Article by Julian Resendiz originally published on September 30,2020 for Fox40.com

 

EL PASO, Texas (Border Report) – Border industry is poised for explosive growth in the next few years, as companies take heed of lessons learned in the COVID-19 pandemic and relocate more production to North America, trade experts say.

Many U.S. manufacturers who get supplies from China experienced delays during the pandemic, which added to brewing concerns over already tense trade relations between both countries.

“We have a huge number of U.S. companies doing business with China. […] Any number of consumer goods come from China but all those companies are coming under the realization that there is trade tensions that are going to continue regardless of who wins the (U.S. presidential) election,” said Alan Russell, CEO and co-founder of Tecma Group, which runs 50 manufacturing facilities in Mexico and the U.S.

The specter of trade tariffs or another pandemic cutting into Asia-based production is making many manufacturers who sell parts, materials or goods in the United States consider moving at least some of their operations closer to their target market, he and others say.

“So, if you are going to supply North America with a product, you need to have a significant portion of your production in North America,” Russell said. “And where are you going to go? You are going to go to a border city. So, for the next three to five years, I unconditionally see an unprecedented growth in opportunity at these border zones.”

Alan Russell (courtesy Tecma Group)

Russell spoke Wednesday at a virtual U.S.-Mexico trade forum sponsored by Sister Cities International. Experts from both sides of the border say the economic recovery in the manufacturing sector amid the COVID-19 pandemic has been surprisingly  swift.

“We share much more with Mexico than just a border. We share economy, workforce, consumer markets, and integrated supply chains,” said Paola Avila, vice president for international business at the San Diego Regional Chamber of Commerce. “The recovery is also interdependent. Supply chains have really shown their strength. (Manufacturing) is bouncing back.”

Cities like San Diego, where thousands of trucks carrying components and goods manufactured in Tijuana cross into the United States, and El Paso, which shares a border with Juarez and its 300 or so U.S.-run factories, are riding the coattails of this industrial recovery.

“We have seen what appears to be a V-shaped recovery, which is quite shocking,” said David Coronado, director of international bridges for the City of El Paso. “We were expecting a slow recovery. When you look back at the Great Recession, we had a long downturn and a long recovery. Here it’s been month-to-month … a really fast recovery and positive signs for the region.”

In El Paso, commercial traffic is approaching pre-coronavirus levels. “We hit bottom in April. Since then, we’ve seen a recovery in cargo truck traffic but we’re still not back to normal,” Coronado said.

Maquiladoras leading the recovery

The key to the border’s quick industrial turnaround lies in keeping going the U.S.-run plants in Mexico that employ hundreds of thousands of workers.

“We are back to 110% from where we were before the COVID outbreak. It’s an amazing recovery that you could never guess or expect, but we’re back to 100% of our full complement,” Russell said.

The Mexican government curtailed economic activity in the spring to contain the pandemic. However, maquiladoras that make auto parts, medical equipment or aerospace components — which together account for most of the production in Juarez — were labeled as essential businesses and resumed most of their operations on June 1.

A few COVID-19 outbreaks were reported, and in Juarez at least 25 workers died. However, Russell said health issues have been resolved and production is on high gear.

“We’ve gone three months without a single case,” he said. “We have factories with 11,000 people and we have a total of 20 suspicious cases in Tijuana and 24 in Juarez. What we call a suspicious case is someone getting off a bus or coming into the factory and having a high temperature.”

Russell said he’s sensitive to the pandemic because he came down with COVID-19 himself back in March.

“We treat vulnerables in a different way. Most are still at home and we continue to pay them, provide them health education and all,” he said. “We are passionate in our way forward with (COVID-19) protocols and protecting our vulnerable. Everybody else gets back to work. […] I feel with the protocols we have proven we can go back to work full steam ahead.”

Article originally published on September 21, 2020 by Charlotte Gifford for World Finance.

There’s a reason China has been named “the world’s factory”. According to data published by the United Nations Statistics Division, China accounted for almost 30 percent of global manufacturing output in 2018.

China earned this status in a relatively short space of time. According to The Economist, in 1990, China produced less than 3 percent of global manufacturing output. It first overtook the US, previously the world’s manufacturing superpower, in 2010.

But the US-China trade war has prompted many companies to re-examine global supply chains. A recent study by the McKinsey Global Institute estimates that companies could shift a quarter of their global product sourcing to new countries in the next five years. Climate risks, cyber attacks and the ongoing pandemic are only accelerating this trend. In this uncertain trade environment, a growing number of countries are hopeful that they could replace China as the world’s next major manufacturing hub.

 

Vietnam
So far, Vietnam has been one of the main beneficiaries of the US-China trade war, absorbing much of the manufacturing capacity that China lost. As well as cheap labour and stable politics, the country boasts increasingly liberalised trade and investment policies that make it an attractive place for businesses looking to diversify out of China.

Some of the biggest names in tech have relocated some of their operations to Vietnam since tensions between the two powers soured. In early May 2020, Apple announced it would produce roughly 30 percent of its AirPods for the second quarter in Vietnam instead of China.

 

Mexico
A lesser-known beneficiary of the trade war is Mexico. In a report, the investment bank Nomura pointed out that Mexico could become a top destination for US companies, with the country having set up six new factories in a range of sectors between April 2018 and August 2019. In addition, Taiwan-based manufacturers Foxconn and Pegatron, known as contractors for Apple, are among a number of companies currently considering shifting their operations to Mexico.

Mexico’s proximity to the US poses a major advantage as US companies embrace “near-shoring”. The Trump administration is exploring financial incentives to encourage firms to move production facilities from Asia to the US, Latin America and the Caribbean.

 

India
In recent years, India has significantly stepped up efforts to attract manufacturing investments into the country. Prime Minister Narendra Modi’s “Made in India” initiative is designed to help the country replace China as a global manufacturing hub. A cornerstone of this plan involves encouraging the world’s biggest smartphone brands to make their products in India. In June of this year, the country launched a $6.6bn incentive programme to boost electronics manufacturing production in the country.

So far however, the country has seen only modest gains from the trade war. Analysts blame India’s stringent regulatory environment; on the Organisation for Economic Development’s FDI Regulatory Restrictiveness Index, India ranks 62nd out of 70 countries.

 

Malaysia
Between 2018 and 2019, the Malaysian island of Penang saw a surge in foreign investment. Much of this came from the US, which spent $5.9bn in Malaysia in the first nine months of 2019, up from $889m the year before, according to the Malaysian Investment Development Authority. US chip maker Micron Technology announced it would spend RM1.5bn ($364.5m) over five years on a new drive assembly and test facility.

However, the loss of trade from China has hit Malaysia hard. Many tech firms in Penang rely on China for as much as 60 percent of their components and materials.

 

Singapore
Singapore’s manufacturing prowess has somewhat depleted in recent years. While manufacturing contributes about 30 percent of the GDP of Taiwan and South Korea, it makes up just 19 percent of Singapore’s.

However, the trade war and the coronavirus pandemic could change this. As a trade hub with liberal trade and investment policies and a history of stable economic growth, Singapore is well-positioned to boost its manufacturing capabilities and capitalise on this opportunity.

However, like Malaysia, Singapore is also struggling with the knock-on effects of decreased demand from China. The export-dependent country has seen its manufacturing output slump as a result of the trade war – a sign that the country could benefit from greater independence from China.

Over the past five years, retail investors and developers have added a new imprint to the familiar terrain of cheek-by-jowl, mom-and-pop stores across Mexico, building U.S.-style strip and destination malls with brand name tenants.

The trend is growing across Mexico. And, at the U.S.-Mexico border, the creation of a special border economic zone that will halve the VAT sales tax, as well as cut corporate taxes, and double the minimum wage is expected by some to spur even faster expansion.

“This city is seeing right now an explosion in mixed-use projects”

said Harold Hoekstra, the Tijuana-based director of mixed-use development at consulting firm NAI Mexico.

“You’ll see it across the country, too, say in Guadalajara, Monterrey, Juarez. Companies are seeing the potential to invest in these sectors,” he said.

The increase of retail projects, often combined with offices, hotels, and residences, is exactly the opposite of what is happening in the United States, where traditional customers have largely shunned malls for online shopping. According to various articles, the number of store closings in the United States was expected to be more than 10,000 in 2018. Malls are either closing completely or have become collections of empty stores.

Horton Plaza, a San Diego project that opened in 1985 and was credited with revitalizing the city’s downtown, has become something of an eyesore. It recently was sold to Los Angeles commercial real estate company Stockade Capital, which plans to turn the shopping center into a mix of retail and office space that could appeal to Silicon Valley technology companies.

In Mexico, there has been 5% annual growth in the gross leasable area of commercial centers and an increase of 7.5% in retail sales.

“We’re still 10 to 20 years away from online operations decimating mall store operations” Hoekstra said.

“Mexicans like to go shopping. The malls are very strong. The numbers are good.”

Most of the mall developers are Mexican or South American, he said.

Plaza Sendero has built and operates 19 malls across Mexico—in addition to Tijuana and Mexicali, in Culiacan, Los Mochis and Ciudad Obregon, among other cities.

Mexican company Planigrupo, with 43 years of experience, develops, designs, builds, markets, and administers shopping centers throughout Mexico.

In Tijuana, some of the projects are in a revitalizing city center or in far-reaching areas of the city where spreading populations have become concentrated.

The Alameda Otay Town Center, located near the airport and the Otay Mesa border crossing has 163 shops, six residential towers, two hotels, and a medical center with 90 offices. Green areas are pet friendly. The mall also offers cultural events, Wi-Fi, parking and valet parking, as well as an outdoor auditorium.

Closer to downtown, the two-story Paseo Chapultepec, in addition to shops, restaurants and beer pubs, includes walkways, terraces and galleries.

Tenants at the malls include well-known brand names such as Best Buy, Costco, Applebee’s and Home Depot. Apple has stores in malls in Tijuana, Mexico City, Guadalajara and Monterrey.

South American brands also are becoming important mall tenants. Sodimac, a Chilean home improvement warehouse chain, is popping up. And Argentinian, Colombian and Peruvian stores are gaining a presence in Mexico, Hoekstra said.

Even though Mexican upscale department stores such as Liverpool and Palacio del Hierro are expanding to malls in the interior, he said, they are reluctant to establish operations in the border region because of the competition of their higher-end merchandise with U.S. retailers.

Many expect President Andres Manuel Lopez Obrador’s creation of incentives for the border economic zone to spur even further development.

“It’s a nice windfall for retailers; it will provide an incentive to the area”

said Jose “Pepe” Larroque, a Baker & McKenzie partner who chairs the law firm’s global real estate practice group.

Still, he said, the special program is scheduled to last for only two years and then be reevaluated, “so it’s hard to do long-term planning.”

Many details of the new zone are still unknown, but companies must register to gain the economic perks, companies or their branches must already be established in the zone and new companies are supposed to have new equipment in the zone for the first time.

“It might generate more investment in the border zone, but it’s still unclear,” Larroque said.

For U.S. landlords, investors and operators of retail centers, shopping malls, lifestyle centers and similar projects investing in Mexico it’s different than in the United States, said NAI’s Hoekstra.

One criterion is the same on both sides of the border, however: “location, location, location.”

But the capitalization rate (or cap rate), the most popular measure through which real estate investments are assessed for their profitability and return potential, is not the same.

“The retail sector in the United States averages a 7% cap rate,” Hoekstra said. “On the Mexican side, you have to look at 9% or higher … The interesting thing is that those deals are there.”

When acquiring a retail property in Mexico, he said, investors should want to know who the tenants are—especially the anchor tenants, what the lease terms are and their reliability to remain as tenants and keep paying rent.

With many Mexican shopping centers including brands seen in the United States and Canada, investors could start with clients they have north of the border. “Walmart has been a driver,” Hoekstra said.

Lastly, he said, is there a market?

For a landlord, there are retail centers for sale in appropriate locations with the right set of criteria and there is land for sale to develop malls or mixed-used projects, he said.

For retailers wanting to make the decision to increase their presence or undertake a project in Mexico, he added, the Mexican middle class is growing and has increased purchasing power and infrastructure has improved.

At the border, noted Larroque, the special economic zone could move more wealth to the region. With the doubling of the minimum wage, he said,

“More people will be making more money and will have cash to spend—on housing, retail, trade and commerce.”

Plus, it is more difficult to cross the border to shop in the United States, he noted.

“What newcomers are going to be investing?” he asked. “That’s where the questions lie.”

 

This article was originally written by Diane Linquist and published in the February 2019 edition of the Border Now

 

By Kenneth Rapoza

Mexico has a lot of well-known problems. Drugs. Poverty. Corruption. And on the corporate side, low-levels of production outside of the major multinational owned manufacturing firms. But despite the campaign rhetoric to build a wall and to knock Mexico down a peg in a NAFTA do-over, there is one problem our neighbor does not have: beating every single equity market in the Americas to a pulp.

For investors, Mexico is great…again. After a slight lull in affection back in April, the market has rediscovered Mexico now for the past two months. The trend is seen continuing until the fourth quarter.

Mexico was already great at the end of last year on into January for bond investors. They bought local currency Mexican government bonds when the peso fell to its lowest level on record, around 22 to the dollar. It’s now 17.17 to the dollar.  Those investors have gained at least 14.8% since January on the currency alone. The second-place currency in terms of strength against the dollar this year is the Brazilian real and that’s only gained 3.5%.

Morgan Stanley says the Mexico bull run is not over.

Economist Luis Arcentales of Morgan Stanley in New York says the mood has markedly changed since Trump first won the White House. “Besides the great food and the awful traffic, I did sense a shift among local investors who seemed much more constructive about Mexico after having been quite cautious because of a whole host of factors ranging from domestic politics to concerns about protectionism,” he says.

Last week’s news on upcoming NAFTA revisions helped strengthen Mexican markets seven more.  Many of the elements added, such as beefing up local content rules for manufacturers, protecting intellectual property rights and labor provisions were included in President Obama’s failed Trans-Pacific Partnership negotiations, and both Mexico and Canada agreed to make those concessions out of concern that the U.S. would bail and turn to Asia instead. NAFTA renegotiations begin on Aug. 16.

For Arcentales, barring the proposal to scrap the Chapter 19 rule in NAFTA on anti-dumping and trade duty matters in favor of the U.S., most Mexico watchers today think NAFTA just gets better, not worse.

Mexico has benefited from better coordination between the federal government’s two most important entities: oil firm Pemex and the central bank of Mexico, Banxico. Fiscal and monetary policies are tighter, energy reform that allows for greater foreign participation (meaning less spending for Pemex) has been a success thus far, and the central bank managed to protect the currency well, with ample reserves in a severe downturn.

Morgan Stanley strategists say they see “a window of opportunity to express a bullish view” on Mexico at least until their presidential elections next summer. Morgan analysts expect volatility to pick up in the first quarter.

“The story for the Mexican peso will be different in 2018,” says Andres Jaime, a strategist at Morgan.

The peso is unlikely to move closer to the dollar than 17 pesos. It’s already up from 18.12 when FORBES ran its portfolio manager profile on BlackRock’s Gerardo Rodriguez in June. Next year, political uncertainty will have a bigger influence on the currency and on Mexico in general, with volatility kicking into high gear by March. “Some cheapness in the currency is a near certainty in my view, particularly in the second quarter of 2018,” Jaime says.

For now, Mexico is still in the sweet spot. There’s potential for more upside.

Mexico seems to be in the midst of a period of relative calm. Investors have decided to shelve politics for now, possibly until NAFTA negotiations are well under way. Or in early 2018, when party alliances and candidates are defined. The economy is facing a full employment scenario similar to that of the United States. The official unemployment rate as of June is just 3.3%, down from 3.5% for much of the year. The net labor force participation rate rose to 59.3% from 59.2% in May.

Industrial production remains tepid, but that is because the statistical element is heavily weighted towards Mexico’s energy sector and construction.

Mexico continues to face downside risks from public spending cuts, higher gasoline prices and slightly higher interest rates, but it has since avoided the most adverse scenarios trumped up by the media, with the help of the president himself.

To date, there has been no mass deportations of Mexico’s illegal U.S. residents. Such a move would have put undue strain on Mexican public services. Many Mexicans in the United States, included undocumented workers, send money to their families in poor cities and towns across the country. That’s less money the Mexican government has to spend on social welfare, having counted on money from Mexican-Americans now for generations.

NAFTA meanwhile is still firing on all four cylinders, wiping out fears that Trump would sign an executive order calling for the immediate withdrawal from the trade treaty signed in 1995 under President Bill Clinton. They’ve dodged two bullets, helping, for investors anyway, to make Mexico great again.

“Mexico’s better than expected economic performance adds to 2017’s resurgence of emerging markets which is lifting global GDP growth back to potential,” says PNC Financial’s senior international economist Bill Adams in Pittsburgh. “The global economy has reached the sweet spot of the economic expansion,” he says, and within Latin America at least, Mexico is smack dab in the middle of that sweet spot.

 

Source: https://www.forbes.com/sites/kenrapoza/2017/07/24/for-wall-street-mexico-is-great-again/#125eaba576cd

 

By Anthony Esposito

MEXICO CITY (Reuters) – Mexico’s government on Monday said it would work to strengthen the North American economy after the United States published its objectives for the renegotiation of the NAFTA trade deal, which one Mexican official described as “not as bad” as feared.

In a statement, the Mexican economy ministry said it expected talks between the United States, Mexico and Canada on renegotiating the North American Free Trade Agreement (NAFTA) to be able to get under way from Aug. 16.

For now, Mexico would continue with domestic consultations on the revamp of the accord until early August, it added.

The ministry said it would work “to achieve a constructive negotiation process that will allow trade and investment flows to increase and consolidates cooperation and economic integration to strengthen North American competitiveness.”

The United States said its top priority for the talks was shrinking the U.S. trade deficit with Mexico and Canada, a recurring complaint of U.S. President Donald Trump. [L1N1K8149]

In a highly anticipated document sent to lawmakers, U.S. Trade Representative Robert Lighthizer said he would seek to reduce the trade imbalance by improving access for U.S. goods exported to Canada and Mexico under the three-nation pact.

Speaking under condition of anonymity, a senior Mexican official said the list of priorities was “not as bad as I was expecting” and welcomed that the United States was not pushing to impose punitive tariffs, as Trump has threatened.

The official also noted the U.S. wish to ditch the Chapter 19 dispute settlement mechanism that has hindered the United States from pursuing anti-dumping and anti-subsidy cases against Mexican and Canadian firms would be resisted firmly by Canada.

“Canada will fight to (the) death on Chapter 19,” the official said.

 

Source: https://www.reuters.com/article/us-usa-trade-nafta-mexico-idUSKBN1A301D

 

By Dave Graham and Ana Isabel Martinez

MEXICO CITY (Reuters) – Companies no longer fear the North American Trade Agreement (NAFTA) will collapse and top U.S. multinationals in Mexico are committed to investing in the country going forward, the head of a global business lobby said on Wednesday.

Frederic Garcia, President of Mexico’s Executive Council of Global Companies (CEEG), said preparations to renegotiate NAFTA and growing awareness of the accord’s economic benefits had all but put an end to fears that the deal would be scrapped.

“There was a moment where the probability, or the perception that NAFTA would end, was very strong,” Garcia said in an interview in Mexico City. “But today I think there’s an awareness that it will continue. The big worry that the deal could come to an end is an issue that’s behind us.”

The CEEG represents a host of multinationals in Mexico including AT&T Inc , Coca-Cola Co , General Motors Co , Microsoft Corp , Exxon Mobil Corp , Nestle, HSBC, Siemens and IBM Corp , which it says account for around 40 percent of total foreign direct investment.

It and other business associations have been active in extolling the benefits of NAFTA to Americans to counter threats by U.S. President Donald Trump to dump the 23 year-old accord that binds the United States, Mexico and Canada.

Mexico’s Economy Minister Ildefonso Guajardo said on Tuesday he expected the U.S. government to notify Congress early next week of plans to rework the accord, yielding talks by late August.

It was not yet clear how NAFTA would be revamped, but if Mexico’s efforts to update its free trade deal with the European Union proved instructive, it could include provisions to boost corporate compliance and adherence to the law, Garcia said.

Trump said last month he was ready to renegotiate NAFTA with Mexico and Canada, though since taking the presidency in January he also has maintained that the United States could withdraw from the agreement if talks did not work in favor of his homeland.

Arguing the accord has destroyed U.S. jobs, Trump has menaced multinationals manufacturing in Mexico with punitive tariffs, and his threats to quit NAFTA. This sent the peso to a record low in January.

Earlier that month Ford abruptly canceled a $1.6 billion plant in central Mexico following verbal attacks by Trump. But as the rhetoric from the White House began to moderate, the peso has recovered somewhat, and fears for NAFTA’s future have eased.

Last week, a Mexican business lobby said it expected investment to drop slightly this year due to uncertainty over Trump, but Garcia said the CEEG would make no forecasts over projected outlays to avoid drawing attention to the matter.

“As far as the U.S. firms in the CEEG go, from the first day of the new U.S. administration they’ve stated their great interest to continue operating in Mexico (and) their great interest to continue investing in Mexico,” he said.

However, they had done so in such a way as to preserve their interests with the U.S. administration, Garcia added.

 

Source: http://money.usnews.com/investing/news/articles/2017-05-17/nafta-demise-fears-fade-as-us-firms-committed-to-mexico-lobby