospace Summit, took place on October at Querétaro’s Congress Center. Sponsored by a host of companies and even the Secretaría de Desarrollo Sustentable, the conference studied the industry’s growth over 10 years, the competitive advantages of aerospace manufacturers in Mexico, and other topics directed at foreign investors. The summit’s participants took part in B2B meetings as well as visit plants in Querétaro.
At this rate, more companies will make their way to Mexico in hopes of mutually benefiting from its aerospace sector. Come 2020, the country will be much stronger and a worthy contender for many nations in the manufacturing sector.
The bottom line is that Mexico is already big in many manufacturing industries that aerospace companies could rely on. During 2013, Mexican Automotive Industry had a US$1.7 Bn FDI, and became the 4th exporter of cars worldwide, which by the way, are higher than Mexican oil exports. Autoparts industry has over 640 suppliers. In HGVs, Mexico produced during Q114 50,000 units. If statistics in electronics are added, like bing first manufacturer of LCDs and fourth of computers, worldwide, Mexico has a solid backbone for developing the aerospace sector. Also, Mexico City and other
The manufacturing industries were not built at random. Lessons have been learned. Reputation and traction has been earned. Companies are already operating and investments are on their way to land. Mexico has the blue print for building a major aerospace hub. It is time for synergies to develop opportunities in R&D, manufacturing and training for this business to take off. Book a seat, it is a first-mover market.
Jet Engine On Luxury Private Aircraft – Bombardier by tr3gi / bigstock.com
Mexico finally starts setting its path towards a strong economy. With many structural reforms to its Constitution, especially the finally-approved energy reforms which benefit both the country and foreign investors, the Latin American country is quickly beating China and becoming the manufacturing base of many companies. Even Chinese companies are looking for opportunities in Mexico. This may come as a surprise considering the fact that many shifted to East Asia due to the higher crime rate among other issues. However, Mexico offers more advantages, all of which can make it the next top manufacturing hub, specially in the automotive sector.
One of the biggest perks of carrying out manufacturing procedures in Mexico is its manufacturing wages. China’s wages have increased immensely and are expected to be 30% higher than Mexico’s come 2015. Unfortunately, companies couldn’t get an equally high labor productivity rate. Mexico, on the other hand, boasts superior worker productivity and quality for less. This is definitely an incentive for companies limping their way out of the last recession period.
Mexico’s large number of free-trade agreements also acts as a catalyst for the country’s evolution into a manufacturing hub. Mexico boasts 44 free-trade agreements, including the profitable North American Free Trade Agreement (NAFTA). This number exceeds its rival China’s agreements (18) and its North American neighbor the United States (20 partners). Through these agreements, Mexico can import raw materials and export deliverable products for fewer to no customs. This helps both the country and foreign manufacturers achieve a unique win-win scenario. The negotiations of Mexico to enter the Trans-Pacific Partnership would come to fruition to increase its market to major global economies.
Also driving the Mexican manufacturing boom is the lower energy costs. This may sound impossible, especially considering the fact that the Mexican manufacturing industry pays comparable or higher rates than that in the United States. However, thanks to Mexico’s green power ventures, companies are taking advantage of their own solar panel arrays and backing them up with windmills. Mexican solar potential is high. As a result, they can produce their own electricity, connect to the Comisión Federal de Electricidad (CFE) grid, and down-load it to others for a low “wheeling” fee. What’s even more tempting is the fact that electricity rates vary by region as well as time of day and type of off-taker. Therefore, factories commonly built in Sonora, Nuevo Leon and Baja California don’t pay much despite running their air conditioners non-stop for six months. Now Energy reform would allow private companies to generate and deliver energy allowing manufacturers to make NAFTA-throughout deals with regional energy suppliers.
U.S. natural gas exports are also being used to fuel the Mexican manufacturing sector. According to Bentek Energy, two billion cubic feet a day have been exported from the U.S. through the southern border and the number could double in the upcoming years once the new pipelines from Texas and Arizona are opened. While Mexico does have its own rich shale resources, its lack of expertise and technology prevent it from tapping into them. “The Mexicans have an incentive to import U.S. gas because it’s basically dirt cheap for them compared to other sources of energy,” commented RBN Energy LLC analyst Sandy Fielden.
The Mexican Minister of Energy also pointed out that choosing U.S. gas over oil and diesel is bound to reduce electricity costs and give the economy a much needed push. This explains why the CFE is currently seeking bids for three natural-gas pipelines from the U.S. Operations through these are expected to start by the end of 2015 according to the vice president of GDF Suez, which is in charge of building the Los Ramones pipeline from Eagle Ford Shale in South Texas to Central Mexico.
With so much to offer, Mexico’s industry clusters will grow and reel in more people. By 2013, it has ready ascertained its position as a major auto manufacturer with 89 out of 100 global auto part makers setting up factories in the country. The appliances market also grew with 70 manufacturers there and busy producing large and small appliances. It won’t be long before other manufacturers follow suit and choose Mexico as their main production hub.
Photo credit: PAACE Automechanika Mexico City 2014 by Alberto Esenaro
The economic transformation brought on by President Enrique Peña Nieto’s energy reforms are expected to impact more than Mexico itself. Different countries, including the United States, welcomed the changes, especially as they allow foreign investment in energy sectors after more than seven decades of nationalization. However, while opening many doors to Mexico’s northern neighbor, California especially believes that it will benefit the most from Mexico’s unique opportunity due to its location and commercial ties.
In August, the Mexican President and California’s Governor Jerry Brown shared the stage to discuss different aspects, mainly business opportunities. Peña Nieto’s visit was expected after Brown traveled south on a trade mission in July, accompanied by many business representatives and lobbyists who eagerly paid to tag along. State energy officials are quite optimistic about these visits, especially after the president signed legislation to facilitate investment and development in both the electricity and oil and gas industries, and considering the high energy potential of the country. “These energy reforms significantly alter the structure of Mexico’s energy industry,” they said. “California’s innovative policies send a clear signal, provide incentives and generate market demand.”
California Energy Commission (CEC) Chairman Robert Weisenmiller and the California Governor’s senior adviser Michael Rossi believe that California has many companies which can help Mexico effectively carry out its reforms while reducing emissions and promoting the use of renewable energy sources. “By doing so, California and U.S. energy companies will create more jobs and tax revenue on both sides of the border and build an even stronger economic partnership,” Weisenmiller and Rossi said. Mexico has made a plan to reach 35% of electric generation with clean energy by 2024, and so opportunities abound for developers and technology companies.
Having strong ties with Mexico is also important for California due to trade. The Latin American country is the state’s largest export market. In addition, two-way trade between both reached more than $60.1 billion in 2013, a number which Weisenmiller and Rossi believe would grow now that both regions are closer than ever. “The energy reforms in Mexico allow for this collaboration to continue and result in greater economic growth and the achievement of climate and clean energy goals on both sides of the border.”
Energy and trade relations aside, the electronics industry at both ends is bound to expand in the future. While Californian companies build the components of cellphones, computers and other electronics, it is actually Mexican factories that assemble the final products. International trade advisor Jock O’Connell from Beacon Economics pointed out, “Largely because of the very high cost of doing business in California, we don’t make an awful lot of consumer goods. It tends to be stuff that goes into stuff, the components that go into more complex products.” This expansion is inevitable as Mexico’s workforce has grown more skilled. In addition, after recent Chinese government crackdowns on American companies, many are expecting California to limit its focus on trade with China to concentrate on its new Mexican ties.
Though California seems to be the most eager for ties with Mexico, the United States as a whole would benefit from its southern neighbor. Despite dealing with migration and drug issues, the U.S. cannot deny that Mexico is the world’s eighth largest producer of automobiles and fourth largest IT exporter. It is also growing into a world-class aerospace and electronics manufacturer, a feat possible due to the United States’ support and exports.
With so much to offer, California and other states are bound to update their views of Mexico. The Golden State has already taken a positive step during Brown’s trade mission by striking an educational exchange agreement, which is a first of its kind between the Mexican government and an individual U.S. state. However, this is just one step in a longer journey that would result in stronger ties between the neighbors now that Mexico has evolved into a willing and able economic partner.
Last visit of Eric Garcetti, LA Mayor brought a share of the new Mexico City airport (US$9 bn) to Parsons Corporation, one of the LA Firms that came with economic mission. So, the question is how far California and Mexico want to be integrated.
California Green Road Sign and Airplane Above with Dramatic Blue Sky and Clouds by Andy Dean Photography
According to a recent report on the Wall Street Journal, Mexico’s auto industry manufacturing output rose 7.5% in the first seven months of 2014. These recent gains place Mexico’s auto industrial output ahead of Brazil, its closest rival in the region.
According to the same report, Mexico manufacturing of automobiles reached 1.86 million units produced so far this year. At the same time, Brazilian output decreased 17% during the same comparative time. Indeed, as USA Today recently reported: “Mexico is poised to pass Brazil this year as the world’s seventh-largest automaker, IHS Automotive predicts.”
Fausto Cuevas, general director of Mexico’s Auto manufacturers association (AMIA) told the Wall Street journal that Mexico’s current manufacturing trajectory – output is likely to reach 3.2 million cars produced in 2014. In particular, Cuevas noted, Mexico exports of autos to foreign markets looks particularly favorable.
Why is Mexico’s industry accelerating compared to regional rivals?
As the report outlines, a series of free-trade agreements play a significant role in the growth of Mexico’s auto sector, including the North American Free Trade Agreement (NAFTA). Mexico’s auto industry is accelerating due to Mexico’s access to lucrative foreign markets. Brazil, on the other hand, sell few autos into international markets due to its tightly protected domestic market. Just as antecedent, Brazil closed its border to Mexican auto exports during 2012 until reaching a quota deal.
In recent years, Mexico has exported up to 83% of its auto production. And those exports have been focused primarily on the United States, Canada, Argentina and Brazil. In contrast, Brazil sells 85% of its production domestically. In turn, Mexico is suffering in domestic market with historic lowest sales and not easy solutions on the horizon. However, Mexico has become so sophisticated at the production of autos that luxury production is now in ascendance in the country. And according, both BMW and Mercedes are planning to open manufacturing facilities in the country. Audi, another of Germany’s elite automakers, is already in the country as an independent facility from sister company Volkswagen. The report cites “Harley Shaiken, chairman of the Center of Latin American studies at the University of California, Berkeley, and an expert on auto industry labor issues” — who told USA today that Mexico has supplanted Detroit as a car manufacturing hub. Mexico is now “motor city south”, he said.
As USA today’s report outlined, Audi is deploying operations in Mexico to start in 2016. Then, Daimler/Renault-Nissan, followed by BMW in 2019, according to IHS Automotive. Most mainstream auto manufacturers are already in Mexico, the report outlined, including the major three US automakers. And they are expanding. VW, Honda and Mazda will expand in Mexico this year, and Kia will do so in 2016 in northern state of Nuevo Leon.
As a result of Mexico’s liberalized economy and expanding international markets for its auto exports, auto makers and supplier from around are likely to continue to enter the market rapidly.
As a result of Mexico’s burgeoning auto sector boosted by international markets and international investment, auto-sector production is projected to exceed four million units per year by the decades’ end.
A bright future for Mexico’s auto manufacturing sector
The Wall Street Journal reported on Mexican President Pena Nieto’s recent comments on the prospects for Mexico’s auto sector: “’The [Mexican] automotive industry, including parts makers, now represents 20% of Mexico’s manufacturing production and 26% of its exports.’” And these markedly positive market figures are something that ought to bolster confidence in Mexico’s economy among international investors, according to Nieto.
Let´s not forget recently approved reforms and plans that could catapult automotive industry even farther. Energy liberalization in force could mean cheaper energy and flexible strategy for plants. Telecom reform could mean better logistics and coordination between brands, OEMs, Ts and providers. Labor reform could mean better talent management. Finance industry reform could mean better financing for local suppliers. More trade agreements could mean global integration and attractive exports. Finally, all infrastructure and communication projects could connect everything to make Mexico the auto nation it plans to become.
Japanese Prime Minister Shinzo Abe ad Mexican President Pena Nieto have agreed to work together to help secure a twelve-nation agreement on the Trans-Pacific Partnership (TPP), as La Prensa reported last month. The TPP is an ambitious proposed treaty that would solidify trade ties between nations across the Asia-Pacific region – from North America, South East Asia, Latin America and North East Asia. Apparently, the negotiation also included issues related to members of the Pacific Alliance like Colombia, Chile and Peru, an economic block that Mexico joined to promote common investments through cooperation mechanisms.
As was reported by Fox News, the accord has “hit a snag…due in large part to the Japanese government’s desire to maintain its barriers to farm imports”. Peña Nieto’s administration, [however], has expressed confidence that the ambitious trade agreement will be signed before year’s end.
But this complex treaty was not all that was on the agenda when Abe visited Pena in Mexico at the end of last month. No, the leaders of Japan and Mexico signed 14 cooperation agreements covering oil, education, health, agriculture, renewable energy and environmental protection.
Both leaders also agreed to revisit and strengthen the bilateral economic association agreement the two countries signed ten years ago.
The Japan-Mexico economic relationship
Japan is Mexico’s fourth-largest trading partner. Among Asian countries, Japan is Mexico’s second largest trading partner behind China. Nearly 1,000 Japanese companies operate In Japan – with 20% of them having only just recently arrived in Mexico. As Fox News reported: “Peña Nieto noted that bilateral trade has risen by 64 percent since then and totaled nearly $20 billion last year.”
Fox News reported President Nieto as having said of the future of Japan-Mexico trade ties: “’There will be more academic exchanges, greater access to the Japanese market for small and medium-sized enterprises, a greater push for renewable energy and the development of sustainable agricultural models.’” Reporting further that Prime Minister Abe referred to a “’shared commitment to spur collaboration and investment promotion in the oil and shale gas area.’”
While no mention of Japanese investment to auto industry was made, Mexico is becoming a strategic hub for these Japanese auto firms, which had a combined 32% market share in the US during 2013. From official reports of Q1-2014, 122 Japanese auto firms invested $4,3 Bn representing 12.7% of total auto investment in Mexico.
While the trade ties between Japan and Mexico are envisioned to be broad based, one of the most important reasons Prime Minister Abe visited Mexico was the 2013 energy market liberalization, which ended Petroleos Mexicano’s (the government’s oil company) monopoly. The liberalization allows private companies to develop crude reserves for the first time since 1938.
During the Abe visit, an agreement between Mexico’s state oil firm Pemex and Japan’s development bank, and another between Pemex and the Japan Oil, Gas and Metals National Corporation. These agreements will see Japan able to import energy from Mexico at a time when it is in much need of these resources.
The 2011 Tohoku earthquake in Tsunami has placed strain on Japan’s domestic nuclear energy resources as the tragedy hastened the closing of many of the countries power plants.
In particular, Japan has a particular interest in Mexico shale gas, but no specific plans have been made to import that gas yet, Yahoo news reported. Underpinning this interest is the ease with which that gas can be imported versus more challenging import routes. “The American gas Japan currently buys comes from the eastern United States, and must be shipped through the busy Panama Canal.”