Mexico is fashionable right now and it is, without a doubt, one of the most dynamic economies in the world. The country is attracting foreign investment like a magnet and Goldman Sachs’ forecasts point to it becoming the seventh largest economy by 2020. Many regional analysts are particularly optimistic about the country’ prospects and they predict that Mexico will, in the near future, be the largest economy in Latin America, surpassing Brazil. This will be due to, in large part, those Mexican companies that are increasingly fuelling the economy and expanding to international markets.
Please tell us about the evolution the Mexican economy has undergone over these past few years, and your prediction for the years running up to 2018.
I believe Mexico has a great future, one that will have a lot to do with the reforms President Enrique Peña Nieto is doing – especially the energy reform. Specialists agree that in 2012 petroleum production peaked globally, and began to decline. The world’s reserves will probably run out around 2075, while demand will grow from now until 2040. After that, alternative energy and renewable fuels will help lower the demand for petroleum. Oil prices are forecast to rise through 2040.
The way the world economy behaves will begin to change rapidly within the next few years. Oil producing countries that are modernizing, that have the technology for extracting shale oil and shale gas, and that have the capacity for deep-sea drilling will be the countries that will have an important economic upturn and will be able to meet domestic energy demand.
Mexico has oil reserves and the energy reform will surely give a new boost to the national economy, opening it up to more private investment without losing national sovereignty over oil. The president’s energy reform will be a historic landmark in Mexico’s economy and this reform will open the way to a new phase.
Personally, I see three historic moments in the sector. The first was when Lázaro Cárdenas expropriated Mexico’s oil 75 years ago, thus marking the beginning of Mexico’s oil history. The second moment? President Peña Nieto’s reform, which is a watershed moment that coincides with the beginning of his administration. The reform bill also coincides with the peak in world oil production and obliges Pemex to modernize and become more efficient. It’s clear we cannot continue managing Pemex in the same manner as during Mexico’s oil boom.
The third stage in Mexico’s petroleum history will be when our economy is “depetrolized”. Over the next few decades oil dependency will be reduced, thus opening the way for renewable and green energies. Oil production over the coming years could be very profitable for those countries with oil reserves and who have last generation technology, the resources to extract the oil, and social and political stability. I believe that President Peña Nieto is taking the correct steps to ensure Mexico enjoys significant growth in the coming years.
The Pact for Mexico opened the way for reforms and raised expectations for the country. In your opinion, to what extent will the Pact help sustain growth, and what is Coatzacoalcos doing to help realize the reforms?
The Pact is an example of political civility, dialogue and the Peña Nieto administration’s good sense. It has allowed the different parties to arrive at a consensus, despite their diverse ideologies and interests. And a government that is open to dialogue represents the first step towards development and progress.
The city of Coatzacoalcos is one of the wealthiest in the state, ranking third after Veracruz and Xalapa, and has one of the most important ports in Mexico. It is the most important and developed city in the south of Veracruz, located at the north of the Tehuantepec Isthmus (which is a potential alternative to the Panama Canal). It has a population of 236,000. Coatzacoalcos stands out as a regional center of industry, commerce and services, and represents an extensive and varied region of great economic importance. It also serves as the mandatory gateway to southeastern Mexico – hence it’s nickname “Key to the Southwest”.
To what do you think we can attribute this excellent growth and in what way, in particular, does Coatzacoalcos’ strategic location attract more people and businesses to relocate there?
Coatzacoalcos today has the largest private investment in the country. The Governor of Veracruz State, Javier Duarte de Ochoa, is doing a fantastic job in stimulating the economy. According to official data, Veracruz ranks as the safest state in the country. And according to the Semáforo Delictivo Nacional survey based on the INEGI (National Statistics and Geography Institute) survey on perception and victimization, Veracruz is at the top. The city of Coatzacoalcos ranks 14th in safety among all Mexican cities with more than 100,000 inhabitants.
We have the largest petrochemical industry in Latin America. During Governor Duarte’s three years in office, there hasn’t been a single workers’ strike in all of the state. And there’s openness to dialogue and consensus. The governor is doing an excellent job in matters of security and economic development.
The future of Coatzacoalcos is very important. It’s strategic geographic location in the Tehuantepec Isthmus – the narrowest part of Mexico – opens the possibility of building a rail link to transport cargo between the Pacific Ocean and the Gulf of Mexico. This project has been dubbed the Trans-isthmus Corridor.
There are various things that are naturally pushing this project forward: the openness to investment, the arrival of President Peña Nieto into office, the rising tariffs at the Panama Canal, and several macroeconomic and politic conditions. The Isthmus of Mexico and Coatzacoalcos may very well become a cargo transfer center, an international logistics hub, and a zone for adding value to numerous production chains for different goods.
The project is divided into four phases and would have an initial investment of at least US$600 million. As you said, “It’s a highly profitable project that could be completed in just one phase with strong investment that could be recovered in this very same six-year term.” Please tell us more about this project that, undoubtedly, will contribute to Coatzacoalcos’ sustained growth for the next several years.
This could very well be Peña Nieto’s most important project. Today, the Department of Communications and Transport is in charge of it, under Secretary Gerardo Ruiz Esparza, through the General Coordination of Ports and Merchant Marines, which is headed by Guillermo Ruíz de Teresa.
The Trans-isthmus Corridor could have a global impact and could pretty much rearrange the maritime routes in the Americas, while taking advantage of the progress Mexico has made with its free trade agreements. With its 44 FTAs, Mexico has the second highest number of any country in the world. We have preferential tariffs with 60% of the world’s markets and could become a logistics center for value addition in production chains.
This is why it’s necessary to develop the infrastructure to take advantage of those FTAs. In the next few years, operation costs for ships will go up along with the price of oil, and with the new environmental regulations from the MARPOL Convention, ships will be obliged to use diesel (the same fuel that trains use today) – which is more expensive and refined than the fuel ships use today. For these reasons, shippers will be looking for the shortest maritime routes and the difference between the cost of maritime transport and land transport will be reduced.
Train transport is expected to become more commonplace as maritime transport becomes more expensive. Land bridges will make a comeback and grow, and shortcuts will be found.
The U.S. took in about 71% of Mexico’s exports. President Peña Nieto recently said at a conference in Sun Valley: “The U.S. has in Mexico, not a threat, but a commercial partner with huge investment potential.” What do you think about this statement and this bilateral trade and investment relationship?
Today more than ever, we can take advantage of our strategic position in the middle of the biggest trade flow in the world, as well as our proximity to the U.S., our FTAs, and the good relations Mexico has with the big trading countries.
The U.S. in Mexico’s biggest foreign investor, representing half of Mexico’s total FDI, which reached US$11.6 billion in 2011. President Obama recently described the two countries’ relation as: “not just neighbors”, but “friends and partners by choice”. In your opinion, in which sectors do you see mutual benefits for both countries and in which areas would you like to see more FDI in your city?
A natural sector for FDI in Coatzacoalcos is the petrochemical and oil industry. Nevertheless, we’ve put forth an economic diversification strategy in the city. We have a qualified workforce, port, road and rail infrastructure, and social and political stability. Coatzacoalcos could become a distribution hub for the Gulf of Mexico and an integration center for all the value chains that may develop between Asia and Mexico/U.S., offering logistical, transport and transfer advantages to the ports in Houston, Mobile, Miami and New York – the cities in the eastern U.S. and vice-versa.
The U.S. is talking about adjusting the trade balance with Asia, and in this realm Mexico can be a good ally. We have to take advantage of the trade imbalance that exists between China and the U.S.; in other words, take advantage of the flow of containers that return to Asia from the U.S., as 80% of those containers go back empty.
That’s why freight charges for the U.S.-Asia route are much lower (about half the cost). If we could load those containers with Mexican products or with American products that have been assembled in Mexico, and send them to Asia or Europe, it would be a huge logistical and commercial advantage for the U.S. The imbalance of trade flow – these empty containers – they’re the Achilles’ heel of global trade, and Mexico could be the ally it needs to help restore balance and improve the flow of global trade going back in the other direction. We could fill those containers that go empty via Mexico, and give shippers an important advantage.
What would be your final message to our readers on Mexico and its enormous potential?
I think that President Peña Nieto is laying the groundwork for a profound transformation in Mexico, and that the Trans-isthmus Corridor will be the biggest achievement of this administration – the one that will characterize the President’s administration. It will mark the beginning a new era of development and progress for Mexico, and one in which Veracruz and Coatzacoalcos will surely play an important role.