Posts Tagged recession
TIJUANA, Mexico — On a recent weekday morning, Mexican soldiers carrying automatic weapons stood in a thin line along a vehicle checkpoint at the busy border crossing from this Baja California city into Otay Mesa, Calif.
While the military presence partly reflects the highly publicized drug violence in Tijuana and other Mexican border cities, it is commerce and the development of commercial real estate that has become a chief focus for business interests in the southernmost area of California.
In the last year, economic development officials and local elected leaders in San Diego County, Baja cities in Mexico and the sprawling Imperial Valley about 90 miles to the east have used a grant of $220,000 of government and private seed money for an initiative aimed at turning this area into a global powerhouse for commercial growth.
The idea is that a concerted effort will produce more manufacturing in Mexico, more research and development in San Diego and more alternative energy in Imperial County.
The area is formally known as the Cali Baja Bi-National Mega-Region, covering roughly 27,000 square miles. Late last month, Mayor Jerry Sanders of San Diego, Mayor Jorge Ramos of Tijuana and economic development leaders from both sides of the border announced a marketing effort that, so far, is aiming to attract companies from China and the Pacific Rim.
Central to the effort is a planned new border crossing, which may be completed as early as 2012, about two miles from the current Otay Mesa port of entry. To be known as Otay Mesa East, it is expected to become the most technologically advanced crossing in the region, with waits for commercial truck traffic of 20 minutes or less, compared with the current three or four hours.
Christina Luhn, director of the Cali Baja initiative for the San Diego Regional Economic Development Corporation, was at the border recently to meet representatives of Kyocera Mexicana in Tijuana, a unit of the Japanese company Kyocera, which manufactures solar panels and other clean-tech products that are shipped into the United States through Otay Mesa.
Dr. Luhn says she is hopeful that new cooperation between Mexico and the United States under the Obama administration will help to bring the drug cartels to heel and ease the task of convincing global companies that the region is right for them as a gateway to United States markets. “I tend to be more optimistic about this than I was even six months ago,” Dr. Luhn said.
John V. Bragg, vice president of Kearny Real Estate in the city of Otay Mesa, is also hopeful that development will help address problems that include an aging industrial base, the underuse of strategically located land, and environmental challenges.
His optimism is more than theoretical, he said. His company recently purchased 311 acres of land in the United States near where the new Otay Mesa East crossing is expected to be built.
Besides constructing the new crossing, which is now the subject of environmental impact studies, the California transportation department is preparing to build state highways to accommodate increased truck freight, Mr. Bragg noted.
That will give rise, he said, to the construction of several million square feet of warehousing and distribution facilities to handle goods made with low-cost labor in Mexico. In turn, retail stores and hotels are expected to be built nearby, as happened near the current Otay Mesa crossing.
“What we want to see now, as a developer and land owner, is infrastructure so that people can move better,” Mr. Bragg said. “We want to see the two countries get together to improve the border crossing and to build then whatever is appropriate.” He added that Kearny hoped to build two million to three million square feet of logistics-related facilities on its newly acquired property.
Mr. Bragg conceded that vacancy rates for existing warehouses in Otay Mesa were 17 to 20 percent, but he said that occupancy would increase as the transportation services are improved and more modern technology was introduced.
Ninety minutes to the east, just over the border from Calexico, Calif., at Mexicali, the capital of Baja California, infrastructure is already in place for the new 10,000-acre Silicon Border Science Park. Silicon Border announced last year that Q-Cells of Germany, a leading maker of solar panels, would build a new manufacturing facility there.
Mike Oliver, executive vice president for business development at Silicon Border, said Phase 1 infrastructure like roads, sewers, water treatment and recycling, lighting and fiber optic cables had been completed, with “tens of millions in initial financing from ING Clarion,” a division of ING, the Dutch bank. “By the time we are finished, we will have had investment of hundreds of millions of dollars,” he said. “We have room for about two dozen Q-Cells type facilities.”
Other new commercial developments are also on the drawing board in Calexico, said Danny Fitzgerald, director of the city’s enterprise zone. Projects under way include Calexico Mega Park, a 157-acre mixed-use retail, business and residential development by Westmount Properties; Calexico 111 Center, with more than 65 acres of commercial and 58 acres of industrial development; and Los Legos, some 500 acres that will include residential and commercial components.
Tim Kelley, president of the Imperial Valley Economic Development Corporation, said cooperative work between his organization, the San Diego County Economic Development Corporation and the city of Mexicali on the Silicon Border development helped the Cali Baja initiative.
Despite the economy, Mr. Kelley said, “we’re getting more expressions of interest than we have ever gotten before. The phone is ringing constantly.”
MEXICO’S economy has suffered a series of blows in recent months — drug violence, swine flu and the worldwide economic downturn. Yet some companies on each side of the border with the United States are prospering because they serve the expanding Mexican-American market in the United States.
A new economy is emerging that builds on the economic relationship between the countries. Exports and imports between Mexico and the United States have grown rapidly in the last decade, to close to $400 billion annually. And now trade is taking on new complexity, with operations in Southern California sometimes serving as Mexico’s link to the global economy.
Viz Cattle Corporation, for example, the American division of Mexico’s SuKarne Global, handles exports of Mexican beef to Japan and South Korea, through contracts made in Compton, Calif. The beef originates in SuKarne’s home base in Culiacán, Sinaloa, in northwest Mexico. “Japanese and Korean executives buy here, and they go to inspect the ranches in Mexico, too,” said Jesus Tarriba, manager of Viz Cattle’s warehouse operation in Compton, in southeast Los Angeles County. “Last year we sold $40 million of beef to Japan and Korea and $80 million here in the U.S.”
Viz Cattle has grown rapidly, from less than $10 million in revenue five years ago to $120 million in 2008. And it is doing well this year despite the downturn, Mr. Tarriba said. Its main business is importing beef from Mexico for American restaurants and retailers. “We specialize in smaller cuts of rib-eye and strip steaks because Mexican ranches slaughter livestock at younger ages than American ranches,” Mr. Tarriba said. “Restaurants like those cuts.”
Viz Cattle and other food companies on the border have also capitalized on the expanding Latino population across the United States and the changing tastes of the public.
“Chipotle was unknown here five years ago,” Marcelo Sada, president of Source Logistics Center Corporation, said of the smoked jalapeño pepper in many Mexican foods and sauces. Mr. Sada’s company, based in Montebello, Calif., imports bakery and soft drink products from Mexico.
Martinez Brands/Tequila Holdings Inc., from Pasadena, Calif., has also been a beneficiary of the growing American taste for Mexican products. “Tequila is the fastest growing liquor variety in the United States for the last seven years,” said Javier Martinez, president of Martinez Brands. “And why? Because young Americans vacation in Mexico and associate tequila with fun, freedom and friendship.”
Business is good as well, for Inter-Con Security Systems, a company also based in Pasadena, that protects State Department installations in the United States and abroad as well as private businesses, hospitals and sports arenas, said Carlo Gobelli, who leads Mexican operations. “Security is in very great demand, to guard executives and company operations and also shipments of goods,” Mr. Gobelli said..
Inter-Con employs 6,500 people in Mexico; the company has 30,000 employees over all. “A new concern here,” Mr. Gobelli said, “is that we are getting demands to protect pharmaceutical laboratories against theft of key ingredients that drug gangs can use.”
Still, some companies are seeing a more mixed picture. ICS Group Inc. of Rolling Hills Estates, in southwest Los Angeles County, represents Carlisle Companies’ roofing and building products in Mexico and Latin America. “Right now, American companies are holding back from investing in Mexico and are not sending their personnel because of dangers from the drug wars,” said Mark Aston, the president of ICS.
But he credited business in the Caribbean with helping the company’s annual revenues grow to an estimated $15 million this year from $300,000 in 2004. “Mexican business people and investors are confident that when this recession ends, Mexico will do well again,” he said.
Mr. Gobelli and other Mexican executives generally agreed that the economy’s overall outlook was positive. “The businessmen say, ‘This crisis did not start here in Mexico’ as have so many crises in the past. It started in the U.S. and the world,” Mr. Gobelli said. “Therefore, they say, when the U.S. and the world recover, Mexico will too.”
Meanwhile, the slow American economy and moves to control illegal immigration with increased border patrols and raids on domestic job sites have reduced migration from Mexico. So remittances to families in Mexico from people working in the United States have declined sharply in the last year. But the Latino population in the United States has grown as a result of children born to immigrants in recent decades. That Latino population is 45 million, according to the Pew Hispanic Center.
This has led to more online commerce with Mexico and other shifts in the marketplace, said Hector Orci, co-founder of La Agencia de Orci, an advertising agency in Los Angeles. “For example, Liverpool department stores in Mexico sell online to people here and the goods can be delivered to their mother living in Mexico,” Mr. Orci said.
Spanish-language media is also shifting to more use of English language commercials and programs, he said. So Mr. Orci is building a new division of his agency, called One Plus Two, for the population that speaks English but enjoys Spanish language programming like telenovelas from Mexico.
“Online use is very high among Latinos, maybe 20 million people using broadband Internet,” said Michele Ruiz, a former television anchorwoman who started the Saber Hacer (to know, to do) Web site in 2007. The site offers advice to Latinos on such subjects as parenting, personal finance, health and medicine and college preparation.
Ms. Ruiz said she had raised $700,000 to start the Web site and investors have now put in “several million more.” The site has close to 200,000 visitors, Ms. Ruiz said, and she is looking to private equity funds and other investors to raise an additional $5 million.
She wants to expand the Web site’s reach and content, which includes presentations in English or Spanish on the importance of annual mammograms, on how to write résumés and apply for positions and how to talk to your doctor or your children about sex. “We understand the culture and how people think,” she said.
By Ioan Grillo / Mexico City Thursday, Jun. 11, 2009
It was the last image the Mexican government wanted from one of its sunny seaside resorts. In the heart of Acapulco, soldiers fought a blazing battle against drug-cartel thugs who sprayed bullets from Kalashnikov rifles and hurled more than 50 grenades. After hours of the warlike scenario, 13 gunmen, two bystanders and two soldiers lay dead on the concrete. Worst of all, the shoot-out happened in the middle of a sweltering Saturday night less than 100 yards from Los Flamingos Hotel, which in its heyday saw Hollywood stars such as John Wayne and Johnny “Tarzan” Weissmuller party until dawn.
Last weekend’s Acapulco firefight was the latest episode of close urban combat in Mexico as cartel militias fight one another and the government for the bounty of the drug trade. But its time and place could not have been more unfortunate. After tourism was shattered by the swine flu scare, Mexico just two weeks ago launched a campaign to try to lure holidaymakers back to its paradise beaches. Under the slogan “Vive México” (Long Live Mexico), the $90 million effort is using such stars as Spanish tenor Placido Domingo and soccer ace Rafael Márquez to show off the golden sands. But while Vive México has yet to have much international impact, the wild seaside shoot-out grabbed the attention of TV stations from Long Beach to London. (See pictures from Mexico’s drug war.)
Until early 2009, it was difficult to gauge exactly how many foreigners were scared away by the drug war and its piles of headless corpses. The global economic crisis may have done just as good a job of keeping potential visitors at home. In any case, while tourism was hit in the first months of 2009, it was not devastated; for example, the Riviera Nayarit on the Pacific coast reported hotel occupancy of 83% in February, compared with 90% in the same month of 2008.
But then came disease. While the drug war may have given a few people the jitters, the swine flu sent many more running for their lives. As news of Mexicans sputtering to death on hospital beds shot round the world, tourists fled resorts in packed planes while many more upcoming holidays were canceled. At the Riviera Nayarit, hotel occupancy in May plummeted to 33%, compared with 70% in the same month of 2008. In some other resorts, it was down to single figures. And most of the visitors who came were Mexicans, not foreigners. “It was like first getting a cough and then getting hit over the head with a shovel,” says Marc Murphy, director of the Riviera Nayarit tourism board. (See pictures of swine flu in Mexico.)
Like most tourism officials in Mexico, Murphy complains the media showed the country in an unfairly bad light. He is quick to point out there have been no documented cases of any holidaymakers being directly affected by the Mexican drug war. “Somewhere like Los Angeles has many more gang members and killings than the places the tourists visit here,” Murphy says. “But Mexico has got more negative coverage than most countries. There has also been some irresponsible and incompetent reporting.”
President Felipe Calderón is also critical of the media spotlight shining on Mexico. He was particularly incensed when Forbes magazine included Mexican drug trafficker Joaquin (El Chapo) Guzmán on its richest list — he was put at No. 701, with an estimated net worth of $1 billion. “Magazines are not only attacking and lying about the situation in Mexico but are also praising criminals,” he said in March, following the Forbes choice. (TIME later went on to include Guzman in its TIME 100 list, noting that criminals are, unfortunately, influential in today’s world.) (See pictures of America’s gun culture.)
Calderón is particularly concerned about the nation’s image because of the bottom line. In 2008, foreign tourists spent $13.3 billion in Mexico, the third biggest source of foreign income after remittances and oil exports. This year all three of these moneymakers are being clobbered. While the price of petroleum nose-dived with the crisis, the recession north of the border pushed Mexican remittances down 18.6% in April compared with the same time last year. To add to these woes, Mexico’s manufacturing sector has been battered by a drop in spending in the U.S. In total, the Mexican government predicts the economy will shrink 5.5% this year. But some private analysts speculate the decline might be more than 8%, the worst dive since the Great Depression.
Calderón argues that the ability of Mexicans to deal with this challenge will be crucial to luring tourists back. Personally launching the Vive México campaign in his presidential palace, the President focused on selling Mexican character. “Let us tell the whole world that we are a strong nation with a unique unity and identity,” he said, “that no matter how hard or difficult the tests we have to face, particularly at the present time, Mexico is united and will overcome them.”