Business Treaveler logo

Travel news, reviews and intel for high-flyers

Beyond Borders

All nations suffer to some extent from being caricatured by superficial stereotypes and sensational headlines. Few, however, get press as bad as Mexico. In the slew of lurid stories on drugs and gun trafficking, border wall politics and immigration, you’d never guess that the United Mexican States is the world’s 15th biggest economy, second biggest in Latin America, home to the largest Spanish-speaking population in the Americas – and a powerhouse of literature, the arts, architecture and gastronomy.

Any visitor to Mexico City – perhaps the most misrepresented of all Mexican destinations – is quickly apprised of the fact that life south of the Rio Bravo (its name in Mexico, not Grande) can be pretty wonderful. The range of hotels is perhaps the widest in Latin America, from five-star chains to boutique properties. Gastronomy is world-class; six of the top 50 Latin American restaurants, including long-revered eateries Pujol and Quintonil, are in Mexico City. (Another five are elsewhere in Mexico). Art is showcased at shimmering buildings such as the MUAC, Museo Jumex and Carlos Slim’s Museo Soumaya, while the city’s Zona Maco and Material Art Fair are among the western hemisphere’s most important art gatherings.

Home to 8.9 million inhabitants, it’s perhaps no surprise that Mexico City should have big-city attractions. But there are draws in smaller destinations, too, from Guadalajara’s film and arts scenes to Oaxaca’s innovative cuisine and colonial centre.

Wheels of Industry

Underlying the cultural diversity is economic diversity as well. Mexico’s $1.15 trillion economy is built on petroleum, iron and steel.  Nevertheless it’s also the only Latin American nation to edge into the economic complexity top rankings. The Organisation for Economic Co-operation and Development (OECD) rates the Mexican people as the hardest-working in the world.  

In global tourism Mexico is always near the top. According to the United Nations World Tourism Organization, 39.3 million people visited Mexico in 2017, a 12 percent increase over 2016 making it the sixth-ranked tourism destination; admittedly the numbers are pumped up by busy borders, but Mexico is still among those countries recording the greatest increase.

That growth comes despite crime and security problems in states such as Durango and Michoacán and, above all, in cities close to the US frontier. May of this year was widely reported as “the deadliest month” on record in Mexico since the government began releasing homicide data in 1998. Quantifying the impact of security issues on commerce is difficult, to say the least. Who stays away? Which countries withhold investment? How problematic are perceptions as compared with hard facts?

“Security and crime costs are immense from a social and business perspective,” observes Enrique Dussel Peters, economics professor at the Universidad Nacional Autónoma de México (UNAM). “Organized crime in Mexico and most of Latin America, however, is a regional problem and particularly related to the US. Unless the region as a whole, including the US, acknowledges it as such, there are few chances for starting to solve it in the long term. Organized crime includes not only money and drugs, but also arms, persons and body-parts, and it’s a two-way street mainly with the US.”

In August, US and Mexican law enforcement authorities announced a joint venture targeting the leaders and finances of drug cartels. Earlier in the year, business leaders in Mexico’s powerful Consejo Coordinador Empresarial (CCE) business lobby issued a statement that “the high levels of violence have become the greatest obstacle to (economic) activity.” This came on the heels of Mexican dairy producer Grupo Lala shutting a distribution center in the northern state of Tamaulipas and the world’s biggest Coke bottler, Coca-Cola Femsa, indefinitely closing a 160-employee distribution center in southwestern Guerrero state.

Neighborly Relations

It may be difficult to understand why the US and Mexico cannot work more closely to resolve crime- and drug-related matters. But the relationship has been troubled for the better part of two centuries, and more recently cooled considerably when President Donald Trump took over in Washington DC.

Mexico’s proximity to the US should represent an enormous opportunity in terms of economic development. The problem, says Professor Dussel Peters, is that the North American Free Trade Agreement (NAFTA), signed in 1994 by the US, Canada and Mexico, has been at best uneven and, in some sectors, totally ineffectual.

“NAFTA has substantially polarized Mexico’s economy, in that only a small group of households, firms, regions and global value chains have integrated through exports to the US; the vast majority have not.  From this perspective, the newly renegotiated NAFTA [the United States-Mexico-Canada Agreement, or USMCA, formally agreed on October 1]  → has few new and relevant topics, the most important being that it was signed at all,” Dussel Peters notes.

Trump claimed a victory for the US on the deal, but some industry observers believe the new trade pact will be good for Mexico as well, and will lead to increased trade volumes among the three member countries. UMSCA also ended months of uncertainty that compelled Mexico’s central bank to maintain high interest rates in case of a run on the peso. The country is now able to loosen monetary policy, giving a short-term boost to GDP that’s already expected to grow by 3 percent in 2018.

Fresh Thinking

On July 1, Mexico elected a new president, Andrés Manuel López Obrador, a former mayor of Mexico City, running as the candidate for Juntos Haremos Historia, a coalition of the left-wing Labour Party, right-wing Social Encounter Party, and social democratic National Regeneration Movement.

Nicknamed AMLO in the local and international press, López Obrador is regarded as a populist, a nationalist and something of a maverick, and has been described as a “foil” and “natural enemy” of the US president as well as “Juan Trump,” allegedly by Trump himself.

But AMLO is no political novice, having been active across various left-wing parties for more than 40 years. As mayor of the megalopolis he was, on the whole, a successful and occasionally inspired leader.

Eric L Olson, deputy director of the Wilson Center’s Latin American Program and senior advisor to the Center’s Mexico Institute, believes there is some room for optimism.

“Like all new governments, there is a problem of vagueness about the policies to be pursued upon taking office. AMLO’s government is no exception. Nevertheless, there are some broad outlines taking shape. AMLO won an overwhelming mandate from the voters who were sick of the traditional parties, record levels of violence and outrageous corruption at every level of government. So there is a  general  → sense of optimism that AMLO will take a fresh approach to these problems,” Olson says.

“In my view, an emphasis on the ‘soft side’ of security – economic investments, development and opportunities for youth – is much needed, but will mostly have long-term impact and may not be adequate to address the current pressing problems of high levels of violence and lack of public trust in the institutions of state, such as police and prosecutors.”

As Olson says, “What is needed is a specific strategy to rebuild the state at local level.”

Economic Growth

Ultimately, social injustice and inequality is Mexico’s main and enduring problem. In addition to security measures, the country desperately needs economic agility, a much fairer distribution of wealth and even greater diversification.

Some major changes are already afoot. Mexico’s energy reforms, signed off by outgoing president Enrique Peña Nieto in 2013, ended 75 years of state monopoly in the local oil and gas sector. With UMSCA settled, there is cautious optimism that private capital and technical expertise will rebuild the Mexican energy industry, maximize oil and gas revenue, and boost economic growth in the long term.

Startup innovation has traditionally been centered in Mexico City, as well as Monterrey and Guadalajara, but is now spreading wider. The northern city of Chihuahua, for instance, is emerging as a potential tech hub with campus-led initiatives from the Tecnológico de Monterrey (TEC), often referred to as the MIT of Mexico.

On the downside, shrinking wages, falling growth and a weakening peso were 2017 trends that need to be reversed.  But Mexico doesn’t do doom and gloom. In fact, says Enrique Dussel Peters, the main problem may be a tendency to be too rosy about the nation’s prospects.

“In Mexico we are witnessing huge optimism and huge expectations.  These expectations, however, have to be dealt with cautiously, since no government in Mexico, including AMLO, will be able to solve most of the structural problems of Mexico’s society and economy – from corruption and inequality to poverty and security – in the short and medium term.”