Archive for category Business
09/21/12 (written by lquezada) – On September 18, 2012, the Trans-Border Institute and the Center for Peace and Commerce hosted a border breakfast roundtable titled, “The United States-Mexico Border Economy in 2012,” featuring Dr. Alejandro Diaz-Bautista, PhD., and panelists Dr. Stephen J. Conroy, PhD., Director of the Center for Peace and Commerce, and Dr. David Shirk, PhD., Director of the Trans-Border Institute. The presentation focused on the issues that affect the economic relationship between the United States and Mexico.
Diaz-Bautista’s presentation highlighted the fact that Mexico’s top trading partner is the United States, while Mexico is the United States’ third major trading partner, emphasizing how closely linked the two countries are in economic terms. He noted that, given the border between the two countries is the largest in the world, it fosters a unique economic zone. Diaz-Bautista pointed out that frequent border crossings for shopping, tourism, and work result in 350 million crossings and $450 billion in trade each year; with shopping accounting for 42% of the such crossings. Diaz-Bautista also highlighted that both countries share similar economic trends due to their intensely close relationship, and provided the examples of mirrored unemployment rates and GDP growth rate patterns, the latter, which the World Bank has documented, have been similar for the past 13 years.
Stephen Conroy, director of the Center for Peace and Commerce, explained that the perception that U.S. citizens have of the danger and insecurities in Mexico is exaggerated and it is affecting the tourist segment of the economy in Tijuana. After being questioned on how the misperception of Mexico’s insecurity is fostered, where it comes from, and its effect, Conroy pointed out that indeed violence does occur in Mexico, but that it should not prevent people from crossing given how targeted the violence is, how unlikely U.S. citizens are to be victims of such violence, and how much violence in Tijuana specifically has decreased the past few years. David Shirk, Director of Trans-Border Institute, shared the same sentiments as Conroy in expressing that people should be encouraged to visit Baja California to change the negative perception many have of Mexico.
To view Diaz-Bautista’s power point presentation, please click here.
The World Tourism Organization (WTO) has recently come out with reports that Mexico is no longer the tenth tourist destination in the world. Mexico now ranks 12th; it once ranked 7th in 2004 and 2005. Mexico is ranked 23rd in foreign exchange earnings from international tourism behind countries such as India, Thailand Macao and South Korea.
Why? It is said that Mexico no longer is has as many flights going through at affordable rates and that the supply of seats have fallen. Many people say they have lost the U.S. market. They claim Americans have gone to other travel destinations such as the Caribbean islands, Europe and within their own country. Some of this could be contributed with the warnings and violence associated with Mexico, but others believe it is because Americans are receiving better travel deals elsewhere and even within their own country.
So what does Mexico do? To be fair Mexico only dropped to number 12, but with Mexico developing prominence politically and economically it would want to maintain its position and avoid regression. Siegfried Paz Paredes, advisor to the National Tourist Business Council (CNET) and former deputy tourism minister says the issue is developing tourism infrastructure and urban support.
World Tourist Destinations Rankings:
4. Spain (4)
6. Turkey (7)
7. United Kingdom
Meré, Dayna. “Abandona México top 10 de turismo,” Negocios, May 11th, 2012.
Mexico’s lower chamber has recently passed legislation that could make Mexico the second nation in the world to pass comprehensive national climate change legislation. On Wednesday the lower house passed the “General Law on Climate Change”. This could have major benefits for the economy of Mexico and could bring new hope to a country who’s largest export commodity comes from it national oil company PEMEX. The bill must be passed before the congressional session adjourns at the end of the month and to be passed must have senate and presidential approval. This seems likely in the Senate considering they passed their version of the bill in December.
In effect the bill:
-Will require the whole country to reduce its carbon emissions 30% by 2020 and 50% by 2050.
- Establish goals for increasing electricity generation from renewable sources, with a goal of 35% of electricity generation coming from renewable sources by 2024.
-Establish the National Institute of Ecology as the National Institute of Ecology and Climate Change.
-Establish a climate fund and request the Ministry of Finance, among others to develop a system of incentives that favors renewable energy by 2020
-Establishes a national emissions registry and mandatory emissions reporting
Though the bill does not mandate the creation of a domestic greenhouse-gas emissions trading system it does enable it. This essentially is the idea government would provide economic incentives for achieving reductions in the emissions of pollutants. The Environmental Defense Fund (EDF) predicts if were to do so Mexico would achieve its goals at low cost and significant profit and attract international investment. The EDF says it would be able to do so if the system were to include an absolute carbon cap set near their current target and allow trading both domestically and in international markets. Mexico’s National Institute of Ecology have found that smart mitigation action could trigger a 5 percent incremental GDP growth, and create 3 million additional jobs, distributed among the poorest sectors of the population.
Mexico is the 11th largest emitter of global greenhouse gases and hosted the latest summit on Climate Change in 2010 in Cancun, Mexico. The summit in Cancun and previously in Copenhagen seemed to have produced few and loose results. The biggest challenge to global progression into the green economy is its lack of profit compared to those of large emission emitter economies. If Mexico can induce a profitable green economy it may act as a model for other developing nations or produce competitive investment into green technology from other nations.
03/26/2012- For the second consecutive business day, the Mexican peso has strengthened compared to the U.S. dollar. This is the first time the peso has made consecutive gains since the period ended March 9, 2012. The peso rose 0.6 percent today, to 12.6688 per U.S. dollar from 12.7474 on Friday, March 23. According to Brown Brothers Harriman (BBH), “The peso has been among the strongest, liquid currencies thus far this year, appreciating almost 9.6%.” (WSJOnline)
Mexico is currently Latin America’s second biggest economy, and there is speculation that as U.S. growth outlook improves, so will Mexico’s economy. According to the Wall Street Journal’s MarketWatch, “Improvement in U.S. conditions is important for Latin American companies that export goods to the world’s largest economy. Mexico has particularly close ties with the U.S. as it sends roughly 80% of its products to its neighbor.” (MarketWatch)
Central Bank Governor Agustin Carstens stated in an interview, in terms of overall economic expansion, there will be “probably a rate of growth closer to 4 percent.” (Bloomberg Businessweek) This expected growth he said is based on the information that they have today, and that this rate of growth, similar to last year’s 3.9% growth rate, will help to subdue inflation.
(03/02/12) The National Chamber of Tequila Industry (NCTI) proposed a ban that would restrict distillers outside of the five-state boundary from using the word “agave” to market their drinks. This can be seen in similar light to when Mexico claimed exclusive right to the term “tequila.” They did so because they said it was considered to be a geographical appellation of Mexico. Mexico gained exclusive right to the word because they signed onto several treaties to protect their products in international organizations such as the World Trade Organization (WTO), the Paris Convention for the Protection of Industrial Property, NAFTA, etc. Now the Mexican Government owns the name “tequila.” New producers who want to use “tequila” to market their drink must obtain permission from the Mexican Institute of Industrial Property (IMPI). The IMPI has given their support to the NCTI for to ban the use of the word agave now.
Unlike tequila though, “agave” is the name of a plant and not a product. Tequila is the only alcoholic beverage made with Blue Agave, grown in the officially demarcated area within Mexico and is banned to five of the 31 states in Mexico. Agave is a plant. Distillers complain though that distillers outside of the tequila region are interfering in their market by using the word agave. They are in a sense saying the trending market of “100% agave” used as a sign to mean quality is bringing competition and “in-authenticating” tequila with cheap knock offs. This is increasingly problematic since “gringos” have become bigger consumers of tequila than Mexican’s and cannot typically tell the difference.
1.5 million acres for developing oil and gas reserve are to be leased in the Gulf of Mexico under the Trans-Boundary Agreement
The United States and Mexico agreed on Monday to co-regulate the exploration and development of oil and gas reserves along their maritime border in the Gulf of Mexico. It will allow for 1.5 million acres of offshore territory claimed by the United States open for lease. Now American and Mexican energy companies can partner to jointly tap cross-border reservoirs and the two governments will share in oversight of the sites regarding compliance with environmental and safety standards. It also opens up an area that was previously off limits to both nations due to a moratorium set to expire in 2014.
The area is the size of Delaware and is said to contain 172 million barrels of oil and 304 billion dollars in cubic feet of natural gas. The discussion for this agreement has been going on since 2010 between President Obama and Calderon, the same year of the largest marine oil spill in the history of the petroleum industry in the Gulf of Mexico. The agreement also comes at a time when oil prices have reached 105$ a barrel after Iran announced it would halt oil exports to Britain and France.
The United States interior secretary Ken Salazar has stated that, “The most significant part of the agreement, is that we’re moving forward jointly with Mexico to ensure we have a common set of safety protocols.” The agreement also benefits Mexico’s growing middle class demand for energy and increases their production output, which has been slowing for the past decade.
Mexico’s Comisión Federal de Competencia (CFC-Federal Competition Commission) met January 24, 2012, to discuss the proposed merger between Televisa and mobile operator, lusacell. The meeting of the full commission is reported to have started at noon and lasted over six hours; all five of the commissioners were present for the meeting. As of yesterday, January 31, 2012, it was reported that it could be “hours or days” before the official decision of the CFC would be made known to the public. Eduardo Pérez Motta, an official of the commission, explained, “The [Commission] will inform the public of its decision once it meets the requirement of notification.” (El Universel)
The commission stated that by order of the last paragraph of Article 31 bis of the Ley Federal de Competencia (Federal Law on Competition), the CFC and all its officials are unable to speak out publicly until the concerned companies have been notified of the decision.
The merger in question is reported to include Televisa purchasing 50% of lusacell’s shares, a transaction valued at approximately $600 million. (Villarreal)
According to El Universel, analysts and executives believe that only under strict regulatory conditions imposed on both Televisa and lusacell, could there be conditions created for improving competition in the markets involved.
In an interview with Milenio this morning, Eduardo Ruiz Vega, director of Regulatory Compliance for lusacell, announced the CFC would give its notification of the decision to the company around noon today. He did not specify at which office the notification would be given, or the exact time.
It has been reported that today the custodial staff of lusacell tried to prevent the entry of CFC officials notifying the company of the commission’s decision. La Jornada reported that, until yesterday, the house number of the company’s office had been 460, but today it had been changed to 409, and the company’s logo had been removed. These measures were presumably taken under the intention of not receiving the notification.
Officers of the Policía Federal had to assist the representatives of the CFC so they could enter the lusacell facilities. The building’s security had allowed only one representative to enter when two witnesses were needed; before they were granted access, some shoving and jostling took place because security guards claimed that lusacell is private property.
To remain compliant, the CFC has until February 7 to announce its official decision, which states the notification must be made within 12 days but can also be made as early as tomorrow, February 2, 2012.
While officials have not been able to discuss the decision publicly, sources closely involved with the process have reported that the merger was rejected during a vote with three votes against and two in favor. (Ramiro)
With the help of the U.S. Department of Commerce and expos such as the one in Nogales, Sonora, connecting U.S. suppliers with Mexican manufacturers is becoming increasingly easy. On November 16, the 2011 Nogales Supplier Expo was held in the Mexican state of Sonora in an attempt to connect assembly plant representatives with suppliers in the region. U.S. officials from the Commerce Department saw a chance for American suppliers to compete with their Mexican counterparts by bringing them down to meet potential business partners at this expo. So, the U.S. Commercial Service decided to transport one hundred suppliers to the Nogales expo, in hopes that American businessmen and women can reap some of the benefits of the growing maquiladora industry in Mexico, which now includes approximately 110 assembly plants.
Matt Baker works for the U.S. Commercial Service and thinks of himself as a kind of matchmaker. Chris Schlesinger, owner of a business that supplies products to the metal-finishing industry, was looking to expand the market of her small operation and had her eye on Nogales. She contacted Baker and he got her on the bus to the 2011 Nogales Supplier Expo. Schlesinger was delighted. “To have a matchmaking, networking event that brings the supplier and the end user together, that is something I view as a gift to any business on a growth curve,” she said.
Similar government arranged trips have taken busloads of businessmen across the border both in 2008 and 2010. The idea of this type of supply chain tour sponsored by the U.S. Commercial Service arose out of a meeting with Nogales officials who informed the U.S. that they were having supply issues. The Commercial Service officials jumped at the chance to fill this need with American suppliers and started getting serious about connecting small business owners with Mexican assembly plants.
Schlesinger reported that she made three promising contacts from the expo and is hopeful that one will turn into a lucrative business partner. With many similar success stories coming out of the latest trip, the U.S. Commercial Service is looking to expand and improve upon these types of trips in the future.
Those affected by the El Paso border economy are holding their breath during the shaky U.S. economic recovery. If the United States falls back into another recession and the European Union remains in trouble, the local economy in El Paso, and throughout Mexico, is at extreme risk.
In the past four months, the peso has depreciated by twenty percent. Peso exchange rates have been volatile over the past few weeks, ranging from 14.25 to 18 pesos to the dollar. The economic failure of Western Europe is making border investments risky, causing a downturn in the border economies and depreciating the currency. Sergio Kurczyn, an analyst for Grupo Mexico, reported in a recent study “Review of Mexico’s Economic Situation” that instability in European financial markets will continue to put pressure on the peso.
This volatility in the money market and devaluation of the peso is hurting those who rely on stable price exchanges, generally the low-income. “Devaluations are good for people who deal in dollars, but not for those of us who receive salaries or microbusiness income in pesos,” said Gina Gutierrez, a Juarez resident. While a depreciated peso is hurting small business owners and low-income Mexicans who sell goods in pesos, it is benefiting large maquiladoras and export manufacturers who are experiencing lower costs but still sell their goods in dollars. Locals at the border are hoping that the peso will soon appreciate against the dollar once again due to increased investment, causing a boost in the border economy. While the future of the peso is uncertain, one thing economists know for sure is that the peso-dollar relationship will be one to watch in the coming months.
On Tuesday, the U.S. announced plans to launch the Global Entry program in Mexican cities during the first six months of 2012. The program, which already exists in other countries, operates through automated kiosks at selected international airports and allows approved travelers to enter the U.S. in a comparatively minimal amount of time, as little as two minutes. The kiosks are present in 20 U.S. airports but soon more will be constructed in Mexico City airports and those in resort areas. The qualifications for membership are extremely strict, however. Members cannot have a criminal record, cannot have violated any immigration or customs laws, and cannot be under investigation by any agency.
When announcing the launch of this new program, U.S. ambassador Wayne expressed his sympathies of the untimely death of Mexican Interior Secretary Blake Mora, who was a large supporter of extending the Global Entry program into Mexico. Gloria Guevara, Mexican Secretary of Tourism, who was present at the announcement representing her country expressed great pleasure with this program saying, “It speaks of confidence in our country, but above all it’s a great opportunity we’re being given”.
Allowing trusted Mexican travelers to enter the U.S. by air more quickly and easily is just another step toward integrating the two neighboring economies. This program will foster a more cooperative relationship between businesses on both sides of the border and create an environment based on trust rather than suspicion.