Aerospace Stronghold Determined to Solidify PositionFri, 12/01/2017 - 10:38
Q: What characteristics have helped position Baja California as a leader in Mexico’s aerospace industry?
A: Baja California has over 50 years of experience manufacturing parts for aircraft. The state now has 80 registered aerospace companies. It is an industry that has contributed to the development of a strong value chain in the state. Local companies are members of the aerospace cluster, which is continuously working to develop suppliers and technology with the goal of raising the capabilities of the local industry to international standards. Baja California is extremely well-positioned in this sector.
The state has many advantages due to its proximity to the sixth-biggest economy in the world, California. Both states are closely connected through an excellent logistics infrastructure comprising roads, trains, ports and airports. Baja California spearheads logistics to the western region of the US. By providing local companies sufficient access to water, energy and natural gas at competitive prices, Baja California provides an ideal platform to attract investment. For those reasons, the state has nearly double the number of companies of any other in Mexico. Additionally, Baja California is the ideal location to manufacture parts for export, while the center of the country is better located to manufacture parts for Mexico.
During the past three years, the state has attracted US$2.5 billion per year in FDI for all economic sectors. The state also creates 50,000 new jobs per year and has the lowest unemployment rate in Mexico at 2.9 percent.
Q: How does the Ministry of Sustainable Development support companies in Baja California?
A: The ministry supports local companies by identifying the challenges they face and by working with them to develop solutions. Baja California is developing technology for major companies, including Airbus, Boeing and Gulfstream. To further support them, we are building a logistics platform that will help strengthen the state’s leading position. During this government’s term, we have focused on improving competitiveness for local companies by lowering electricity costs through the installation of private generators. These lower costs benefit all companies in Baja California. Because a lack of water is often an impediment for a company’s operations, we are also working to improve and ensure water supply for the next 50 years.
We have also strengthened the port of Ensenada and expanded El Sauzal port to develop a viable alternative for imports and exports, which reduces logistics costs for parts and equipment coming from China, Latin America and the US. The capabilities of the port of Ensenada are being increased to allow it to handle 250,000 containers, which will eliminate the need for these products to arrive at Long Beach and travel the rest of the way by road. We are also reinforcing existing railroads to facilitate the delivery of merchandise within short distances.
Q: What initiatives is the local government developing to support SMEs willing to enter the aerospace sector?
A: We have a series of support programs, including loans to establish and grow the company. We also often organize B2B meetings between SMEs and major companies. We are fully aware that certification can be an expensive challenge but it is extremely necessary for the sector. Certifications have been welcomed by the automotive industry and aerospace companies are also beginning to incorporate them. Local chambers of commerce are also playing an important role in the promotion of the local industry.
So far local businesses only represent 5 percent of total suppliers to the aerospace sector. Our goal is to raise this to 10 percent. This is not an easy task because international companies must adhere to strict internal regulations for incorporating new suppliers. This makes entrance to the sector much harder for small companies.
Q: How is the ministry addressing the lack of available human capital that is challenging the growth of local companies?
A: Mexicali is developing a training center under the name Aerospace Training Institute (ICA), which will generate a base of qualified employees who can easily enter the area’s production lines. This will reduce the amount of training that companies themselves have to provide new employees and facilitate their entrance into the workforce.
We are helping young people to enter the labor force: 80,000 young people began working during 2016 and the employment rate is expected to continue growing. Our goal for this administration is to establish new conditions for competitiveness and to address the obstacles generated by previous administrations.
Q: How will Baja California continue to attract foreign companies?
A: Major companies are convincing their suppliers to enter the state. For instance, the arrival of Gulfstream and Honeywell led to the arrival of several of their suppliers. We work closely with these companies and incentivize their introduction to the state.
Without a doubt foreign aerospace companies will not find another state with the same privileged conditions. Baja California provides excellent logistics through trains, ports and six border crossings with the US. The state’s population also has an industrial vocation. The maquila sector began in Baja California and thanks to the many development schemes the state has introduced we have generated highly qualified talent for manufacturing. The state has challenges to overcome such as insecurity, which we are addressing. One advantage that no other state in Mexico has is that Baja California reinvests 50 percent of its budget in education, which is a clear sign the state is looking toward future economic development.
Q: What is the ministry expecting from a renegotiation of NAFTA?
A: We do not expect any change to current regulations for local content, as an increase in taxes in this area can hurt local companies. We hope that the US government realizes that it is necessary to continue with the current win-win conditions, although at this point we cannot determine whether the existing regulations will soften or harden. In a worst-case scenario, the local aerospace industry will continue growing albeit at a slower rate. In a best-case scenario, I estimate that the state can easily continue growing at a 5 percent annual rate.
The US seems to want fundamental changes to the treaty but changes of this kind can hurt all three countries. Baja California greatly depends on the US, as over 80 percent of the state’s exports are headed that way, representing US$40 billion per year. It would not be easy to find other destinations for these products because they are closely linked to the US consumer market. If the US raises import taxes over 10 or 12 percent, the local automotive industry would find it hard to compete. However, moving manufacturing from Mexico to the US would be extremely complex and would significantly hike prices for end consumers in the US.
The Ministers of Economic Development for border states have discussed strategies to manage our border policies with our current commerce practices with or without a treaty. Border states in the US are also concerned as these states receive large numbers of individuals who shop in the US. Baja California also behaves differently from the rest of the country because the impact of policies in the US hit us harder than local policies.