TBY talks to Carlos Guzmán Bofill, Director General & CEO of ProMéxico, on its extensive promotion network, the country’s commitment to free trade, and the bright prospects for the Mexican economy in the coming decades.
TBY The international crisis has turned the spotlight on emerging economies. In light of this, what advantages can Mexico offer?
CARLOS GUZMÁN BOFILL As a result of the country’s commitment to economic stability and free trade, Mexico has become a strategic platform to reach key markets around the globe. Mexico offers many competitive advantages such as its macroeconomic stability, economic growth, a business-friendly environment, its strategic location, capacity for advanced manufacturing, an open economy, and the availability of skilled human capital. The country’s network of trade agreements spans 44 countries, which makes us a platform that reaches far beyond North America, and gives products made in Mexico preferential access to over 1 billion consumers and two-thirds of the world’s GDP. Furthermore, the commitment to free trade has made Mexican industries extremely competitive, because goods made in Mexico compete with the best available worldwide. However, market access isn’t enough. In fact, according to the Inter-American Development Bank, freight cost as a percentage of exports is 3% lower in Mexico than in Asia. Secondly, Mexico is in the midst of a demographic bonus, full of young and skilled human capital. Each year, over 115,000 engineers complete their higher education at one of Mexico’s 2,964 universities and technical institutions. In fact, Mexico has more engineering students than Brazil, the UK, or Germany. This human capital is a cornerstone for Mexico’s future economic development. According to the Atlas of Economic Complexity, recently published by Harvard and MIT, Mexico ranks 20th worldwide, well above all of the BRIC (Brazil, Russia, India, and China) countries. The study shows Mexico’s capacity to produce and export numerous sophisticated goods to multiple countries. It further indicates that Mexico is able to harness and transfer a vast amount of productive knowledge, which is a strong indicator of future economic development. This fact is reinforced by the Organization of Economic Cooperation and Development’s (OECD’s) Index of Technological Sophistication, in which Mexican goods rank higher than those produced in India or Brazil. Therefore, we can state that Mexico offers fertile business opportunities based on innovation and R&D. For these and many other reasons, it is not surprising that analysts predict that Mexico will rank between the fifth and eighth largest economy in the world by 2050.
How does ProMéxico contribute to the country’s success in trade and attracting foreign direct investment?
The flow of FDI and international trade are key components of Mexico’s economy. To this end, ProMéxico promotes the exports of companies established in Mexico, coordinates actions to attract FDI, and assists Mexican companies to become international firms. ProMéxico has 33 offices in 22 countries, which allows it to reach more than 70% of the world’s GDP, in addition to 29 offices in 26 states, and its headquarters in Mexico City. Through our offices, we promote the country and its companies around the globe, advise companies throughout their export or investment process, facilitate doing business either as a foreigner in Mexico or a Mexican abroad, and connect companies as well as private and public institutions to create value-added networks. ProMéxico combines its services into several usage models to be more efficient. Three examples are the Demand Generation, Aftercare, and Alliance with Multinational Companies programs. Our Demand Generation Program connects Mexican suppliers with potential buyers abroad. To do so, our offices detect and contact large potential customers, and evaluate their needs. Based on this confirmed interest, ProMéxico searches for qualified suppliers, facilitates introductions, and works with the companies to help them address the needs of the foreign client. Once a foreign investor initiates operations in Mexico, the Aftercare Program provides ongoing assistance to facilitate optimal performance, thereby creating attractive conditions to re-invest and expand their operations. With the Alliance with Multinational Companies Program, we work with multinationals established in Mexico to identify supply chain needs. Then we collaborate with the company to both introduce them to domestic suppliers and work with their foreign suppliers to help locate operations to Mexico. As a result, the company reduces supply chain gaps and improves its response to market changes. Meanwhile, we increase the local content in final products, and eventually fuel more manufactured exports. In summary, ProMéxico offers both investors and exporters customized support through a wide range of solutions and services to “bring more of Mexico to the world and more of the world to Mexico.”
You mentioned Mexico’s commitment to free trade. What do you see in the country’s future in this respect?
Since joining the General Agreement on Tariffs and Trade (GATT) in 1986, Mexico has been a strong promoter of free trade. As a result, Mexico has become a global export powerhouse, renowned for high-quality products, and an important center for advanced manufacturing. Not only have Mexican exports grown by more than 16 times since 1985, but they have increased in sophistication. Today, Mexico is a leading manufacturing exporter with close to 80% of our exports being manufactured goods, compared to only 23% in 1985. In 2011, Mexican exports reached a record high of nearly $350 billion, which is 17% more than in 2010 and 110% when compared to 2000. It is also worth noting that Mexico is the largest exporter in Latin America. In fact, last year we exported the equivalent of Brazil and Argentina combined. Notwithstanding its important network of free trade agreements, Mexico continues to diversify its export markets. We are looking toward Latin America, Africa, Asia, and some European countries. For example, Mexico is promoting joint actions to create synergies in commercial and economic matters within the framework of the Trans-Pacific Alliance as a means to strengthen relations with Asian economies. Closer to home, Mexico promotes further integration with Peru, Chile, and Colombia in order to fortify this region’s competitiveness. An alliance between the four countries represents an important opportunity. To give you an idea, these four economies will trade $443 billion, which is more than 1.5 times the size of the Common Southern Market (MERCOSUR), currently at $281 billion. Nonetheless, the future isn’t limited to exports. Mexico’s domestic industry offers great potential, and internationalization is a natural step after exporting. For this reason, ProMéxico is implementing an aggressive strategy to facilitate this process. In addition to working with the large Mexican conglomerates to further expand their global presence, ProMéxico is increasingly assisting innovative SMEs to venture abroad.
What type of FDI is Mexico attracting and how does this contribute to the country’s growth?
The Atlas of Economic Complexity discusses how a country’s ability to amass and transfer know-how allows a society to recombine it in order to create a larger variety of smarter and better products. The evolution of our automotive industry showcases how Mexico has evolved toward increasingly advanced manufacturing, which creates opportunities for other industries. The automotive industry required a supply chain of specialized and certifiable high-precision technologies; which in turn enabled other industries with similar requirements, namely the aerospace, electric/electronic, and medical device industries. We consider high value-added sectors as strategic, because of the domino effect on the country’s productive capacity, which in turn translates into more and better-paid jobs, hence creating a virtuous growth cycle.
The eight strategic sectors we have identified are: automotive, aerospace, electric-electronic, medical devices, creative industries, IT, agribusiness, and renewable energy. Mexico is the fifth largest automotive exporter. Meanwhile, our aerospace exports totaled $4.3 billion in 2011. Our aerospace industry was almost non-existent a decade ago, but has quadrupled since 2005, to currently number 250 companies. The industry also experienced a 19% compounded annual growth for the past seven years. In fact, a plane with Mexican technology takes off every two seconds.
What is your outlook for the renewable energy sector in the medium term, and what are ProMéxico’s strategies to encourage investment in this sector?
Environmental deterioration affects humanity as a whole. The responsible use of natural resources and mitigating the causes of climate change not only makes social sense, but also makes business sense. Green technology is an ocean of opportunities for large, small, and start-up companies alike. Furthermore, Mexico pursues an aggressive green agenda that is ahead of other developing countries. While Mexico has important petroleum reserves, we are also on the forefront of renewable energy. In fact, nearly one-fourth of Mexico’s installed electricity generating capacity already comes from renewable sources. And this is just the tip of the iceberg. Mexico has one of the most robust potentials for wind, solar and geothermal energy in the world. Wind potential is estimated around 71,000 MW, primarily in locations such as La Ventosa in Oaxaca and La Rumorosa in Baja California, where annual wind hours exceed 3,500—among the highest in the world. There is currently 850 MW of installed capacity that should reach 1,300 MW by the end of 2012, and projects for another 2,000 MW pending final approvals. Meanwhile, solar generation is beginning to take off in Mexico. Being located on the “sun belt,” Mexico is one of the countries with the highest levels of solar irradiation. The potential in the northwest of the county can exceed 6 kWh/sqm per day, and most of the rest of the country enjoys between 4.5 and 6.
Lastly, Mexico is among the top five countries with the most potential for geothermal energy, and we are already the fourth in terms of installed capacity. It’s also worth mentioning that in addition to the domestic market; Mexico is in a unique position to export clean energy to the US. For example, California’s mandate to source 32% of its electricity from renewable sources by 2020 makes projects near the border even more attractive. Thanks to the promotion of these advantages among businesspeople and industry leaders around the globe, ProMéxico has attracted more than 20 green projects, amounting to $7.5 billion in FDI since 2008.
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