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?
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
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.”
Photo credit by roads and railways series #3 by woodleywonderworks
Last April 29, 2014, Mexican Government published its Infrastructure Plan to be executed from 2014 to 2018. The total budget is US$590 bn in 743 projects. This infographic shows a brief of the content. Some examples of projects are listed for reference only. There is still plenty to review and discuss.
Last February 28, Ministry of Communications launched the Rules for the tender for the construction of section 1 of the Toluca-Mexico City train called: “Zinacantepec-túnel” with 22 miles long (around 36 km).
The Draft of Rules are for review and feedback for specialists, associations and interested parties, to prepare an official document.
A few dates to keep in mind are:
Official publishing date: February 28, 2014.
Publication at the Federal Official Gazette: March 14, 2014.
Visit to the site: March 19, 2014.
Meeting for Q&A: March 20 to April 17, 2014.
Presentation and opening of proposals: May 18, 2014.
Award event: June 2014.
This Project will be divided in three sections for a total of 35.5 miles (57.7 km), with 4 mid-stations Terminal de Autobuses, Metepec/Aeropuerto, Lerma, Santa Fe) and 2 terminals (Observatorio y Zinacantepec), with electric trains. There is an estimate demand of 270,000 per day (in both ways) with a maximum speed of 99 mph (160 Km/h) and a travel time of 39 minutes.
The tender is open to Mexico-based companies. Companies with interest should incorporate or open a representation at the earliest convenience, as train projects are happening, and happening fast. This is why the Railways Law is set to be amended this month. Would it happen before the Launch? It could. It really could.