Global investment interest and economic growth has switched its focus towards Mexico and away from Brazil in the last year. This is partly… in due to Mexico’s strong economic ties to the United States. While Brazil finds itself closely involved with China, Mexico has continued to foster its economic relations with their neighboring United States. Portfolio investment in Mexico is on the rise and overall, Mexico’s economy is growing at a higher rate than anywhere else in Latin America. The gross fixed investment in Mexico rose 1.9 percent in April from March.
In addition, there is an increasingly impressive amount of growth within the Mexican banking sector because of low debt in comparison to countries like Brazil. Audrey Kaplan, a portfolio manager for Federated InterContinental (RIMAX) commented on the economic situation in Mexico. The portfolio manager of RIMAX stated, “The economy has been doing well and that’s got a lot to do with the U.S. Two years ago people said the U.S. would go into a flat growth or no growth environment. It has not, and that’s been beneficial to Mexico.”
Has China’s economic rise come at the expense of Mexico? To many casual observers and experts alike, the answer is yes. The International Economy, a trade journal, once concluded, “China is eating Mexico’s lunch.” “China competes with Mexico and buys from Brazil,”… noted The New York Times on June 17.
China’s entry into the World Trade Organization in 2001 marked the onset of a decade-long slowdown in Mexico, where economic growth averaged 1.8 percent annually. Foreign investment flocked to China, setting up factories where hourly wages were among the lowest in the world. Other factors supported China’s export-led growth model, including low fuel prices that allowed for profitable trans-Pacific shipment of manufactures. Seven years after NAFTA granted Mexico privileged access to the US market, Mexico’s position appeared undercut by China’s incorporation into the global economy.
In some industries, such as clothing assembly, China certainly hurt Mexico. However, the impact has been more limited than widely supposed. China and Mexico manufacture different classes of products, cheap baubles in the case of the former and heavy industrial goods in the case of the latter. Hence, as the Dallas Federal Reserve Bank put it in 2004: “There is little correlation between China’s gains and Mexico’s losses.”
The notion that Mexico simply lost out to a more productive China is even less persuasive as one moves toward present-day. From 2005-2010, the percentage of US imports from Mexico increased, from about 10 to 12 percent, as did China’s share, 14 to 17.5 percent. China’s gains accrued alongside Mexico’s gains, not at the expense of Mexico. (Over the same period, the percentage of US imports from Canada, Japan, Germany and Britain decreased.)
Instead, in this more recent period Mexico may have lost out by not having China as an investor. According to the UN Economic Commission on Latin America, China invested $1.1 billion in Mexican industry from 2003-2008, a sliver given the $25 billion it invested across Latin America in 2008 alone. In a list of China’s largest foreign investments in Latin America prior to 2009, Mexico is notably absent.
Now, as the global economy shifts gears away from the commodity boom brought on by Asia’s rise, several trends behoove Mexico. China has absorbed most of its vast labor pool, driving up wages. Wages in southeastern China are increasing at 15 percent a year, and for the country as a whole worker pay is expected to double by 2015. Inflation is a worry as food prices and apartment rents shadow wage increases. As a result, the US Chamber of Commerce estimates that hourly wages in China are nearly on par with Mexico’s.
Beyond wages, two other factors appear to be at work. First, transport costs are projected to be volatile but high in the years ahead. To protect their clients, business consultancies like KPMG counsel that foreign investment should be located nearer to the consumer. This is being borne out in a trend toward “re-shoring,” which aims to manufacture goods for North American consumers. In June, the Financial Times reported that Mexico was the “most popular” site for re-shoring.
Second, Mexico offers a more secure intellectual property environment than does China. Othón Ruiz, Nuevo León’s development minister, told The Economist that high tech businesses trust their operations in Mexico more than in China. Such anecdotes are made more credible given the number of business books meant for those looking to move production to China: many of the guides caution to “add elbows” or links to supply chains in order to avoid concentrating proprietary knowledge at one factory, where it can be easily pilfered.
The auto industry is at the cutting edge of Mexico’s economic resurgence. Fourteen percent of cars sold in the United States are made in Mexico, a record high. All tallied, Mexico’s car industry posted $23 billion in revenue last year, more than tourism or oil. Nissan, Mazda, Honda and VW plan to build new factories in Mexico. Similar dynamism can be observed in the country’s budding aerospace industry, as well as its more established electronics industry.
Sensing the groundswell, Chinese operators have begun to ante up for factories in Mexico. From 2009-2010 Mexico welcomed the highest number of investment projects started by Chinese companies abroad. In 2011, Chinese investment in Mexico increased by 40 percent to $30 billion. China is now eyeing a massive port complex in northern Mexico that will provide for quicker transport from the mainland than Los Angeles.
Fears of China are being recast in light of these developments, with particular worry directed to Mexico’s negative trade balance with China. But most of Mexico’s imports from China are, in fact, intermediary goods that are in turn exported to the United States. So while fears of China are unlikely abate anytime soon, the rumors of Mexico’s industrial demise have been greatly exaggerated.
A new trade show in Mexico City, Mexico has just been launched by Clarion Events North America (CENA) called ExpoProducción with the intention of spotlighting the apparel of Mexico and Central America. The show will take place on February 6-8, 2013 at the World Trade Center in Mexico City with the support of the… Cámara Nacional de la Industria del Vestido and the Mexican industry publication, MexCostura. ExpoProducción will house an assortment of textile products, apparel, technical textiles, and fabrics and will present vital technological information on the supply chain of such products. The event will also serve as an important networking event for individuals from all over the world.
In a press release about the upcoming event, Clarion Events North America’s President, David Aubrain described, “This show will be the only one of its kind in Mexico and will focus on delivering superior value and assistance to the garment and sewn products manufacturing market in this important and growing region,”
The trade show will take place in Mexico City strategically because of the city’s position as a hub of textile and industrial production in Mexico. As demand goes up for local Mexican goods, the whole textile industry and apparel in Mexico is becoming more and more competitive because of the high quality of state of the art goods.
Meetings like this new ExpoProducción trade show in Mexico City have also had a staggering economic impact on the economy of Mexico. In a study called the “Economic Impact of the Meetings Activity in Mexico” the meetings industry in Mexico is documented to contribute around $18.1 billion every year to the country’s GDP. For more information on the economic impact of the meetings industry on Mexico visit the article on mexicotoday.org.
Air Liquide is a prominent French industrial gas supplier, providing services in the medical, electronic, and chemical worlds. Air Liquide is investing in the construction of a new Air Separation Unit (ASU) and a Steam Methane Reformer (SMR) in Pesquería, Nuevo Leon, Mexico. Air Liquide’s… decision to invest in Mexico came from the encouraging geographical location the country holds, as well as their emergent economic situation. Air Liquide has plans to supply principal steel manufactures like Ternium and Tenigal with nitrogen and hydrogen provisions in both gas and liquid forms. As a leading global gas supplier, Air Liquide focuses on specialty gases, gas handling equipment, and industrial gases to many different businesses in a variety of different lines of work. In addition, Air Liquide is also an advocate of promoting constructive energy solutions and environmentally friendly alternatives to industrial production and distribution.
The President and CEO of American Air Liquide Holdings, Inc, Michael Graff commented on Air Liquide’s decision to invest in Mexico, “We are very pleased to be expanding our business in Mexico alongside companies like Ternium and Tenigal, as it reflects upon Air Liquide’s growing presence in northern Mexico. This country is the 15th largest economy in the world, and growth in its industrial gas market is expected to continue well into the future due to robust industrial and manufacturing activity in the northern states. Developing Economies are a growth driver for the Air Liquide Group.”
The Mexican steelmaker company, Altos Hornos de Mexico (AHMSA) and its Minera del Norte unit have started to develop new projects in the state of Coahuila in Mexico. The ventures are anticipated to cost around $980 million and spur the creation of more than 3,000 jobs in different subdivisions of the economy. Altos… Hornos de Mexico is Mexico’s leading steelmaker, with a production capacity of around 3 million tons a year of steel. They specialize in the manufacturing of tin-free steel, wire rod, and other wire products. The steelmaker company’s corporate offices are located in Monclova, Coahuila, along with many other steelmaking facilities.
Altos Hornos de Mexico has also begun planning the opening of the Thermal Treatment Center and Vacuum Degasification Plant in Monclova. AHMSA is a leading steel manufacturing company in Mexico and their developments are imperative to the technological progression of the steel, energy, and automotive sectors in Mexico.
The US-Based Company, Offshore Group, recently entered into an agreement with J.J. Churchill, the UK stationed aerospace parts supplier, for manufacturing services in Mexico. The two companies have signed an agreement in the construction of new gas turbine components. J.J. Churchill is anticipated to set up 38,500… square feet of work space on The Offshore Group’s Roca Fuerte Industrial Park in Guaymas, Sonora, Mexico. J.J. Churchill hopes to employ a number of individuals to work on the manufacturing location in Mexico.
The Managing Director of J.J. Churchill, Andrew Churchill stated, "We embark on our new relationship in Mexico with The Offshore Group with a great sense of optimism. Our facility in Guaymas, Sonora will geographically position us to serve our North American customers, as well as the North American market as a whole, in both a time and cost-effective manner. The experience that The Offshore Group has with other aerospace manufacturers with profiles that are akin to ours only serves to fortify our expectations of similarly positive results." This marks an important business development between the UK, the US, and Mexico in the realm of aerospace engineering, seeing that the UK is Mexico’s fifth largest investor today.
The state of Nuevo León, Mexico is taking steps to modernize their technological and informational capabilities. Monterrey, Mexico the capital city of Nuevo León, has launched the Monterrey International City of Knowledge (MICK) Program in order to promote the development of innovative new ways of economic growth.… Technology and the creation of industrial parks are some of the main ways the city hopes to do so. This transformation of the economy needs the support of educational facilities, individuals, and businesses on all levels. The program also plans to inspire the creation of many employment opportunities and improve the overall quality of life in Mexico.
The Universidad Autonoma de Nuevo León (UANL), the Monterrey Institute of Technology and Higher Education (ITESM), and Universidad de Monterrey (UDEM) are three of the key players in this new movement towards technological advancement. The Monterrey International City of Knowledge Program plans to turn the economy of the region into a “knowledge-based economy”. The IDB Korean Technology Fund is helping finance this endeavor. The IDB Korean Technology Fund’s Director, Hyunghwan Joo, stated that “this project has great potential to replicate in other interested regions of Mexico and other Latin American and Caribbean countries that are interested in building a regional and/or national innovation system. The Korean Technology Fund will continue to support for this type of project in the future.”
The CEO of Siemens Mesoamerica, Louise Goeser called Mexico the “China of the Americas” in a recent statement at a Siemens metals summit in Mexico City. Siemens is a principal innovator of electronics and electrical engineering. CEO Goeser believes Mexico is in the perfect position to surpass… China as the primary United States sourcing location in the near future. As a competitive free-trade country, Mexico has the resources, as well as the geographical location to become one of the world’s primary manufacturing hubs. Mexico also has an abundant amount of natural resources, lower inflation rates, cost advantage, and strong international economic relationships.
Goeser stated, “There’s actually more engineers that graduate each year in Mexico and are highly qualified than there are from Germany, Brazil or Columbia.” She also went on to say, “The people in Mexico, in my experience, are more dedicated to their jobs than almost anywhere I've ever been.” Workers in Mexico have been known to be committed, educated, and qualified, setting up the country for potentially expansive economic growth and investment in the years to come.
Nissan continues growing its investments in Mexico. In a ceremony where Mexican and Japanese traditions merged in a “first stone” ceremony, the Japanese automotive manufacturer announced it will build its third manufacturing complex in Mexico in the state of Aguascalientes. The new automotive… complex, which will become the second one in the state, will be 2.5 times larger than the current complex. More than 250 guests witnessed the laying of this “first stone”, which will bring to life one of the most ambitious manufacturing projects in Mexico's history.
The new complex will be the result of a $2 billion investment announced earlier in the year, “to increase manufacturing capacity needed to satisfy the high demand for Nissan vehicles in the domestic and international markets,” as reported by the company through a press release.
The first phase of the project, which will include stamping, body, painting and final assembly facilities, is expected to be operational by the end of 2013, and is expected to produce 175,000 compact vehicles per year (B-platform). To achieve this goal, Nissan will create 3,000 direct jobs and generate approximately 9,000 indirect jobs. The complex will include a supplier park and a quality proving ground.
"The magnitude of Nissan's commitment to this new automotive complex is without par. With this investment, we will be able to increase our manufacturing capacity from over 600,000 units per year, to more than 800,000 units by the close of 2013, continuing our record setting production rates in Mexico. And this is only Phase 1," said Armando Avila, vice president of Manufacturing at Nissan Mexicana. He added: "The challenge is enormous, but inspiring. We will achieve it because we are proficient in advanced production processes and can count on very skilled labor to deliver with top quality."
The new complex in Aguascalientes adds up to the nearly five decades the Japanese firm has been betting in Mexico. Nissan’s automotive plant in Cuernavaca was not only the first complex built in Mexico, but most importantly was the company’s first investment outside of Japan which reflects the trust and commitment in further growing its operations in one of the most attractive markets around the world that is Mexico.
Technological change is happening faster than ever and Mexico is leading the charge by creating one of the first creative digital cities in Latin America. At the end of January 2012, President Felipe Calderon inaugurated Mexico’s first Digital City project in Guadalajara. The project… will be located downtown, occupying over 600 acres near the Morelos Park (Parque Morelos) area, combining the oldest and most traditional aspects of the city with a new, modern and vibrant working environment. Several governmental and private organizations are teaming up to collaborate on this initiative including ProMexico, the governments of Jalisco and Guadalajara, the Secretary of Economy, Professors Dennis Frenchman and Carlo Ratti, Accenture, and the National Chamber of the Electronic, Telecommunications and IT industries.
The plans are to create a city within a city, one that boasts a digital nervous system, connecting people on both a personal and social level. Part of the vision of the creators of the Digital City is to create a future model for other digital cities that is environmentally, economically and socially sustainable. Project construction is scheduled to begin in August of 2012 with the final master plan being locked down in June. Overall, Digital City Guadalajara is expected to bring in investment of over $10 Billion USD and will eventually create over 20,000 jobs.
Guadalajara’s Digital City will be similar to other successful projects that are currently up and running in Abu Dhabi, Seoul, New York City, Barcelona and the UK. According to the presentation, the space in the Digital City will be an “integrated model of mixed use of land for living, work, learn and habitational requirements.” Recently, I spoke with Stephen Slater, CEO of Blu Croix, a consultant who is working with ProMexico to bring digital and creative California based companies to Guadalajara. When I asked him about what sets Guadalajara’s Digital City apart he said “It is a key location for Spanish and English product development. The amount of educated, bilingual, creative energy in Guadalajara is staggering. It also offers great proximity to the US and the growing Latin market(s) in the US, and it is a key foothold for reaching Central and South American markets.” The fact that Guadalajara is only two hours ahead of Los Angeles and one hour behind New York will make it especially attractive to companies who are running on tight deadlines and want to make sure their teams are working efficiently.
Guadalajara is already a tech hub and is home to a number of multinationals like HP, Dell, Flextronics, and IBM. With federal government funding, the project hopes to attract the likes of Time Warner, Viacom, News Corp, The Walt Disney Company, Activision, and Sony. IBM, which already has a strong presence in Guadalajara, has announced its participation in the project. Not only will the Digital City project provide a home for the world’s most creative companies, it will also provide a tremendous opportunity for talented workers in Mexico to be part of something exciting and innovative.
While many firms from inside and outside of Mexico have expressed interest in the project, Slater says “The best fit for the CCD are firms that are focused on the creation of digital content, whether that’s music, video games, movies, cell phone apps, graphic arts or web design. The firms that will fit best are those exceptional few that exhibit high energy, high levels of creativity, and a strong thirst for high bandwidth internet and network connectivity and a hunger for the synergy of collaboration.”
Currently, there are plans for two new hotels in Guadalajara’s downtown area in preparation for the influx of visitors to the new Digital City. One of the hotels will be built right next to the Cathedral. The hotel industry in Guadalajara, which reached all-time high occupancy rate during the Pan-American Games in 2011, is looking forward to reap the rewards of hosting visitors and potential participants in the Digital City program.
In addition to all of foreign direct investment that the Digital City will bring to Mexico, the National Chamber of the Electronics, Telecommunications and Information Technology Industry has a goal to create exports of $30 Billion USD.
Entrepreneurs and executives from Guadalajara will take advantage of the fact that this year’s G-20 Summit is being hosted in Los Cabos, Baja California, to present the Digital City project to leaders from around the world. ProMexico will also be heavily promoting the project in its more than 30 offices, hoping to catch the eyes of potential investors and multimedia and IT companies.
For example, Mexico has posted economic growth of 5.5 per cent in 2010 and 3.9 per cent in 2011, far outpacing the United States. Industrial production in Mexico surpassed its pre-recession high in early 2011, while U.S. industrial production continues to lag.
With respect to fiscal policy and sound budgeting Mexico ran a budget deficit of 2.5 per cent of GDP in 2011, compared with 8.6 per cent for the US. National debt in Mexico is stable at 27 per cent of GDP, while in the US it is 98 per cent and rising.
Mexico has also shed its protectionist past and embraced free trade. In 1980, trade as a percentage of GDP was only 17.5 per cent. Today exports and imports represent 61 per cent of economic output. And about 80 per cent of Mexico’s exports are now manufactured goods.
Within Latin America, Mexico is the only country in Latin America that has increased its world competitiveness, according to the IMD’s 2012 World Competitiveness Yearbook (WCY). While Mexico climbed one position from #38 to #37 on the list, Chile dropped to #28 from #25 and Brazil also slipped from #44 to #46, compared to… last year’s rankings. IMD’s 2012 WCY rankings measure how well countries manage their economic and human resources to increase their prosperity.
"US competitiveness has a deep impact on the rest of the world because it is uniquely interacting with every economy, advanced or emerging. No other nation can exercise such a strong "pull effect" on the world. Europe is burdened with austerity and fragmented political leadership and is hardly a credible substitute, while a South-South bloc of emerging markets is still a work in progress,” said Professor Stephane Garelli, director of IMD's World Competitiveness Center in a press release issued by the IMD.
Despite all its setbacks, the US remains at the center of world competitiveness because of its unique economic power, the dynamism of its enterprises and its capacity for innovation. Other nations leading the rankings include Hong Kong, Switzerland, Singapore and Sweden.
Mexico is today at the heart of the global economic recovery and growth eyes of the world’s leaders. As UK’s Prime Minister David Cameron, stated in a recent video around the G20 Summit, “Mexico is joining the global elite of world economic powers, not just as a brilliant host of the G20, but as a major force in its own right.” Speaking on the Mexican people, Prime Minister David Cameron also said, “Its people are becoming ever more influential in every part of the global community.”
The B20 Summit in Los Cabos marked the first time a Task Force was set up to measure the impact and advocacy of the business recommendations made. “Joining forces is the spirit of the B20”, stated Alejandro Ramírez, Chairman of the B20 “the B20 is a clear reflection of how… businesses can be an important part of the solution.”
As coverage of the event has come to an end, we’ve compiled the following articles to highlighting the results of the B20 Summit.
The B20 Green Growth Task Force and the World Economic Forum announced the launch of the Green Growth Action Alliance, a new partnership initiative addressing the estimated $1 trillion annual shortfall in green infrastructure investment.
Servitje and Polman outlined the pressing challenge of food security in a recent oped. “Imagine all the food mankind has produced over the past 8,000 years,” Servitje and Polman wrote. “Now consider that we need to produce that same amount again — but in just the next 40 years if we are to feed our growing and hungry world.”
The B20 Summit addressed, through varieties of panels, discussions, and work sessions, many important issues that affect humanity on a grander level. These topics included green growth, food security, innovation, international trade, development, and creating a peaceful diplomatic and cooperative international society.
Since establishing operations in China in 2006, Grupo Bimbo now employs 1,500 associates, operates two plants near Beijing, and maintains a presence in 17 cities in northern China. The company sells Grupo Bimbo-branded baking products, including bread and even tortillas, a new product the company wants to try to sell in the Chinese bakery market.
The White House thanked Mexico for hosting the Business 20 (B20) Summit 2012 in Los Cabos, Mexico in their recent “G20 Leaders Declaration” press release. The White House outlined the significant positive contributions the Business 20 (B20) Summit 2012 has made for discussions on employment, food and agricultural security, economic prosperity in a changing world, and social protection
At the G20 conference in Los Cabos, Mexico, The United Nations World Tourism Organization (UNWTO) and the World Travel and Tourism Council (WTTC) advocated the link between economic recovery and tourism. The tourism sector of the economy can create countless employment prospects for individuals and can spur a significant amount of growth in the GDP of the G20 countries in question.
The Green Growth Task Force, which was launched at the B20 Summit in Los Cabos, Mexico this past week, is composed of some of the world’s most influential energy companies who’re all devoted to changing the way businesses and the public look at energy use.
Behind the Scenes:
On July 6, British airline Virgin Atlantic’s president Sir Richard Branson is planning to visit Cancun, Mexico, to celebrate the inaugural flight between Cancun and London’s Gatwick airport. This new flight is part of the airline’s expansion into the Caribbean. The long-haul airline “now… flies twice-weekly to Cancun with 451-seats on the 747-000 aircraft,” as reported by the anna.aero online site. This new flight also comes as a response to the competing airline British Airways as it already has three flights a week, and leisure airlines Thomson Airways and Thomas Cook with five and two weekly flights, respectively.
Sir Richard Branson comments about his new flight, “Cancun is one of the top five long-haul leisure destinations for UK travelers, so we are delighted to be able to add this route to network. This route launch further cements our position as the UK’s leading long haul leisure airline.”
Mexico is not foreign to Sir Richard. In mid last year, he was found swimming with over 300 whale sharks in the coasts of Cancun in order to raise awareness for the specie’s growing risk of extinction. Check out our article from back then.