The business year ended a couple of weeks ago. A fair year for business in Mexico with the traction provoked by the opening markets (telecom, energy, transport, etc.) Numbers on this blog were good too. Here are some statistics I would like to share with you.
The blog had 1.4 Million hits with a more than 86 thousand visitors. This is a slight improvement from previous year.
As to the most popular posts, below is the list, if you want to read them:
1 – What Would the Trans-Pacific Partnership (TPP) Mean for Mexico?
2 – Wind Power Opportunities in Mexico
3 – Mexico to Spend $100 Billion Dollars to Develop Shale Resources
4 – Mexico Reforms Attract U.S. Investors
5 – Chrysler invests US$1.2 Bn in Mexico and could cast away the IMMEX drawback
6 – As expected, Mexican telecom operators are showing tough love
7 – [INFOGRAPHIC] The US$590 Bn Mexican Infrastructure Plan in a Nutshell
8 – What if IFETEL Mexico unleashes the unseen power of free?
9 – Mexico Consumer Entertainment Spend Grows Rapidly; Now at 4.5 Billion USD
10 – Televisa and Telmex on two legs after Watchdog resolutions
The most popular searches were related and around to these topics:
1. Green energy investment.
2. Telecom antitrust proceedings.
3. San Diego – Tijuana business traction.
4. Construction companies in Mexico.
5. Oil drilling opportunities.
We have planned many projects for this year and hope all readers and sharers support this blog. Stay tuned.
Photo credit: Rear view of the business lady who is looking for the new business ideas. Blue growing arrow as a concept of successful business. Business icons are drawn on the concrete wall. / Bigstockphoto.com
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?
According to STR Construction Pipeline’s July 2014 report, Mexico as well as the Caribbean will enjoy a hotel construction boom with 167 hotels (28,140 rooms) expected in the future. This is a 21.8% increase in rooms Under Contract from the previous year and a 23.2% increase in the number of rooms under construction for the same period. These numbers come to prove research firm JLL’s reports, which believe the outlook for Mexico’s hotel industry to be positive since trends predict a 15% increase in hotel acquisition volumes. In money terms, this could mean over $700 million from the hotel industry in 2014, which is seven times more than the $100 million made through hotel transactions in 2009.
One of the main reasons behind the hotel construction boom in Mexico is the assistance this industry has been receiving from the energy sector. After the electricity market was opened by the President Enrique Peña Nieto’s landmark energy reforms, many changes took place, including prioritizing renewable energy sources. Mexico now expects most of its solar and wind capacities to be produced by businesses, including hotels. Hotels also have an incentive to comply since electricity is expensive for them at 13 cents per kWh. In addition, they and large businesses tend to pay 65% of total electricity sales. Therefore, it is in their best interest to choose renewable energy.
To further explain how hotels can start saving on electricity bills, solar systems installer Narcis Isern Subich points out that a hotel in southern Mexico would pay $17,000 for a 6-kW solar system. Within ten years, the investment would be paid off and the hotel could easily save $28,000 on electricity. “Since the cost of energy is so high, it is a good investment for businesses,” he said. “I look for clients who are passing into industrial consumption. The material lasts 25 years, so the first five years you pay off the investment, the next 20 years you are saving on energy costs.”
In an effort to convince hotels of the need to embrace green energy sources, Mexico is constantly hosting conferences which highlight solar and wind power among others. The country’s latest effort was WindTech Mexico 2014, which took place on October 7 and 8 at Sevilla Palace Hotel in Mexico City. In addition to highlighting the latest projects under development in different parts of Mexico, the conference aimed at connecting energy buyers and end-users with producers and their clients.
However, despite the growth potential of the Mexican hotel industry, the hotel pipeline is bound to be constrained. This is mainly due to high barriers to entry, which include the lack of land within populous metropolitan areas such as Mexico City and, ultimately, the higher prices associated with available areas. It will not be long, though, before the government takes a firm step towards eliminating this problem. After all, 2014 is expected to be the year Mexico finally boasts a promising economic and political environment that attracts foreign investors and reels back those who left the country during its tougher times.
In fact, the Federal Government of Mexico is already promoting transaction vehicles such as FIBRAs and CKDs, both of which JLL analysts believe to be responsible for the record-level transaction volumes made in the country this year as well as the acquisitions of 2013. With transactions equal to $270 million in 2013 in Mexico City alone, the capital is now considered Latin America’s most liquid hotel market.
Other model of growth is Hoteles City Express, one of the fastest growing limited-service hotel chains in Mexico targeting business people. Following the path of energy and automotive business.
With the support of the government and the energy sector, it will not be long before Mexico starts reaping the benefits of its quickly-growing hospitality industry, not only for business destinations, but relying on the ongoing infrastructure expansion connecting them with leisure cities.
Bottom line, the growth of the hospitality industry is based on a deep research of energy business opportunities.
Light Bulbs by Stoycho Stoychev / bigstock.com
By enacting the secondary laws to constitutional energy reforms back in August, Mexican President Enrique Peña Nieto detailed the opening of energy sector. However, while the press has been focusing on the reforms’ implications for the oil and natural gas sectors, the clean power market did not receive the attention it deserved, especially considering that Mexico has set the objective to generate 35% of electricity with clean power by 2025.
One of the reasons is that green infrastructure has been growing for a decade outside the political debate of oil and gas. Many plants in Mexico migrated to clean energy to replace natural gas generation. So, secondary laws for clean power were not amended per se, but were boosted with the opening of the sector to private companies. Unlike hydrocarbons infrastructure, clean infrastructure is ready to take off without big investments.
The new Power Industry Law will allow private actors to contribute to power generation with a legal framework that ensures fair competition. Regulations to that Law are in process of discussion among the industry and regulators. As private generators will be given access to the power transmission and distribution infrastructure, solar and wind energy projects are bound to increase where both sun and win are abundant. As for transmission and distribution, the Federal Electricity Commission (CFE) will be capable of performing power market planning as an independent system operator. As a result, it will be able to accommodate the growing numbers of clean energy generators and provide them with better cost-based access to the power market. Finally, private traders will contribute the green power they produce, allowing others to consume clean electricity.
Aside from these implications, the Power Industry Law creates a Clean Energy Certificate (CEC) system. The Ministry of Energy has been entrusted with setting a percent threshold for clean-to-conventional power production per annum. Power suppliers and consumers will have to uphold this threshold, allowing the government to enjoy a demand for its renewable power and the income it makes once the initial investment costs are paid off.
In addition to the Power Industry Law, other statutes are bound to fortify the production, distribution and trade of clean power. First off is the Coordinated Regulatory Bodies Law, which will support the power sector regulator Energy Regulatory Commission (CRE) and provide it with the technology, financing and operational autonomy it needs to tackle the more competitive power market in Mexico. Another law is the Geothermal Energy Law, which aims at prospecting, exploring and ultimately using geothermal resources for generating electricity and other uses.
With so many changes taking place in the Mexican power market, more global energy firms are focusing their attention towards the Latin American country. In June, Spanish utility Iberdrola announced that it would be investing $5 billion between 2014 and 2018. Following its footsteps was U.S. based power generator AES, which told Reuters in August that it plans to double its capacity in Mexico for $1 billion over three to five years.
The U.S. especially has shown interest in partnering with Mexico, even for its clean energy production efforts. After visiting the Mexican President in July and hosting him a month later, California’s Governor Jerry Brown has expressed his interest in Mexico’s energy industry. As many Californian companies are focusing on renewable energy goals, state energy officials have faith that they can help Mexico, especially when it comes to reducing its emissions and further promoting the use of renewable energy sources. However, other companies from Utah and Colorado have been scouting and developing solar projects even before the Reform.
Despite the challenges facing the Mexican power sector, especially its inability to access natural gas from the U.S. and the widespread theft of electricity, international firms are very optimistic and believe these problems to be some of the “vast and varied” opportunities they believe they can avail. Now, maybe it is time for PV companies to start evangelizing the home market as “everyday appliances”.
Photo credit: Wind turbines, eco energy by majeczka-majeczka – Bigstockphoto.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