08/16/2013

Changes to Mexico's oil industry

This is a quite good video from The Economist on President Enrique Pena Nieto's plan to open up the energy industry to foreign investment. The piece captures some of the nuance of the proposal, though perhaps not the theatricality of the presentation on Monday and Tuesday, in which Pena Nieto constantly mentioned former President Lazaro Cardenas, who nationalized the oil industry in Mexico in 1938.

I was speaking yesterday to Juan Pardinas, the director of the Mexican Institute for Competitiveness, and the matter of how Pena Nieto invoked Cardenas repeatedly came up. Pena Nieto has said he simply wants to readopt language that Cardenas approved to article 27 of the constitution, which his government claims would allow private companies to develop the energy sector if it was deemed in the national interest.

Let me transcribe a bit of what Pardinas said:

"They have done an interesting strategy given that they used the figure of Lazaro Cardenas, which is one of the founding fathers of national identity, national sovereignty, national pride through the nationalization of oil. I found it quite paradoxical that we are looking back to a legal framework of 1940 in order to modernize the energy sector of Mexico in the 21st century.

"It doesn't appeal too much to common sense but if we see the limits of political possibility in Mexico, we have learned -- all Mexicans through our textbooks -- how Lazaro Cardenas (took) the Mexican oil from the interests of international capitalists. The government is using the legal framework that Cardenas proposed, which was much more flexible than the one we have now, and (using) it as leverage to pull the reform...

"It was the only way that they could announce it without facing a riot from certain parts of the (political) left..."

"I was telling a joke to a friend. It's like you're going to start an internet business and you ask advice from your great, great, great grandfather. You know, 'what should I do?' Now, with the competitiveness of the 21st century and you are asking someone born in the 19th century. That's how we resolve the challenges we have."

06/11/2013

Ferrari's next frontier -- Mexico

Some 15 Mexicans have $1.3 million in hand ready to plop it down for Ferrari’s latest hybrid supercar, the 963-horsepower La Ferrari.

That’s what the Italian performance car company’s North American chief said a few days ago at a forum aboard a yacht in New York City, Forbes magazine says here.

This is no ordinary Italian racing machine. Its top speed is 217 miles per hour. It goes zero to 60 mph in three seconds. At that pace, you could get to the Mexico City airport from my house in six minutes – that is, if you could hopscotch traffic.

So who has that kind of cash in Mexico? Oh, never mind. If I said, I’d probably be dead. They don’t like to have their names splashed around the internet.

“Mexico is the next China,” Ferrari North America CEO Marco Mattiacci said, according to Forbes. He cited dramatic wealth creation from expanding industry and proximity to the U.S.

He didn’t say it, but we all know about the other industry, the one that shall not be named in which bagmen cart duffel bags filled with cash and muscle men carry diamond-encrusted guns. Been a lot of wealth creation there, too.

Things have changed over the past decade, Mattiacci said.

“I can tell you that in 2003 when we launched Enzo … Mexico was not having that kind of request. That’s a big indicator,” Mattiacci said, according to Forbes.

04/02/2013

Gouging at the pump

Photo
My taxi driver let out a hoot when he saw the hubbub at a local gas station. Inspectors had arrived and placed seals on the pumps. Some of the pumps were being shut down.

His glee was over the punishment. At this time of year, some businesses commonly try to gouge consumers, including gas stations, which tinker with the fuel gauges.

You pay for 10 gallons of gas. But you actually get 8 or 9 gallons in your tank.

You might think it curious that a station with a Pemex sign indicating its relationship to Petroleos Mexicanos, the state oil concern, would rip off consumers. Fact is, many of the Pemex stations in the country belong to third parties, often people with political connections. When they skim off the top, they usually get away with it.

Since many Mexicans travel over Holy Week, they top off their tanks before leaving the capital. It is a perfect time for station owners to fiddle.

According to this Notimex story (in Spanish), the consumer watchdog division of the Attorney General’s Office conducted 1,041 raids during Holy Week, fining 86 establishments.

My local gas station appears to be one of them.

02/24/2013

Mexico and its contrarian indicators

For those bullish on Mexico, Sunday was a big day. Thomas Friedman, the New York Times foreign affairs columnist, published a glowing essay on why Americans should look next door to Mexico as the country to watch, not China or India.

The essay, titled How Mexico got Back in the Game, notes that Mexico has 44 free-trade agreements, more than any other country in the world, and the country sits atop “massive cheap natural gas finds.”

The three main political parties have signed a pact “to fight the big energy, telecom and teacher monopolies that have held Mexico back.” Americans, Friedman says, need a “more nuanced” view of Mexico but should be quite bullish on the nation.

There are many ways to slice Friedman’s essay. And some analysts went to work immediately. One is George Baker, a Houston-based energy analyst who lived for a time in Mexico. He quickly whipped off a comment to the Grey Lady taking apart Friedman’s argument. Here is one paragraph on trade:

“Take out intra-firm transactions in which Chrysler-Mexico sells to Chrysler-China, and daily trade will shrink to the value of commerce in oil and food products, services (including oilfield services), plus the remnants of a tourism industry battered by violence. Meanwhile, Carlos Slim skims off the top of the Mexican economy monopolistic rent whose value has been estimated by Mexican economists at 3% of Mexico’s GDP.”

Baker dismissed the reference to huge shale oil reserves – “Pemex has no plans to develop shale fields” – and concludes that, “Celebrations about Mexico’s advances in its economy and governance are premature.”

If the enthusiasm (or hype) about Mexico is reminiscent of the euphoria for Brazil back around 2009, then Friedman’s essay may actually be a contrarian indicator. Friedman was a regular visitor to Brazil back then. Here’s one of his columns. 

As a colleague noted at a weekly bull session we foreign reporters hold on Friday evenings, Brazil seemed at the top of the emerging market heap back then, the lead nation of the BRICS (Brazil, Russia, India, China and, later, South Africa). But the BRICS are now passé. And Brazil has posted anemic growth for several years.

Indeed, the benchmark Bovespa index is down 16% since the end of 2010.

Maybe the apathy for Brazil is overdone. And the euphoria for Mexico also an overreaction.

Certainly the number of free-trade agreements that Mexico has signed does not indicate how open the economy is. It only takes a trip to Office Max, the neighborhood supermarket or a furniture stores to see hidden barriers to entry in Mexico. Why are Hewlett Packard printers assembled in Mexico not available here? Why are Sony plasma screen TVs assembled in Mexico cheaper in the States than here? If it's so open, why are there so many monopolies and duopolies? 

This is not Taipei, Singapore or even some Central American capitals. There are many things you cannot get here or that are quite costly. Anybody go in the Liverpool department store and look at prices lately?

I don’t find my reporting colleagues here a cynical group. Mexico-bashing is not a practice. Many are married to Mexicans, are Mexican themselves or have lived here for decades. That’s a short way of saying they want Mexico to progress and flourish. But the obstacles are many. Governance and security issues are critical. Corruption is rampant. It is too early to pop the champagne.

10/04/2012

A summer adventure (in poverty)

Could you live on a buck a day for a month? How about two months? Two young men from Claremont McKenna College in California tried it for 56 days in rural Guatemala and found that it wasn't easy at all. Even factors as simple as finding dry firewood in the rainy season tripped them up. So did fleas and giardia. The result of their experiment is this film, Living on One, that is making the rounds of U.S. college campuses. The two students got help from the Whole Planet Foundation, the charitable arm of Whole Foods supermarkets, and a two-man film crew documented their experiences. Read here for more about the project. The two students each lost 20 pounds during their short dive into hunger and poverty. Hat tip to Mike Allison's Central American Politics blog for this.

08/29/2012

Hombre! What good stuff this is!

Calderon-oilpix
President Felipe Calderon holds up a vial of crude oil at a news event this morning that he said was extracted from an ultra deepwater well in the Gulf of Mexico. Nearly giddy at being able to offer up some good news, Calderon said Mexico had finally made a significant discovery, tapping into "treasure" deep under the Gulf of Mexico. The Bicentenario deepwater rig hit a big field of crude oil at the Trion I well in roughly 8,200 feet of water, he said. This could indeed be great news for Pemex and Mexicans, but foreign reporters took a cautious approach, perhaps because Calderon is in his final months or perhaps because there was little supporting information from Pemex. Here's the Financial Times report and here's a Reuters story. Click here for the news release from Calderon's office (in English). Going out into deep water of the Gulf of Mexico was a risky proposition for Pemex. I wrote here about what was at stake a few months ago. 

Tomatoes, apples and U.S. swing states

Let’s take a moment to ponder tomatoes, apples and U.S. electoral swing states. They are related. And Mexico plays a role.

We’ll start with tomatoes: In June, a group of Florida tomato growers appealed to the Obama administration saying they’d been subject to unfair trade practices by Mexican tomato exporters. They asked for the end of a pact that had governed the price of Mexican vine-ripened tomatoes since 1996.

Tomatoes are big business. The U.S. imported well over $1 billion worth of tomatoes last year from Mexico, the main food import from South of the Border. They are also big business in Florida.

And of course, Florida is a swing state in this election year. So a trade war may be in the offing as President Obama looks to secure key Florida votes. The Commerce Department is accepting comments on what it should do until Sept. 4.

Business is weighing in. On the pro-import said is the Fresh Produce Association of the Americas.

“Special interest groups are using election-year politics to try to start a trade war that will disrupt a 16-year track record of success for bringing fair prices to consumers and healthy variety to family dinner tables,” the group’s president, Lance Jungmeyer, said in a statement a week ago.

Florida’s commissioner of agriculture, Adam Putnam, is backing Florida’s growers. He sent a letter early last month demanding relief for growers from his state.

“Already suffering from weak demand in a difficult economy, Florida’s tomato growers cannot compete in a market flooded by unprecedented imports of tomatoes from Mexico at prices well below the cost of production,” Putnam wrote.

So where do apples fit in? Well, Mexico is a major importer of apples from Washington State. But Washington is not a swing state in this election. It is solidly democratic. If the Obama administration favors the Florida tomato growers, Mexico may retaliate against apple growers from Washington.

Here’s what a columnist for something called The Wenatchee World wrote:

“Trade war talk should scare us. Trade is a two-way street. Washington apples go in while tomatoes go out. Tomatoes are Mexico’s largest agricultural export, and Mexico is the largest export market for Washington apples. When Mexico is upset, apples can get nailed.”

Also from the department of unintended consequences, this Spanish-language story notes that 350,000 Mexicans are employed in the tomato industry, many of them in Sinaloa state. If they lose their jobs, where will they head? North?

07/27/2012

Rich Mexicans, poor Mexicans

How is Mexico’s middle class faring? That is far from an easy question. And it is one that might have addled many readers in recent times given conflicting reports.

To start with, Mexico’s wealth is distributed unevenly. Scroll to page 2 of this website to see the income disparity between Mexico’s 31 states and the capital of Mexico City. Mexico has the world’s richest man, Carlos Slim, a fair number of really upscale areas that tourists might see, and an awful lot of poor people living in shantytowns, especially in southern states.

Of Mexico’s 113 million people, 52 million live in poverty, says the National Council for the Evaluation of Social Development Policy, the state agency that measures such things.

The balance between the better off among the poor and those who might fall in a category considered middle class is murky. That’s why you get headlines with far different slants like the following:

“Mexico’s new president faces long grind on poverty,” Reuters said in a story this week.

“Mexico’s middle class is fast becoming its majority,” the Washington Post said in a March 17 story. The paper followed up this week with a story headlined, “Returning migrants boost Mexico’s middle class.”

The New York Times last year wrote a story on the dropping numbers of Mexicans migrating to the U.S. It was headlined, “Better lives for Mexicans cut allure of going north.”

I’ve played into this debate as well. In a series on Mexico’s future that ran in June, an article on factory workers carried the headline, “Mexico’s ‘maquiladora’ labor system keeps workers in poverty.”

Very smart people disagree in this debate, including highly skilled economists, academics with decades of experience studying Mexico, and journalists taking a crack at the topic from different angles. It underscores the complexity of the issue.

Those who argue that the middle class is expanding point to improving education levels, shrinking family size, greater availability of cheaper consumer goods, remittances of $22.7 billion last year, and rising per capita income.

All of these factors are backed up with empirical data.

Just as in the United States, though, many people who’ve climbed into what might be considered middle class (definition, anyone?) are “one health emergency away from poverty.” How do you measure those people? Shannon K. O’Neill of the Council on Foreign Relations has a blog post here about the issue.

This issue has given some heated debates in the last couple days on a private bulletin board among Mexico watchers, with valid points by those who say a middle class is growing and those who say the data is skewed or doesn’t match reality.

Chalk me up among the skeptics. Sure, there are pockets of prosperity. See this story I recently did on the aerospace sector, whose workers are solidly middle class, more so than the booming automotive sector.

And returning migrants are also a source of relative prosperity.

But will there efforts be transformative? El Salvador offers an illustrative example. Fully 25 percent of the country migrated to the U.S., beginning with the civil war in 1979. In places like Intipuca, in La Union province, some signs are in English and returned migrants own most businesses. Remittances are huge but a lot of it has gone into commerce, not into production.

Now for some fluffy, non-empirical observations. I’ve lived in Chile in the mid-1980s, and in China last decade. Both are places with powerful forces toward expanding a middle class. Opportunity there is tangible. You smell it. People have dreams, and many are turning into reality. Another place where I lived, Peru, has also gone through a transformation, with poverty levels dropping from the mid-50 percentile to the low 30s today.

Does anyone sense this level of hope in Mexico today? Very few of the people I interact with. And one factor is the state. No broad policy exists at a grassroots level to truly open doors to the poor and the middle class, at least with the intensity I've witnessed in Peru. What’s more, Mexico suffers from what I’d call a predatory bureaucracy. Who can imagine a better live than being a division or bureau boss at a secretariat, having funds to entertain, featherbedding the staff with friends and mistresses, and having iron-clad social ties to godfathers who put you in the post? When that changes, Mexico will transform.

I’d be glad to hear what anyone else thinks about this issue.

In the meantime, I’ll be out of the country till Aug. 12 on holiday.

06/19/2012

Why can't Mexico get ahead?

Mexico has abundant resources, an industrious population and open doors to the most powerful economic locomotive on Earth. So why isn’t it doing better?

It’s a question I’ve spent two months looking at, and the result is a package of stories that you can see here. It’s a look at where Mexico is headed, not next month or next year but in a couple of decades.

Economists say there is no reason why Mexico couldn’t reach the level of a moderately well off European country (presuming there is no euro-meltdown) by mid-century. But it would take dramatic reforms to knock off the political and economic shackles that hold back the country.

My articles look at some of the structural root problems in the country, issues that have hardly emerged in the current campaign because they cut to the core of power and privilege in modern Mexico. One article examines the monopolies that control what we eat, drink and watch on TV in Mexico. Another looks at the sad shape of the educational system. Still another – perhaps of some controversy – looks at whether the ‘maquiladora’ model is in fact a good long-term strategy for Mexico or if it is just trapping workers in poverty.

That article generated a few comments on various newspaper websites, some of them quite thoughtful. Here’s one example:

“Would the author suggest that things would be better without the 1.9 million manufacturing jobs in these factories, and the US$1.5 billion (yes, with a 'B') that these same factories pay each month in salaries and benefits? What domestic industry in Mexico could be substituted and provide such jobs and wage levels (wages that are very often higher than other job opportunities for lower-skilled workers in Mexico)? The answer, unfortunately (and not a subject that this article addresses) is there is none. So, my opinion: don't cast maquiladoras as the source of the problem - as they are one of the only options nearly 2 million people in Mexico have for jobs.”

Those are good, deep philosophical questions, and one that anyone concerned about development should ponder. I recall living in Central America in the 1990s where my attitude shifted quite sharply on the role of the assembly plants popping up there. Yes, owners of the plants could easily pick up stakes and move production elsewhere around the globe. Many did. But jobs were so desperately needed that I figured these plants were far better than having no job at all.

I’ve also spent time visiting factories all across China, from northern Shenyang and Ningbo near Shanghai to the Pearl River Delta while covering China for six years.

What I saw there – in addition to tremendous industriousness – was an implicit guarantee from the Chinese state: Do these jobs and your children will have a better life. You will, too, because we’ll ensure that wages rise (and they have).

Mexico is different. I detect little commitment from the Mexican state that those employed in low-wage jobs can build a better life for their children. I’ve rarely heard the Ivy League-trained technocrats in Mexico City voice concern about the children of the maquiladora workers even though many belong to the six million “ni-nis” – they neither go to school nor work.

And that’s a flaw in the Mexican model. I can see a country asking for one generation to sacrifice itself in jobs that keep its members only barely out of poverty. But for the sake of future generations, a strong government would ensure that children stay in school and that housing and other subsidy programs are not riddled with corruption. School is emphatically not free in Mexico, despite what the constitution mandates. And subsidy programs often appear to be slush funds for corrupt politicians. If the government were to try to lift wages gradually as it educates workers and retools the economy, Mexico’s future would indeed be different.

04/24/2012

Dodging flak from Wal-Mart

20120413_felipe_calderon_reunion_presidente_walmart_cartagena_colombia
Mexican politicians, President Felipe Calderon among them, are dodging fallout from the report that Wal-Mart Mexico may have paid as much as $24 million in bribes from 2003 to 2005 to build new stores. Click here if you haven’t read the lengthy New York Times expose.

A little more than a week ago, Calderon (right) met with Wal-Mart CEO Michael T. Duke in Cartagena, Colombia, and his office released the photo above.

They probably wish they could recall the photo now.

At that meeting, Calderon “congratulated Wal-Mart on its commitment to the environment by generating increasing amounts of clean energy” and praised the company for buying directly from Mexican farmers, his office said.

Duke, for his part, “declared that Mexico is an example for the rest of the chain worldwide,” according to the statement.

Last night, Calderon’s office issued what it called a “bulletin,” unusual wording that emphasized that no blame should be laid on the federal government. Instead, the report referred to alleged “practices of bribery realized by Wal-Mart Mexico between 2003 and 2005 to local and state functionaries.”

“These practices, if true, would have been intended to acquire land and to obtain licenses and permits in order to accelerate the construction and opening of new stores. These correspond to the local authority, whether state or municipal. For this reason, the Federal Government has no jurisdiction in the matters referred to in this investigation.”

Calderon didn’t come to office till late 2006 more than a year after the period in question. Yet Wal-Mart is now slightly radioactive, and the issue has ripple effects. Wal-Mart Mexico stock fell 12.1 percent on the Mexican exchange yesterday, erasing $530 million in value. And those whose suspicions were raised by the report are already looking at individual Wal-Mart stores.

Several news articles in the Mexican press today refer to the 2004 opening of a Wal-Mart store near the Teotihuacan archaeological zone, less than two miles from the Sun and Moon pyramids. The Teotihuacan ruins are in the Mexico City metropolitan area and are among the nation’s signature sites. Think Statue of Liberty or Yellowstone National Park. An environmental group and some local residents fought the store at the time (link in Spanish). I have no access to the internal Wal-Mart documents that led to the New York Times story, so I don’t know if it is one of the stores in which “gestores” reportedly made payoffs to grease permits.

If so, the flak may only grow more intense.

ABOUT THIS BLOG

Tim

This blog is written by Tim Johnson, the Mexico bureau chief for McClatchy Newspapers.

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