Infrastructure Key to a Wealthy MexicoWed, 11/01/2017 - 15:27
Q: How do the industries that drive Mexico impact the priority industries selected by ProMéxico?
A: The first step in defining our priority industries is to define the new businesses that bring the most value to Mexico in talent, new processes and doing things in a way that can improve the current situation.
In this sense, we are reviewing the aerospace and automotive industries, which have many Tier 2, 3 and 4 companies and thus have the potential to bring more talent and investment through their supply chains. We believe services will emerge as an important area due to national content requirements, which are particularly pertinent in manufacturing industries like IT or medical devices. Within these industries, standards must be raised to maintain our status as a reputable manufacturer.
A US$20/b oil price environment forces companies to think about their decisions thoroughly. Mexico had everything thought out with the Energy Reform before oil prices dropped. This reform, as well as business options and financial instruments, allowed the country to mitigate the effect of oil prices in the Mexican economy. However, the oil issue has two sides: price and declining production. We are aware that we have to diversify.
Q: What can ProMéxico do to accelerate infrastructure development?
A: ProMéxico coordinates and reviews which needs are a top priority for each sector. Clusters are a key component we must foster. For instance, Guadalajara was defined by MIT and Accenture in coordination with ProMéxico as the creative center of the country. It was decided that Guadalajara was a suitable hub due to its environment, talent development and because companies like IBM, SAP, Oracle and Intel are already there. The cluster is attracting more companies, talent and investment so it needs a push and a development plan.
In the automotive industry, Ford has announced the construction of a new plant in San Luis Potosi so we need to increase port capacity to export cars. Because of these projects, we value the development of infrastructure. New transborder bridges, such as the Guadalupe-Tornillo bridge, are being built between Mexico and the US and the Matamoros-Brownsville railway is open after 100 years without any railway development.
The country is building the infrastructure it needs to grow because of clusters. The special economic zones (ZEE) are also an incentive to build more needed infrastructure. The Lazaro Cardenas port will be doubled in size, capacity and connectivity. There will also be significant infrastructure progress on the Gulf Coast because of the energy sector.
Q: How do you coordinate these infrastructure initiatives and create an environment in which companies can grow?
A: We developed a methodology to push the supply chain. Caterpillar and Siemens provide strong examples. They have factories in Mexico but import 90 percent of their supplies so we asked them what was needed to provide these locally and in this way we were able to meet some of these requirements. We also can help bring companies that could become part of their supply chains. The same was done for Volkswagen, Ford and GM.
Another part of our job, in addition to advising companies on where to allocate their investments, is to recommend locations in which to establish operations according to the availability of universities that provide talent. One of ProMéxico’s most important tasks is to increase the standards of suppliers to a level that allows them to work with these multinational manufacturers and OEMs. This bolsters the country’s supply chain.
Q: Why are companies coming to Mexico now?
A: It mainly depends on each sector but companies are looking into Mexico because of its macroeconomic stability. The second element is the country’s network of trade deals. In this sense, Mexico is quite open. Many countries also have recognized that they can use us as a launching pad for exports to other areas. Chile and Peru are exporting vegetables to Mexico so these can be reexported to Asia, for example.
In general, countries and companies perceive Mexico as an important platform and we have leveraged this to attract foreign investment. Reforms play an important part because Mexico is becoming a country with low energy and telecommunications costs, as well as low interest rates resulting from the fiscal reform. In addition, the AntiTrust Law shows the country’s willingness to transform and evolve in a world of stagnating political will. The reforms are attracting investment in all sectors, leading to the development of more commercial and industrial infrastructure.
Q: How does ProMéxico cooperate with state governments whose objectives are not always aligned with national interests?
A: Competition fosters value. In this sense, we talk to governors, ministers of economic development and industrial park owners, who are also stakeholders, to promote clusters and provide the best value for a state. Sometimes states need more employees or investment. However, this administration has stipulated that incentives and infrastructure promised to companies must be settled and signed at the Ministry of Economy, ensuring that interests are aligned. Actions outside these agreements will not have the federal government’s seal of approval and thus no budget.
Q: What common concerns do companies have about working with the government and how do you address them?
A: The first concern is state government debt. However, there is a new law that frames the way government debt is underwritten, which also brings transparency and assures companies they will be paid on time. Land is another issue because of the way it is owned in Mexico. Now, there is a unit in charge of managing this situation and among other things, it has changed the way pipelines are built. Previously, installing an interstate pipeline involved years of negotiations with landowners. The idea is that through the Ministry of Agrarian, Territorial, and Urban Development (SEDATU), companies can negotiate more efficiently to obtain the right of way. We are also implementing International Labor Organization laws to streamline the way wind farms are built, mainly by ensuring transparency and increased stability.
Q: What can ProMéxico do to accelerate the shift from low-tech to hi-tech manufacturing?
A: This shift is exactly what we are pursuing. Mexico is ranked third among G20 countries for advanced manufacturing and exporting. Our idea in the manufacturing area is to develop roadmaps, as was done for aerospace six years ago, with photonics today and for the Internet of Things in the next six months. We are working to bring in the knowledge necessary to develop the manufacturing supply chain, for which we are assessing which companies to invite, which talent must be developed and which processes we need to usher in. ProMéxico is collaborating with the industrial and academic sectors for this purpose.
In addition to pursuing hi-tech manufacturing, we also are working on the services area. Millions are invested in manufacturing but not for services so we want to attract investors to that niche. The goal is to have cutting-edge sectors that bring added value to the Mexican economy.