Hospitality Industry is following the path of the Mexican Energy Reform

Hospitality Industry is following the path of the Mexican Energy Reform

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

Mexico’s Next Task: To Assemble an Aerospace Hub

Mexico’s Next Task: To Assemble an Aerospace Hub

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

Clean Energy in Mexico attracts FDI

Clean Energy in Mexico attracts FDI

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

eCommerce Giants Focus On Mexico

eCommerce Giants Focus On Mexico

eCommerce is starting to gain momentum in Mexico. According to the estimates by eMarketer, the Latin American country is expected to be one of the fastest-growing markets for B2C eCommerce in 2014. The independent market research company calculated that sales would increase by 20% this year, which is almost equal to US$11.43 billion. Sales would continue to expand at a 17.6% annual growth rate up till 2017, pushing the total to $15.11 billion by the end of the company’s forecast period.

One of the biggest reasons behind this growth is the increasing internet user base. Numbers show that 21.3% of the population (10.4 million people) have web access now, which is more than the 16.5% recorded in 2013. Of this 21.3%, the Competitive Intelligence Unit (CIU) reported that 71% have at least made one digital purchase, starting from ringtones to other micro-purchases.

Interestingly, most digital transactions have been made through computers rather than mobile devices. CIU reports that 84% of eCommerce and internet users in Mexico used computers whereas 22% relied on mobile phones, 7% on tablets, and 1% on video game consoles. These statistics shouldn’t come as a surprise considering that Mexico is yet a developing country. CIU pointed out that computers reign eCommerce operations because the Mexican population still distrust security of mobile devices and don’t have much experience handling them. However, buyers may start shopping with their devices before sealing the deal on their computers.

One of the first companies to tap into the growing eCommerce power is the Mexican branch of Wal-Mart. Despite a 1.3% drop in revenues due to a countrywide economic slowdown in 2013, the chain recovered this year through its online shopping services. By offering same-day delivery and extending the same advantage through its local upscale subsidiary Superama, Wal-Mart has been able to ensure that 92% of Mexican retail purchases on the web belong to both. Online shopping further pushed the performance of physical stores; more than 50% of the population have started shopping from Wal-Mart, making it the highest-earning supermarket and a top contributor to total retail revenues at 61%.

With such a warm welcome, Wal-Mart intends to triple the number of its stores by the second half of this year. This way, it can provide grocery deliveries quickly to its online shoppers, as well as an extensive consumer electronics stock. The U.S. based retailer also plans on opening a few dark stores – retail outlets that exclusively handle online orders and act as an order fulfilment platform – in 2015. With limited Amazon’s services in Mexico, and eBay took its first steps last week, Wal-Mart may successfully dominate the market. It’ll even profit immensely as its pickers, i.e. the people in charge of assembling online orders and at times providing customer support, are paid $360 a month while deliveries cost $1.5 per delivery. Additional costs like health care and fuel are covered by the delivery men themselves. Wal-Mart is also installing in-store costumer service modules for eCommerce clients to address a better UX.

Other companies are bound to jump on this opportunity as well, especially U.S. based ones. Fredjoseph Goldner, CEO of Aeropost, told the audience of Multichannel Merchant’s Growing Global conference that Mexico among other countries has a predisposition towards U.S. merchants. “[Latin countries] have good logistics, and in Mexico in particular most of the transactions are in cash at the store or through consumer financing. It’s a great market, and a piece of the eCommerce pie no one is paying attention to.”

With internet users expected to reach 78.2 million in Mexico with new telecom reform, online retailers and eCommerce website owners are bound to make a handsome profit. In addition, going the delivery duty paid (DDP) route will be very helpful as consumers hate paying more on delivery and the experience of delivery duty unpaid (DDU) since it’s a hassle going to the post office to pick their purchases and pay by cash. Still, Mexico´s banks and authorities have set plans for increasing access to credit card to lower income population.

Now, maybe B2B and B2G eCommerce will follow the path of the growth. And if NAFTA can go further, maybe eCommerce will become a regional indicator of growth.

Photo credit: Sleepy beagle dog in funny glasses near laptop by soloway / Bigstockphoto.com

This is why Mexico Has Become the Leading Global Manufacturing Hub

This is why Mexico Has Become the Leading Global Manufacturing Hub

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

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