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States advance national progress

Article - January 3, 2015

Efforts made in Mexico’s individual states to highlight their own competitive advantages have the combined effect of driving forward the country’s overall development and create a nation that will become even greater than the sum of its parts.

THE LIVERPOOL INTERLOMAS DEPARTMENT STORE IN MEXICO STATE IS A FUTURISTIC HIVE OF STORES AND CULTURAL AND RELAXATION AREAS

Goldman Sachs forecasts Mexico will be the world’s seventh-largest economic power by 2020. The country’s resilience during the global economic crisis was the bedrock of its current financial health, but challenges remain at the national and state level; challenges that in partnership with the U.S. and Canada have not only spurred Mexico into greater efforts internally but have led to increased regional cooperation.

A Council on Foreign Relations independent task force co-chaired by retired U.S. General David Petraeus and former president of the World Bank Robert Zoellick stressed the importance of Mexico, the U.S. and Canada presenting a united front in the fields of security, energy, education and the development of natural resources.

“If the three North American countries deepen their integration and cooperation, they have the potential to again shape world affairs for generations to come,” the CFR concluded.

A trilateral energy agreement proposed at the North American Leaders’ Summit held in Toluca, State of Mexico, in February is the first step toward a North American common policy in fossil and renewable energies.

Nationally, the government of Enrique Peña Nieto has implemented a series of reforms to best address the needs of a swiftly growing economy: “Public-private partnerships – a mechanism we will promote across all industries – may foster greater investment in the oil and electricity sectors, allowing Pemex [the national oil company] to remain an engine of development, without having to cede state ownership over our nation’s resources,” the Mexican President wrote in The World in 2013 by The Economist.  

Mexico and the U.S. are increasingly working together on security issues, ranging from the border to the cartels while also seeking to increase the flow of legitimate cross-border commerce, which amounts to some $500 billion per year.

But as the governors of three of Mexico’s largest and most prosperous states all concur, the key to tackling crime and poverty is education.

International cooperation in education has led to a rise in the number of universities in Mexico, which now offer degrees in international business, relations and commerce, and in partnership with Germany and other EU nations, promotes a dual education program across all of the major states. U.S. business schools and higher learning institutes are also forging productive cross-border links with their Mexican counterparts.

“We’re investing in education because it encourages development,” says State of Mexico Governor Eruviel Ávila Villegas. “Nelson Mandela said that if we want to change the world, we have a very powerful weapon to do it: education. We are going to use this weapon to change the world and to change Mexico.”

Mexico State, says Mr. Ávila Villegas, is the “economic and geographic heart of Mexico.” The largest of the country’s 32 states, Edomex, as it is known from its Spanish title, is also the most populous and a major contributor to national GDP. Transport infrastructure is a priority for both Edomex and the U.S., which posted exports of $226.1 billion southwards in 2013. As a result, the three premiers – Enrique Peña Nieto, Barack Obama and Stephen Harper – have signed a commitment to create a North American Transportation Plan.

For Edomex, relations with the U.S. are vital to its mission to place the state at the forefront of economic development. Infrastructure accordingly goes hand-in-hand with efforts to facilitate investment and the entry of foreign companies into the regional market.

“Transparency as well as accountability are extremely important,” notes Mr. Ávila Villegas. “Both are part of the state’s public policy and its development plan.” National consultant ARegional places Edomex top out of the 32 states in that respect, while the World Bank’s Doing Business 2014 report ranked the state in the top five business friendly Mexican regions.

Industry accounts for a large amount of Edomex’s output, with agriculture, manufacturing, food and paper products supplemented by services and tourism, the latter accounting for some 20% of employment in the state.

“According to the National Bureau of Statistics and Geography (INEGI), the State of Mexico has grown by 3.28% and came in third in terms of its contribution to GDP. Mexico State is essential to our country’s economic strength,” says Mr. Ávila Villegas, who adds that job creation in Edomex in the first quarter posted a 200% year-on-year rise.

However, Mr. Ávila Villegas does not shy away from the issue of security, one of the main obstacles in attaining the state’s goals and an area of increasing cooperation with the U.S.

“Security is one of the challenges that we need to overcome, and as quickly as possible,” he says. “It has to be stated that this is not a national problem; it is very localized and the federal and state governments are working together in this area. In Mexico State we are striving to make the most of our resources and if we do an international analysis, we are not above the average crime rates. Obviously this is not much comfort, provided that with a single case of violence we should commit ourselves to achieving better results. But the best promotion is for people to come here and walk our streets. I have received visitors from Illinois, Utah, Nevada and California.”

Mexico State is soon to open a representative office in Los Angeles, complementing the two that already exist in Houston and Chicago. Mr. Ávila Villegas is a tireless promoter of his state and a firm advocate of the benefits of greater ties between Edomex and the U.S. “We have a long-lasting relationship with the U.S., which has made us brother nations,” he says. “We are much more than partners; we’re strategic allies. We want to encourage U.S. investment in the State of Mexico so that entrepreneurs become aware of the strengths of our state and understand that there are many business and investment opportunities waiting for them here.”

Durango State rose to international prominence in the 1950s and 1960s as a favored location for Hollywood: the backdrop to several of the most celebrated John Wayne and John Ford collaborations is the dramatic landscape of the northwestern state. But Durango’s love affair with celluloid stretches all the way back to the Mexican Revolution and the state’s most famous son, Pancho Villa.

The name Durango – “fertile land, with rivers surrounded by mountains” – is believed to have been bestowed by Basque settlers. But although agriculture was once the staple diet of the state’s economy, Durango has for two decades been synonymous with production of a different sort.

Taking its cue from the 1994 North American Free Trade Agreement, Durango quietly set about carrying out its own revolution, one based on industry and manufacturing. Assembly plants sprang up all over the state and goods for giant corporations, including Wal-Mart and Honda, began to roll off the lines. Today, Durango is the engine of the Mexican industrial sector.

Given its prominent role in national and international industry, Durango was the obvious choice for one of Mexico’s largest infrastructure projects of the century: the Durango-Mazatlán highway, a $2.2 billion, four-lane road linking Durango with the Pacific coast, the Gulf of Mexico and San Antonio, Texas. The feat of engineering was one of Mexico’s finest: 115 bridges, including the spectacular Baluarte Bridge – the tallest cable-stayed bridge in the world – and 61 tunnels bypassing the former route, a treacherous stretch known as the Devil’s Backbone. Mr. Peña Nieto officially opened ‘Mexican Federal Highway 40’ last year on October 17, Mexico’s annual “Road Workers’ Day” (Día del Caminero).

The highway is viewed as a land-based competitor to the Panama Canal, and at 12 hours coast to coast takes a similar time to traverse. “We have a great advantage,” says Durango State Governor Jorge Herrera Caldera. “We already have two pipelines and a third is to be introduced to lower the price of natural gas and make the state more competitive. The Durango-Mazatlán Highway is the biggest of its kind in the history of Latin America. The eight states of the north are now much more connected to international commerce and we are also fighting to build a new port while the one in Mazatlán is being updated to triple its capacity. With these factors, Durango is ready to become an industrial development hub. This is a great opportunity to develop more international commerce and welcome investors. We also have an important plus: Durango is positioning itself as the first solar capital in the world. We are constructing the biggest solar farm on the planet, because we enjoy 300 days of sun each year.”

Durango’s growth has been swift, but the state has provided the infrastructure required to keep it ticking over, to the extent that last year there was a significant spike in its traditional output and an increase in the levels of foreign direct investment and U.S. companies setting up shop in the state.

Industrial power is also Coahuila State’s major employment and revenue generator; both Chrysler and General Motors have assembly plants there and other export-oriented sectors thrive in the state. Traditionally a mining region, Coahuila still accounts for the majority of Mexico’s output of fossil fuels and precious metals. The state also has potentially vast untapped reserves of oil and gas, which have attracted foreign investment, especially from shale companies. Coahuila Governor Rubén Moreira Valdez has been active in placing the northern state at the forefront of the country’s energy policy and recently toured Southeast Asia to drum up interest from prospective partners in Japan, South Korea and Taiwan, who in turn sent investigative representatives to Mexico.

Mexico has estimated resources of 600 trillion cubic feet of recoverable shale gas, in addition to 13 billion barrels of shale oil, much of which is located in Coahuila. While the state-run oil and gas company Pemex has been active in investments in the field, there is a huge gap between what is available and what is needed – anything between $100 million at Secretariat of Energy estimates, and $250 billion according to some industry observers.  

The 2015 Mexican Shale Summit in San Antonio, to be held on February 17 and 18, will bring together the world’s leading industry experts, government officials and company executives to explore how best to channel investment into the region.

As a border state, Coahuila has had its fair share of conflicts over the years, not least due to the proximity of the U.S. However, as Mr. Moreira Valdez notes, the solution to illegal immigration “lies in understanding in-depth the reasons for immigration. I think dialogue between the United States, Mexico and Central America is very important. Coahuila is not an expulsion point to the United States. We are a transitory place that also absorbs Mexican population, especially in the north. We are also a place where migrants pass through to return to Mexico. We must understand that migrants are looking for work and we have to understand that generation of wealth in some places serves to generate wealth in others”.

While Mr. Moreira Valdez agrees that violence has been a historical problem in Coahuila, today the state is “one of the symbols of the evolution of the way we are dealing with delinquency.”

Coordinated efforts to improve safety in Coahuila have also had an effect on foreign investment, which has surged as the levels of insecurity have fallen. The state’s importance to the country as a whole lies not just in its geographical proximity to the U.S., but also in terms of its ability to compete, and cooperate, economically with its northern neighbors.

“We are an industrial state and we have an important influence on the country’s exports,” notes Mr. Moreira Valdez. “The growth forecast for this year places Coahuila in fourth place nationally. We are the largest producers of coal, railway wagons, liquid steel and refined silver. We are leaders in mining and in the production of manufactured products. I look at the energy reforms as a necessary step to compete with the world. I see it as an essential need. We need the Energy Reform to become more competitive with Texas, for example. We need to obtain energy that’s lower on cost and cleaner.”

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