Rising Mexico

[SanJoaquinSooner]

The Economist has a recent series of articles about Mexico.

1. Wages in Chinese factories have quintupled in the past ten years and the oil price has trebled, inducing manufacturers focused on the American market to set up closer to home. On present trends, by 2018 the U.S. will import more from Mexico than from any other country.
The joint effect of pay, logistics and currency fluctuations had made Mexico the world’s cheapest place to manufacture goods destined for the United States, undercutting China as well as countries such as India and Vietnam.

2. Mexico now boasts free-trade deals with 44 countries, more than any other nation. By the end of the decade, Mexico may be the 10th largest economy in the world.

3. “When you wipe away the PR and look at the real numbers, Mexico is startlingly good,” says Louise Goeser, the regional head of Siemens, a German multinational. Siemens employs 6,000 people at 13 factories and three research centres around Mexico. From its recently enlarged facility in Querétaro, in central Mexico, surge-arrestors and transformers trundle up to warehouses in the central United States in two days. Ms Goeser says that Mexican workers are well qualified as well as cheap: more engineers graduate in Mexico each year than in Germany.

4. In northern and central Mexico German companies turn out electrical components for Europe, Canadian firms assemble aircraft parts and factory after factory makes televisions, fridge-freezers and much else.


5. Nissan is building a $2 billion factory. Together with an existing facility it will turn out a car nearly every 30 seconds. About 80% of the parts in each car are made in Mexico. By using local suppliers, the company is “armoured” against currency fluctuations, says José Luis Valls, head of Nissan Mexico. “If you are localised, you can navigate through floods and storms. If you depend on imports of components, you are very fragile.” In nearby Guanajuato Mazda and Honda are building factories; Audi is constructing a $1.3 billion plant in Puebla. This year Mexico will turn out roughly 3m vehicles, making it the world’s fourth-biggest auto exporter. When the new factories are up and running, capacity will be 4m.


6. Challenges: Inefficiencies of state run oil monopoly. High U.S. demand for drugs has not decreased, with $20 billion/year continuing to flow to drug cartels. Murder rate is slowly decreasing – concentrated in 5 states. Credit is still difficult to get. Trade is huge share of GDP – more than any other Latin American country – so its economic fate is tied to the well-being of trading partners.

7. In the 1960s the average Mexican woman had seven children, she now has two. Within a decade Mexico’s fertility rate will fall below America’s. Net migration to the U.S. is now zero. Border crossings w/o inspection is the lowest in 40 years.

8. In the presidential debates, China was mentioned 60 times. There was no direct mention of Mexico.


http://i995.photobucket.com/albums/af80/sanjoaquinsooner/mexchinatrade.png


http://i995.photobucket.com/albums/af80/sanjoaquinsooner/mexchinawages.png


Link to article:
Senores, Start Your Engines (http://www.economist.com/news/special-report/21566782-cheaper-china-and-credit-and-oil-about-start-flowing-mexico-becoming)

[SicEmBaylor]

You can take the **** hole out of Mexico, but you can't take Mexico out of the **** hole.....or something like that.

[cleller]

I sincerely hope something good can happen in Mexico. Look at where they are positioned, and some of their resources. They have a lot to offer, except a government that can stabilize the place. Sure hope they can get something good going there. Anything to keep their insane violent crime as far from us as possible.

[okie52]

Juan-does this mean the Mexican motherland could be calling its wayward sons and daughters back home to enjoy this land of opportunity? Should Hussein put a stop to any pathway to citizenship and offer these lost souls free transportation to the border?

[FaninAma]

SJS and it is all because Mexico has strong labor unions that control half of the Mexican government.

[pphilfran]

Juan-does this mean the Mexican motherland could be calling its wayward sons and daughters back home to enjoy this land of opportunity? Should Hussein put a stop to any pathway to citizenship and offer these lost souls free transportation to the border?


Actually this is what we need to happen...get their wages up and they won't come pouring across the border...

[okie52]

Actually this is what we need to happen...get their wages up and they won't come pouring across the border...

What? They only want to be 'Mericans for the money?

[SanJoaquinSooner]

I sincerely hope something good can happen in Mexico. Look at where they are positioned, and some of their resources. They have a lot to offer, except a government that can stabilize the place. Sure hope they can get something good going there. Anything to keep their insane violent crime as far from us as possible.

the point of this article is that many things good are already happening.


Señores, start your engines

http://media.economist.com/sites/default/files/imagecache/full-width/images/print-edition/20121124_SRP009_1.jpg
Hecho en México


Cheaper than China and with credit and oil about to start flowing, Mexico is becoming a Brazil-beater

Nov 24th 2012 |




CUERNAVACA, A ONCE pretty, now sprawling city with volcano views just south of the capital, is a typical Mexican town. Hernán Cortés stopped off there after toppling the Aztec emperor Moctezuma in 1520; the conquistador’s stables have since been converted into a smart hotel. Yet on the outskirts of the city, in an enormous industrial park, a visitor could forget he was in Latin America. Nissan, a Japanese car giant, has created a factory the size of a village where from next year it will begin turning out thousands of yellow and chessboard-chequered New York City taxis.

Once shuttered off by tariffs and trade controls, Mexico has opened up to become a place where the world does business. The North American Free-Trade Agreement (NAFTA), which in 1994 eliminated most tariffs between Mexico, the United States and Canada, was only the beginning: Mexico now boasts free-trade deals with 44 countries, more than any other nation. In northern and central Mexico German companies turn out electrical components for Europe, Canadian firms assemble aircraft parts and factory after factory makes televisions, fridge-freezers and much else. Each year Mexico exports manufactured goods to about the same value as the rest of Latin America put together. Trade makes up a bigger chunk of its GDP than of any other large country’s.


Normally that would be a good thing, but after the 2007-08 financial crisis it meant that Mexico got a terrible walloping. Thanks to its wide-open economy and high exposure to the United States it suffered the steepest recession on the American mainland: in 2009 its economy shrank by 6%. The country had already had a rocky decade. When China joined the World Trade Organisation in 2001, it started undercutting Mexico’s export industry. In the ten years to 2010 Mexico’s economy grew by an average of just 1.6% a year, less than half the rate of Brazil, which flourished in part by exporting commodities to China.


But now changes are under way, in Mexico’s factories, its financial sector and even its oil and gas fields, that augur well for a very different decade. Latin America’s perennial underachiever grew faster than Brazil last year and will repeat the trick this year, with a rate of about 4% against less than 2% in Brazil. Mr Peña is aiming to get annual growth up to 6% before his six-year presidency is over. By the end of this decade Mexico will probably be among the world’s ten biggest economies; a few bullish forecasters think it might even become the largest in Latin America. How did Mexico achieve such a turnround?

China’s cut-price export machine sucked billions of dollars of business out of Mexico. But now Asian wages and transport costs are rising and companies are going west. “The China factor is changing big-time,” says Jim O’Neill, the Goldman Sachs economist who in 2001 coined the “BRICs” acronym—Brazil, Russia, India and China—much to Mexico’s irritation. China is no longer as cheap as it used to be. According to HSBC, a bank, in 2000 it cost just $0.32 an hour to employ a Chinese manufacturing worker, against $1.51 for a Mexican one. By last year Chinese wages had quintupled to $1.63, whereas Mexican ones had risen only to $2.10 (see chart 1). The minimum wage in Shanghai and Qingdao is now higher than in Mexico City and Monterrey, not least because of the rocketing renminbi.


Right next door
Hauling goods from Asia to America is costlier too. The price of oil has trebled since the start of the century, making it more attractive to manufacture close to markets. A container can take three months to travel from China to the United States, whereas products trucked in from Mexico can take just a couple of days. AlixPartners, a consultancy, said last year that the joint effect of pay, logistics and currency fluctuations had made Mexico the world’s cheapest place to manufacture goods destined for the United States, undercutting China as well as countries such as India and Vietnam.

Companies have noticed. “When you wipe away the PR and look at the real numbers, Mexico is startlingly good,” says Louise Goeser, the regional head of Siemens, a German multinational. Siemens employs 6,000 people at 13 factories and three research centres around Mexico. From its recently enlarged facility in Querétaro, in central Mexico, surge-arrestors and transformers trundle up to warehouses in the central United States in two days. Ms Goeser says that Mexican workers are well qualified as well as cheap: more engineers graduate in Mexico each year than in Germany, she points out.

In Aguascalientes, not far away, Nissan is building a $2 billion factory. Together with an existing facility it will turn out a car nearly every 30 seconds. About 80% of the parts in each car are made in Mexico. By using local suppliers, the company is “armoured” against currency fluctuations, says José Luis Valls, head of Nissan Mexico. “If you are localised, you can navigate through floods and storms. If you depend on imports of components, you are very fragile.” In nearby Guanajuato Mazda and Honda are building factories; Audi is constructing a $1.3 billion plant in Puebla. This year Mexico will turn out roughly 3m vehicles, making it the world’s fourth-biggest auto exporter. When the new factories are up and running, capacity will be 4m.

According to projections by HSBC, in six years’ time the United States will be more dependent on imports from Mexico than from any other country (see chart 2). Soon “Hecho en México” will become more familiar to Americans than “Made in China”.

On the opposite side of Cuernavaca from Nissan’s gigantic factory, Antonio Sánchez plays a smaller role in Mexico’s motor business. At his carwash customers queue to pay 46 pesos ($3.60) for their cars to gleam in the ever-present sun. Mr Sánchez seems to have enough business to open another branch, but credit is scarce and expensive. He explains that banks tend to charge interest rates of 25% or more and demand collateral worth three times the value of the loan. “It’s complicated, expensive and the risk is too much,” he says.

Mexican businesses have been fighting with one hand tied behind their backs, thanks to a chronic credit drought. Lending is equivalent to 26% of GDP, compared with 61% in Brazil and 71% in Chile. The drought started with the “tequila crisis” of 1994, when a currency devaluation triggered the collapse of the country’s loosely regulated banking system. Banks spent the best part of a decade dealing with their dodgy legacy assets and were nervous about making new loans.

But things are looking up. Inflation, now running at 4.6%, has been well under control for ten years. The conservatively run Mexican subsidiaries of foreign banks such as BBVA, Citigroup and Santander are all rated higher than their American or European parent companies. Now they are starting to turn on the credit tap. Loans to companies are growing at 12% a year and to individuals at 23%. Given that many enterprises are informal, many of these “personal” loans probably go to businesses, according to David Olivares of Moody’s, a ratings agency. “There are many financing opportunities in Mexico that are not tapped,” says Agustín Carstens, the governor of the central bank. This gives Mexico an advantage over other Latin American countries that are deep in debt. Five to six consecutive years of loan growth, coupled with macroeconomic stability, would increase Mexico’s annual growth rate by half a percentage point, the central bank estimates.

As credit starts flowing, so could oil. Since striking black gold in the 1970s, Mexico has been one of the world’s ten biggest oil producers. The revenues of Pemex, the state-run oil and gas monopoly, provide about a third of the government’s income. But that is part of the problem. The company is “horribly run”, says Juan José Suárez Coppel, its director. He complains that successive governments have milked Pemex rather than let it invest in exploration and technology. It takes between six and eight years from discovering oil to pumping it, so “no president who invests is going to see the barrels,” Mr Suárez points out. Each time a new field is discovered the company allows others to go into decline (see chart 3). Production has slipped from 3.4m barrels a day to 2.5m, and safety is wobbly: in September 30 people died in a gas explosion in Reynosa, near the Texan border.

Ten years ago a change in budgeting rules allowed more investment in exploration, and reserves have risen. This year production is expected to increase for the first time in eight years, but far more lies unexploited. Pemex reckons that there could be nearly 30 billion barrels under the Gulf of Mexico, more than half of the country’s prospective reserves. But starved of money, the company has been slow off the mark to exploit it. Between 2006 and 2011 it drilled 18 wells in deep waters; Petrobras, its opposite number in Brazil, drilled 101. Shale oil and gas, and “tight” oil, are further opportunities waiting to be exploited.

Plenty of foreign companies are keen to start drilling in Mexico, but since the nationalisation of the oil industry in 1938 Mexico has been wary of dealing with gringos. That might now change. Mr Peña has promised an energy reform early in 2013. Many would like Pemex to do as Brazil did and allow competition. Petrobras lost its monopoly in 1997 and made the world’s biggest share offering in 2010. Will Pemex follow suit? “I don’t see it in the immediate future,” says Luis Videgaray, Mr Peña’s closest aide. However, Pemex “has to take steps in that direction,” beginning with improving its corporate governance, he says.

There are some less radical options. Since 2008 Pemex has offered incentive-based contracts under which private firms are paid according to how much oil they extract. The next step would be contracts in which companies share the risk—and potential reward—of drilling in uncertain areas. “Incentive-based contracts have big limitations…We want a reform that allows the private sector to share more risk with Pemex in order to attract more capital and more technology,” says Mr Videgaray. Such a reform would probably mean changing the constitution, which defines oil as the property of the nation. It would be “a signal that echoed around the world: a before-and-after in the history of Mexico,” says Héctor Aguilar Camín, a historian.

What could stop Mexico on its march to growth? One risk is a protracted slowdown in the United States, the destination of four-fifths of Mexico’s exports. Mr O’Neill points out that consumption in the United States amounts to about 70% of GDP; in the long run it will probably fall to around 65%. “That’s not good if you’re setting yourself up as an exporter next door,” he says.

Slimming the monopolies
But Mexico has created a few obstacles of its own which it urgently needs to remove. Goldman Sachs’s “growth environment score”, which measures the likelihood of sustainable growth, ranks Mexico below Brazil, partly because it scores badly on technology. Mobile-phone penetration is 85%, about the same as in Iraq. A fast broadband connection in Mexico costs nearly twice as much as in Chile. It does not help that telecommunications are a near-monopoly. Carlos Slim, the world’s richest man, controls companies that account for about 80% of fixed phone lines, 75% of broadband connections and 70% of mobiles.

Excessive concentration afflicts many other sectors, sometimes as a hangover from the pre-democratic days when political support was bought by granting informal monopolies. Nearly all of Mexico’s bread comes from Bimbo, cement from Cemex and television from Televisa. Nearly a third of household spending goes on products with monopoly or tight-oligopoly suppliers.

The competition authorities have recently been given teeth, with bigger fines and even prison sentences for offenders. Mr Slim’s phone companies are being forced to compete with Televisa’s television empire as technology joins up the two markets. Mr Peña has promised special courts to settle competition disputes. He may also remove the ban on foreign ownership of companies in some industries. “It’s a good moment to review whether Mexico needs these sorts of restrictions,” says Mr Videgaray, pointing to fixed-line telephones and airlines as examples. If Mr Peña can dynamite a few monopoly bottlenecks, there will be a better chance of the 6% growth he wants.

[SanJoaquinSooner]

Juan-does this mean the Mexican motherland could be calling its wayward sons and daughters back home to enjoy this land of opportunity? Should Hussein put a stop to any pathway to citizenship and offer these lost souls free transportation to the border?

Between 1995 and 2000, 3 million Mexicans moved to the United States, with 700,000 returning to Mexico for a net migration of 2.3 million over a 5 year period. In 2005-10 the number of moving from Mexico to the U.S. was 1.4 million, with 1.4 million moving from the U.S. to Mexico for a net migration of zero.

When so much of your economy is based on trade, it's probably good to have many of your citizens living among your trading partners.

[SanJoaquinSooner]

SJS and it is all because Mexico has strong labor unions that control half of the Mexican government.

Two consecutive terms of presidents from the PAN party have been good for Mexico, after 70 years of corrupt PRI domination. Hopefully this new PRI president will not return to the corrupt ways of the previous PRI presidents.

[FaninAma]

Now if they could just stop those pesky mass beheadings by the Mexican drug cartels.

[SCOUT]

Yeah, the insane levels of violence have a bit of a tempering effect on economic optimism. I mean, it is hard to seriously consider moving a plant to Mexico while reading about how the drug cartels are murdering entire media outlets.

I do have to admit that I thought this thread was about Michael Vick.

[olevetonahill]

So yer sayin all yer extended family is busy packing their sh*t?

[cleller]

So yer sayin all yer extended family is busy packing their sh*t?

Is that like putting your moving van where your mouth is?

[olevetonahill]

Is that like putting your moving van where your mouth is?

:excitement:

[LiveLaughLove]

A female mayor or former mayor was brutally murdered down there by the cartels.

They run the show there. Its foolish to think things will improve much until Holder quits sending guns.... I mean until the cartels are brought to major justice.

[sappstuf]

If their economy starts booming, I'm sure the Mexicans will be quick to secure their southern border so the masses of illegals from Central America won't come pouring across.

The irony will be amusing.

[Breadburner]

Nuke Me3xico.....!!!

[KantoSooner]

It is not going to be without bumps in the road, it will take longer than the journo's think it will, but Mexico has a fighting chance to be a decent place to be within our lifetimes. And that would be a massive benefit to this country.
Think of how much we would gain if the Mexican border started to resemble, even vaguely, the Canadian. Think of the shift in world politics if Mexico and the US were together on most issues without the illegals/economics/drugs etc problems that are irritants today.

And, think about this: how happy do you think those Chinese workers are going to be when the 'my salary doubles every 2.5 years' music stops? Can you say pitchforks and torches in the streets? Sure. Sure you can. And right about that time, the US will be energy indepedent and import the vast majority of what we need from this hemisphere or Europe. There's a reason most of the rest of the world finds competing with us unfair. We're the luckiest s.o.b.s on the planet.

[Bourbon St Sooner]

I never trust these Latin American countries when they open up their economies. There's always fits and starts and when the fits occur, their natural inclination is to start blaming foreigners and nationalizing industries like Argentina is doing now. So I'll take a firm we'll see on this.

If Mexico opens up its energy sector to foreign investment, it would speed up the process of North America becoming energy independent. The Arab Spring may be coming to the House of Saud and the Iranian mullahs sooner rather than later.

[Soonerjeepman]

maybe Americans will go south for the jobs...

[badger]

There is no reason for two countries that are not at war to have such a strongly-guarded border.

Rise up, Mexico and take care of your own! Si se puede!

[FaninAma]

It is not going to be without bumps in the road, it will take longer than the journo's think it will, but Mexico has a fighting chance to be a decent place to be within our lifetimes. And that would be a massive benefit to this country.
Think of how much we would gain if the Mexican border started to resemble, even vaguely, the Canadian. Think of the shift in world politics if Mexico and the US were

together on most issues without the illegals/economics/drugs etc problems that are irritants today.

And, think about this: how happy do you think those Chinese workers are going to be when the 'my salary doubles every 2.5 years' music stops? Can you say pitchforks and torches in the streets? Sure. Sure you can. And right about that time, the US will be
energy indepedent and import the vast majority of what we need from this hemisphere or Europe. There's a reason most of the rest of the world finds competing with us unfair. We're the luckiest s.o.b.s on the planet.

I hope you are right. An economically strong Mexico
would be a great development for the American economy. Their big pitfall is the same thing that has afflicted most Latin American countries.....the lack of a large middle class. The wealth distribution gap is a huge impediment to truly viable socio-economic stability.

When I was in private practice most of my office staff was hispanic(all citizens) They were the hardest working, most reliable staff I have ever worked with. The work ethic is there. The population of those countries just need less corruption from their political class.

[KantoSooner]

No way will my prediction be 100% right. But, if even a bit of it goes that way, our next few decades are lining up pretty well. According to Niall Ferguson, maybe even American Century II, good.

[SanJoaquinSooner]

There is no reason for two countries that are not at war to have such a strongly-guarded border.

Rise up, Mexico and take care of your own! Si se puede!

Re: "take care of your own" .... The article points out that when the Chinese joined the WTO in 2001 and the communists went ape**** capitalist, Mexico's trade-dependent economy took a severe body blow. But now, ten years later, conditions have turned much more favorable for Mexico.

[soonercruiser]

Juan-does this mean the Mexican motherland could be calling its wayward sons and daughters back home to enjoy this land of opportunity? Should Hussein put a stop to any pathway to citizenship and offer these lost souls free transportation to the border?

THIS^^^^
Wouldn't it be nice to see American megafarms and businesses crying because the illegal immigrants were going back to Mezico for better jobs???!!!!
I'd be willing to pay the price to see that!
:surprise:

[rainiersooner]

There's a wonderful book by George Friedman - The Next 100 Years - and he identifies Mexico as a strong emerging economy based on the protection afforded by the United States, it's access to the Atlantic and Pacific oceans and increasingly educated populace. It's a good read.

[SanJoaquinSooner]

US Transport Companies Cashing in on Mexico Trade Boom
(http://www.cnbc.com/id/100273675)

[KantoSooner]

THIS^^^^
Wouldn't it be nice to see American megafarms and businesses crying because the illegal immigrants were going back to Mezico for better jobs???!!!!
I'd be willing to pay the price to see that!
:surprise:

Already happening. I work in food ingredients and personally know two mega-farming operations, one in Georgia, one in California, that shut down 50% of their operations this last summer for lack of pickers. If you haven't noticed, yet, keep an eye on your veggie prices, they're up and will continue to go up for the foreseeable.

Another good indicator is sugar importation from Mexico. Sugar is a highly protected/controlled market in the US (and globally). (Otherwise there is zero reason to farm sugar beets. They make no sense at all vs. cane. But there are votes in sugar beet growing states!) We throttle imports from Mexico back and forth each year in order to cover any shortfall in domestic sugar production. Forecasts are for far higher imports over the next several years due to shortages of harvest labor.

[rainiersooner]

Already happening. I work in food ingredients and personally know two mega-farming operations, one in Georgia, one in California, that shut down 50% of their operations this last summer for lack of pickers. If you haven't noticed, yet, keep an eye on your veggie prices, they're up and will continue to go up for the foreseeable.

Same thing has been happening in Washington state - particularly with apples.