Alejandro Díaz de León
Director General
Bancomext
/
View from the Top

A Strong Supply Chain Needs Financing

Thu, 09/01/2016 - 16:52

Q: How does Bancomext determine which sectors are priorities for its support?

A: We have a clear mandate to promote export activity in a broad context including goods and services, as well as activities allowing for potential import substitution. There are also specific niches Bancomext can cover and we are particularly strong in financing green projects. Being a development bank owned by the federal government helps us take advantage of financing provided by other institutions in developed countries. This allows us to deploy our resources to specific projects that help reduce our carbon footprint and improve clean energy generation.

Q: How have the administration’s economic reforms contributed to the country’s development?

A: There is no such thing as a quick fix. When evaluating the type of reforms Mexico has implemented it is clear the country has undergone two major periods of economic reform. One was carried out in the 1990s with the goal of establishing an open economy in trade and financial flows, consolidating macroeconomic stability and averting the financial crises of the previous decades. The reforms implemented in 2013 and 2014 complement those prior reforms and work more on the non-tradeable part of the economy.

Q: What role has Bancomext played in the automotive sector’s boom and in access to financing for OEMs?

A: OEMs have plentiful and readily available financing sources but this was not always the case. Bancomext played a key role in the development of the automotive sector. Some of the support we previously provided matured and was amortized. Now that we are seeing happier days for OEMs, we are trying to focus on consolidating the supply chain. As a result, we have implemented different methods to more actively support smaller suppliers. Mexican exports are a strong point but the country also imports significant quantities of intermediate goods. This offers a clear way to identify how we can expand our activities and support the supply chain in diversifying further.

Q: To what extent do you engage with local governments given the many hubs developing across the country?

A: President Enrique Peña Nieto’s administration has an extremely clear objective to use development banks as a tool to deepen financial markets and financial penetration in the country. This is even more crucial when considering some of the effects due to the changes in financial regulation. Capital and liquidity requirements have been significantly increased for commercial banks and they have become less willing to participate in long-term contracts. This is particularly unfortunate for project financing. When combining these regulatory effects with Mexico’s need to develop new business, a situation arises wherein many new projects are in need of financing but there is less appetite from commercial banks to participate in the supply chain’s growth, so development banks emerge as the frontrunners in this market.

For Bancomext, it makes no difference where an OEM or supplier wants to be located but we do try to be as helpful as possible in capital expenditure decisions. These companies must consider a great number of variables before making decisions about logistics, suppliers, railroads and ports. Wherever the company chooses to invest, we are more than happy to follow them.

Q: How can Bancomext help boost technological sophistication in the automotive industry?

A: Private sector organizations in both the aerospace and automotive sectors are generally optimistic since they feel there is international recognition regarding the quality of high-scale manufacturing in Mexico. A decade ago, cars built in Mexico were mainly small low-cost sedans. Today, the main luxury brands and SUV models are also manufactured in the country, which illustrates a clear increase in local added value. This is crucial for Mexico as a manufacturing hub, primarily for North America. We have worked with companies in this endeavor, examining how Bancomext can play a greater role in the investment-attraction process. We know companies tend to import capital goods and we have not been as active in trying to examine that part of the equation. However, we believe we can significantly reduce costs and improve the terms and financing conditions these companies have to meet to increase productivity.