Frontera NorteSur May-June  2004

Business Environment Affects Investment in Mexico--Not Just Wages

The most frequently heard reason for companies leaving Mexico or not investing there is that Asian and other Latin American nations offer a much cheaper work force.  The price of labor however is not the only factor determining where manufacturing takes place suggests a recent examination of the Mexican economy. 

According to a Japanese study of Mexico's business environment which was recently sent to Mexico's Secretary of Economy, Japanese investment in Mexico is limited by frequent and sudden changes in laws that regulate business and finance.  Theft plus high security costs at plants are also a detriment to a larger Japanese presence in the Mexican economy.  High transportation costs and the inadequacy of the Mexican legal system to satisfactorily resolve disputes also turn away some possible investors.  The report concluded that Mexico must improve its business environment if it wants to see the arrival of new business ventures.

The report, which is summarized in the Cd. Juárez newspaper El Diario, found that security expenditures at production plants are four times higher in Mexico than in the US.  Despite the added security measures, loss to theft is high.

Noriteru Fukushima, an official in the Japanese embassy in Mexico, gave the example of one company from his country that spent the equivalent of US$1.7 million on security but still suffered US$1.3 million in losses due to 22 incidents of theft.  These expenses equaled 0.60% of the corporation's 2003 sales whereas a similar plant in the US only lost the equivalent of  0.015% of sales to theft and security expenses.

Another Japanese corporation paid lawyers US$1.5 million to prove that Mexico's Secretary of Taxation had made a paperwork error which had previously led to that office's accusation that the company did not pay value-added taxes in 1993.

Changes to tax codes and other business regulations also create difficulties for companies and scare away investors.  One Japanese company had to devote financial and human resources to teach its distributors about new laws for small businesses in 2004.

Japanese companies also find that the Mexican legal system is inadequate for resolving payment disputes between corporations.  Even when a Japanese company wins a court case related to unpaid bills, many debtors do not pay their bills. To make up for this, companies raise their prices a few percent as a way to insulate themselves from customers that do not pay their bills.

The Japan-Mexico free trade agreement will be an incentive for Japanese investment in Mexico, says Fukushima but he added that the results would be much better if Mexico could reduce some of the factors that hurt its economic competitiveness.

Source: El Diario (Ciudad Juárez), June 18, 2004.

Northeast Mexican Ranchers Worry About Burgos Drilling Projects

Ranchers' associations in the states of Tamaulipas, Coahuila, and Nuevo León are concerned that gas drilling will damage springs and other water sources on their land.  One cattle owner in Tamaulipas has already complained about two incidents in which PEMEX subcontractors allegedly stole property from his holdings.  PEMEX is Petróleos Mexicanos, Mexico's national petroleum company.

To confront their worries the rancher's associations from the three northeast Mexican states have asked for the help of federal-level elected officials.  They have requested that federal diputados (representatives) intervene with PEMEX to see that ecosystems and herds are not damaged by installation of the natural gas infrastructure.  

Ranchers are bothered that PEMEX is not taking responsibility for the actions of its subcontractors, says Ramón Serna, president of the regional ranchers' association for Nuevo Laredo, Tamaulipas.  PEMEX should remember that ranchers control who goes on their land, he stated. 

According to Serna, on two occasions in May of this year, property was allegedly missing from the Sabino Verde ranch where PEMEX subcontractor PGS Mexicana is said to be working. 

The associations also complained to elected officials that the oil company has not told them the true extent and nature of the Burgos Basin gas project.  The basin, which extends under all three states, is just experiencing the beginning of billions of dollars worth of investment.  Ranchers would also like to have greater information from PEMEX about when and where drilling will take place. 

Ranchers are also worried that springs and other water sources could be affected by drilling, Serna said. 

Source: EnLínea Directa (Tamaulipas), June 14, 2004.  

Asian Firms to Invest in BC Operations

The Asian firms Sony, JVC, Hitachi, SMK and Sharp will invest US$50 million in expanding their Baja California plants this year, said Sergio Tagliapietra, BC's secretary of economic development. 

Tagliapietra also stated that the investments are one of the results of BC Governor Eugenio Elorduy's visit to Asia from May 3 to May 20.  Elorduy was accompanied on the trip by other state officials and local business owners. 

Tagliapietra emphasized that it takes a sustained effort to attract Asian companies to Baja California.  One company that will be visiting the state this week was first contacted in Asia ten years ago.

In June, a group of BC officials will be returning to the continent to visit a TV manufacturing company that is greatly interested in investing in BC.  

Another trip in October to meet with possible investors will emphasize BC's customs laws and legal and labor issues, Tagliapietra stated. 

Preceding BC's trip to Asia were visits from Aguascalientes, Sonora and Colima.  Tagliapietra interprets this as meaning that his state must be very perseverant to obtain Asian investment. 

The three main objectives of the current trip were to retain companies that are currently in the state, look for new investment and plan for the future, he said. 

Source: La Crónica (Mexicali), May 26, 2004.  Article by Alejandro Domínguez. 

Casino Gambling to Baja California?

In April 2004, Mexico's Comisión de Turismo (Tourism Commission) presented a plan to the nation's congress that would allow for casino gambling if approved by elected officials.  Although some critics fear that casinos would only lead to more corruption in Mexico, those in favor of the plan believe that it would bring new tax revenues, increase tourism and help put an end to "underground" casinos.

Alejandro Moreno Medina, Baja California's Secretary of Tourism, says that the legalization of casino gambling would bring more than just roulette and dice games to his state.  Other sorts of attractions, restaurants and hotels would be necessary to attract Mexican and international tourists to any new casino resort.  All of this means more investment and jobs for Mexico, he said.  

Two of the best locations in Baja California for casinos are Tijuana and Ensenada, according to Moreno.

Tijuana is ideal because it is just across the border from San Diego.  However, Ensenada is still close to San Diego but also has the added attraction of being a smaller city with more of a coastal feel to it. 

One Mexican business council has estimated that casinos in Mexico could earn profits of US$1.3 billion per year.  In addition to this they would also produce more billions in taxes and licenses.  However, Mexico would need an investment of US$2 billion to build eleven casinos and hotels.  

A Mexican hotel association estimates that the country already has 1,000 illegal casinos that do a black-market business of US$500 million per year. 

Mexico is currently losing a lot of money as Mexican gamblers tend go to Las Vegas, Nevada.  Indeed, this group dropped US$200 million there in the year 2000 according to statistics cited in the Tijuana newspaper Frontera. 

Source: Frontera (Tijuana), May 12, 2004.  

CFE and Electrical Workers Union Agree on Need to End Corruption

A Mexican electricians union and the Comisión Federal de Electricidad (Federal Electric Commission, CFE) are in agreement that there needs to be an end to corruption in Mexico.  

Salomón Andrade Cisneros, head of the CFE's Mexicali region, has asked customers to file written complaints if they are inappropriately asked for money by employees.  Once a complaint has been turned in, the Comisión can begin an investigation, he said. 

Conrado Rodríguez Guitron, a department head with the CFE, said that one person was fired from the Comisión after asking a customer for a bribe not to turn off power to a home with unpaid electric bills.  

An investigation into this corrupt practice found that other employees were also asking past-due customers for bribes to avoid having their power cut.  According to the Tijuana newspaper Frontera (no relation to FNS), the majority of such cases go uninvestigated because citizens do not file complaints. 

Leonardo Partida, the regional head of an electricians union, said that on many occasions CFE customers offer bribes to employees.  For Partida, the issue is larger than just what takes place between CFE workers and customers, "Everyone knows that in Mexico everyone wants to give out a bribe, it's a Mexican idiosyncrasy and we need to end corruption because it has hurt the country a lot, it's a cancer that we should eradicate because it hurts us." 

Frontera also noted that the CFE cuts power to 150 users per day.  However, only 20% of past-due accounts ever have their service suspended.  

Source:  Frontera (Tijuana), May 10, 2004.  Article by Beatriz Limon.