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With the collaboration of Isabelle Vandenbroucke
Images provided by Cutberto García

Public Security in Mexico

On Friday, January 13th, 2012 Crowell & Moring hosted a breakfast with the Secretary of Public Security of Mexico. The U.S.-Mexico Chamber of Commerce received the corporate support of the Global Business Intelligence: Diligence.

Genaro García Luna, Minister of Public Security of Mexico, presented statistics and hard data to explain the results of the strategy against organized crime in Mexico, as well as the tactics that have been used in order to decrease violence in the country. The Secretary analyzed the number of violent crimes, such as drug-related homicides in Mexico, and compared them to the International Crime Index. The Ministry pointed out four actions which have had an effect on the detentions, seizures and/or kidnappings:

  1. A new model that involves capacities to analyze, plan and detect crime; as well as scientific, operative and technical field research
  2. A national interconnected network which provides voice and data services, radio communications, video and imagery among states, municipalities and at the federal level. This network currently adds up to 427 million registrations
  3. An integrated infrastructure composed of a Control Center, Intelligence Center, a tactic analysis building, a scientific police building, as well as 17 police stations at the national level
  4. A Federal Penitentiary System which is oriented to social reintegration, and offers services of protection, custody, vigilance and security to all entities.

Mr. García Luna mentioned how the program entitled Plataforma Mexico has helped improve this institutional development, for example, the arduous effort to refine and broaden previous security data-bases. Finally, he focused on the correctional system and the federal police institutional development infrastructure in Mexico. The presentation finished with a session of questions and answers which Secretary García Luna answered in detail. Posteriorly, he signed books, written by him, which explain the development of the Secretary during his administration.

From left to right: Alfonso Sumano, Director of the Regional Office for the Americas, Mexico Tourism Board; Alejandro Ramos, Executive Director of the U.S.-Mexico Chamber of Commerce, Northeast Regional Chapter; and Genaro García Luna, Minister of Public Security of Mexico. Breakfast with the Secretary of Public Security of Mexico. Host: Crowell & Moring

Why Mexico, Why now? Mexican Private Equity and Venture Capital Industry

On February 16th, 2012, “Why Mexico, Why now? Mexican Private Equity and Venture Capital Industry”, co-organized by the US-Mexico Chamber of Commerce, Fondo de Fondos and Nacional Financiera was held at the New York Athletic Club. In this occasion, KPMG, Amexcap, Chadbourne & Parke LLP, Promexico and the Financial Times sponsored the event.

The day was divided in three sections: during the first part of the morning Jorge Mariscal, then Partner & Chief Strategist Officer, The Rohatyn Group; Héctor Rangel, CEO, Nacional Financiera; Victor Esquivel, National Lead Partner, KPMG; and Arturo Saval, Chairman, Mexican Private Equity Association; delivered individual speeches in which they exposed the details of the composition of the Mexican population, the rule of law, the right of property protection, the need of fair distribution of wealth, among others. Secondly, there were two discussion panels to discuss private equity and venture capital in Mexico; one, from the general partner’s perspective, and the second, from the limited partner’s perspective. The day concluded with Consul General of Mexico in New York, Carlos Sada, Consul General of Mexico in New York as keynote speaker at lunch time. 

During the first panel, Alfredo Alfaro, Managing Director, Advent International; Cesar Pérez, Managing Director, Southern Cross; Humberto Zesati, Managing Partner, Latin Idea Ventures; José Contreras, Fondo MIF;,Luis Harvey, Co-founding Partner and Senior Managing Director Nexxus Capital; and as moderator Talbert Navia, Partner, Chadbourne & Parke LLP discussed the changes in Mexican politics in the past six years and the positive impact they are having on the sources of money and investment.

Additionally, they also spoke about the value of entrepreneurs in the development of Mexico. However, they stated that Mexico does not want to replicate the model of Silicon Valley. For this reason, the relationship between entrepreneurs and venture capital is clear: entrepreneurs will produce revenues but first they need money, and because of this, venture capital firms’ participation is crucial.

At the second panel, moderated by Jaime Alatorre, Advisory Board, Fondo de Fondos; Hosein Khajeh-Hosseiny, Managing Director, Northgate; Juan Carlos Domínguez, Global Alternative Investment Manager, BBVA; Richard Ellman, Managing Partner, Civitas Alternative Investments, LLC; and Steve Costabile, Head of Private Funds Group, PineBridge Investments, agreed that in the long term, Mexico presents positive conditions for a progressive evolution: it is a large country, with a substantive population, great diversity, a large economy and a growing middle class. In comparison to other developing nations, Mexico is a relatively low country risk and it is one of the largest recipients of Foreign Direct Investment (FDI) flows. In addition, Mexican fiscal deficit is less than 2.5% of the GDP and its public debt is only 35%. All of these characteristics and others discussed made every panelist arrive to the same conclusion: Mexico fits the perfect structure for Venture Capital and Private Equity necessities.

Mexican Private Equity/Venture Capital Indsutry: Success stories and opportunities. Location: New York Athletic Club Private Equity and Venture Capital in Mexico: LP's Perspective, from left to right: Hosein Khajeh-Hosseiny, Managing Director, Northgate; Juan Carlos Domínguez Poo, Global Alternative Investment Manager, BBVA; Moderator: Jaime Alatorre, Advisory Board, Fondo de Fondos; Richard Ellman, Managing Partner, Civitas Alernative Investments, LLC; Steven Costabile, Head of Private Funds Group, PineBridge Investments.
 
Arturo Saval, Chairman, Mexican Private Equity Association during his presentation.  

Mexican Housing Day

Images provided by José Luis Ramírez

Since 2004 Mexican public housing developers celebrate and event entitled the “Mexican Housing Day”, which aims to promote investment in Mexico´s housing sector among national and international investors. The U.S.-Mexico Chamber of Commerce, Northeast Regional Chapter has collaborated in its organization for the past four years. This year, the event was held on March 8th at the Pierre Hotel in New York City. The event attracted around 300 investors, business analysts, housing sector specialists, media people and general public.

The invited speakers agreed on the fact that Mexico has become an attractive country for investment in the housing sector due to three principal reasons, (i) the growth of its population and its GDP in the past years, (ii) its current political stability (iii) the unique relationship it holds with the United States. The mortgage market has a huge potential due to demographic trends, the institutional synergies with a consolidated banking sector, the adequate public policies and a sound banking system. The sector also benefits from the financial innovation of the last years, which has allowed borrowers to enjoy better conditions, and the very important fact that the Mexican market did not speculate nor accepted the price bubble which caused the mortgage crisis in some other countries.

In short, the conditions of housing market presented by the public and private sectors forecast a strategic center of growth for the country and the investors who decide to take part in it.

Ariel Cano Cuevas, CEO of the Comisión Nacional de Vivienda (CONAVI) Key Note Speaker: Luis De la Calle, Location: Cotillion Room, Pierre Hotel .
Mexican Housing Day. Location: Pierre Hotel

 

Mexican Telecommunications Roundtable

On March 14th, 2012, the U.S.-Mexico Chamber of Commerce presented the Mexican Telecommunications Roundtable, hosted by the law firm Hogan Lovells and supported by the Mexican law firm Acedo Santamarina and Aeromexico,

As keynote speaker, Undersecretary of Communications, Héctor Olavarría, from Mexico's Ministry of Communications and Transportation, explained the public policies that have taken place during the administration of President Felipe Calderón, and how they have improved Mexico’s interconnection. Nevertheless, based on statistics, it was demonstrated that one of the biggest problems in the communication system in the country is related to the access of rural areas to communication means. The latter provokes a very significant gap among urban and other areas of the territory.

Carlos Peñaloza, Director of Interconnection, Televisa, emphasized the need to work towards a more competitive environment, particularly in the mobile telephone sector. Mr. Peñaloza mentioned that in order to obtain more competition, foreign investment should be promoted.

Andrés Acedo, Partner and Founder of Acedo Santamarina S.C., discussed the new attempts that have been carried out in order to open the Telecommunication business.

As a fourth member of the panel, Randy Segal, Partner at Hogan Lovells, added that in developing countries there is an increasing financial uncertainty for which it is not always easy to discern where and when to invest in the telecommunications sector, which provokes difficulty to attract foreign investment. However, there have been changes in Mexico’s Telecommunications industry which have proven to be more trust-worthy and internationally accepted than before.

Key note speaker: Héctor Olavarría, Undersecretary of Communications, Secretary of Communications and Transport Mexican Telecommunications Roundtable. Host: Hogan Lovells US LLP

Investment opportunities in Mexico’s Infrastructure

The U.S.-Mexico Chamber of Commerce, Northeast Regional Chapter, held a conference on “Investment opportunities in the infrastructure sector in Mexico” on April 27th, hosted by Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates. Due to speak was Dionisio Pérez-Jácome, Secretary of Communications and Transportation, but because of a sudden emergency his Chief of Staff Juan Sadurni gave the presentation on his behalf.

The focus of the conference was on Mexico as a strong investment opportunity, with examples of the recent achievements in transportation investments, the implications of the new Public-Private Partnership (PPP) law in Mexico, and a look at upcoming projects in the infrastructure sector.

Starting off with impressive statistics that show Mexico to be among one of the world’s most promising economies, Mr. Sadurni drew attention to analyst forecasts of a GDP increase, CPI decrease and account balance stability for Mexico in the following year. In addition, Mexico has moved up twenty places in the World Bank’s Doing Business Index, putting it ahead of the BRIC countries, making it an attractive place to do business.

Mr. Sadurni explained that Mexico has been investing publicly in its roads and infrastructure, as evidenced by the increase in kilometers of new and upgraded roads, as well as railway and port construction, and multiple new airport terminals. Through these projects, Mexico’s infrastructure is becoming more solid to investors, and will no doubt provide more return on those investments. In addition, the SCT (Secretaría de Comunicaciones y Transportes) has begun several projects to strengthen its institutional capabilities and its links to other entities within and outside the government. Some of these projects include a program to professionalize the Ministry’s representatives in each state, an agreement with Nacional Financiera (state development bank) to finance the modernization of the transportation fleet, and new toll roads to increase private sector participation in infrastructure.

The new PPP law will increase the participation of the private sector in the creation of infrastructure by providing investment structures with different but clearer requirements for PPP projects than in previous laws. The new law aims to address the concerns that a sustained level of investment in infrastructure requires a better legal framework to increase transparency and efficiency than was previously in place in Mexico. The new PPP law will allow further private sector involvement in all stages, a more efficient and faster process in all stages from bidding to maintenance, and ultimately foster investment in Mexico’s infrastructure sector.

Finally, Mr. Sadurni outlined upcoming projects including the development and modernization of significant national highway corridors, a new Mexico City railway suburban line, and a Veracruz port expansion.

Juan Sadurni, Chief of Staff of Secretary Dionisio Pérez Jácome, Minister of Communications and Transportation. Host: Skadden, Arps, Slate, Meagher & Flom LLP

 

A Conversation with Jorge Castañeda

On Monday April 30th, 2012, Mr. Jorge Castañeda, Former Foreign Minister of Mexico and current professor at New York University (NYU) presented a general overview of the current political-electoral situation in Mexico to more than forty people in the New York offices of our host sponsor Deloitte. The experienced political analyst depicted what has happened in electoral matters and what will is likely to happen in a few weeks.

Mr. Castañeda underlined the role that the people have played in the last year in relation to the upcoming elections. Society has pressured the government, political parties and representatives to actually discuss and approach different issues, such as Pemex and the participation of private investment. As a result, the four Mexican Presidential candidates have stated that they would approve minority private partnerships; and although it is never sure if this will happen, Mr. Castañeda’s poll analysis shows that 75 per cent of the population would approve this reform. In addition to the energy and oil topic, the Former Foreign Minister explained that regarding security, the majority of the population would like the army to return to their headquarters; however, for this there would need to be a single police agency in order to secure citizens’ safety. As a third matter, in education, he discussed how all political parties have approved an increase to 8 hours of school, which is a significant step in the sector notwithstanding this would be fully in place until 2020.

From left to right: Alejandro Ramos, Executive Director of the U.S.-Mexico Chamber of Commerce, Northeast Regional Chapter A Conversation with Jorge Castañeda. Host: Deloitte

Cinco de Mayo Luncheon

The 2012 Cinco de Mayo Luncheon took place this year at one of Chef Richard Sandoval’s restaurants: Zengo. A special menu was created for this special occasion. The event began with a reception featuring margaritas and tequila from our sponsor Riazul and red and white wines from our other beverage sponsor L.A.Cetto. Of course, there were Corona beers served as well. Before all attendees moved to the main dining room, Minister of Finance from Puebla, Roberto Moya, presented an overview of the current economic situation in the state of Puebla. The more than 90 guests listened to the interesting facts about Puebla he presented, for instance, that Puebla is the safest state in terms of federal jurisdiction crimes, including those related with organized crime; that Lonely Planet gave the City of Puebla a “Best in Travel 2012” nod, voting it one of this year’s ten Hottest Destinations Worldwide; and that the state has positive Credit Ratings by Moody’s and Fitch Ratings due to running costs control, favorable conditions on debt payment terms, adequate liquidity, and national and regional importance in economy.

The celebration of the 150th Anniversary of the Battle of Puebla organized by the U.S.-Mexico Chamber of Commerce, Northeast Regional Chapter, could have not happened without the support of the Government of the state of Puebla; our gold sponsors the Mexico Tourism Board and Delta; our in-kind sponsors, already mentioned above, Riazul, L.A.Cetto, and Corona; also we were very happy to have as our sponsors Arader Galleries and La Rosa del Monte, Worldwide Movers. We especially thank the Consulate of Mexico in New York.

Coctel, Cinco de Mayo Luncheon at Zengo Restaurant From left to right: Alejandro Ramos, Executive Director of the U.S.-Mexico Chamber of Commerce, Northeast Regional Chapter; Daly, Elizabeth Rose, Director, Division for International Business; and, Roberto Moya, Minister of Finance of the State of Puebla.
Roberto Moya, Minister of Finance of the State of Puebla during his presentation Cinco de Mayo Luncheon at Zengo Restaurant

Made in North America: Competitiveness, Supply Chain and Transportation in the NAFTA Region

The U.S.-Mexico Chamber of Commerce, Northeast Regional Chapter and the Canadian Consulate organized the conference, “Made in North America: Competitiveness, Supply Chain, and Transportation in the NAFTA Region” on May 17, 2012 at the premises of Crowell & Moring in the city of New York. This event took place within the program of the New York World Trade Week. The meeting was attended by over 80 business people and featured two panels, the first on North America’s increasing Global Competitiveness, and the second on the North American Supply Chain.

The first panel was discussed by speakers Brian Irwin, Partner and Head of A.T. Kearney's North America Automotive Practice; Birgit Matthiesen, Senior Advisor, U.S. Government Relations to the President and CEO, Canadian Manufacturers and Exporters Association; K. Alan Russell, President & CEO, Tecma Group; and Christopher S. Wilson, Former Assistant U. S. Trade Representative for WTO & Multilateral Affairs. These four experts in the topic agreed on the fact that there is a need to revive the North American Free Trade Agreement (NAFTA). Additionally, among the many interesting points that the panelists presented, Mr. Irwin demonstrated that there is better expectation of return from countries like Mexico than with China. China’s labor costs have increased significantly compared to those of other countries and there is need of investment to modernize inland infrastructure. Mexico presents a more stable economy. Mr. Russell supported the statement of Mexico as a good location for investment, since he has developed his whole business in the country and maintains that Mexico is and will be a significant influence in the North American manufacturing industry for decades to come; it is a country with educated people and vast resources.

The second panel was discussed by speakers Stephen Blank, Co-Chair of the North American Transportation Competitiveness Research Council; Juan José Bravo Moisés, Alternate Executive Director – Mexico, The World Bank Group and Former Head of Mexico’s Customs Administration; Daniel Cannistra, Counsel, Crowell & Moring; Jean-Paul Rodrigue, Department of Global Studies & Geography, Hofstra University; and Amgdad Shehata, Vice President Strategic Development and Public Affairs, United Parcel Services. The discussion among the panelists reminded the attendees of the great opportunity to continue collaborating as members of NAFTA, but they stated that it is mostly an opportunity to regain space in the trade arena as a group. Until now, the treaty has facilitated agreements among the U.S. and Canada, U.S. and Mexico, some between Mexico and Canada, which results in more bilateral than trilateral negotiations. The North American countries (Canada, United States and Mexico) require setting a common agenda among the ministries of economy and commerce, but more importantly among the departments of communication and transportation, since the facilitation of mobility of products is crucial.

Danièle Ayotte, Deputy Consul General, Consulate General of Canada in New York. Host: Crowell & Moring Carlos Sada, Consul General, Consulate General of Mexico in New York. Host: Crowell & Moring
From left to right: Brian Irwin, Partner and Head of A.T. Kearney's North America Automotive Practice; Birgit Matthiesen, Senior Advisor, US Government Relations to the President and CEO, Canadian Manufacturers and Exporters Association; Christopher S. Wilson, Former Assistant U. S. Trade Representative for WTO & Multilateral Affairs; and,  K. Alan Russell, President & CEO, Tecma Group. Host: Crowell & Moring From left to right: Stephen Blank, Co-Chair, North American Transportation Competitiveness Research Council; Daniel Cannistra, Counsel, Crowell & Moring; Jean-Paul Rodrigue, Department of Global Studies & Geography, Hofstra University; Juan José Bravo Moisés, Alternate Executive Director, Mexico, The World Bank Group and Former Head of Mexico’s Customs Administration; and, Amgdad Shehata, Vice President Strategic Development and Public Affairs, United Parcel Services. Host: Crowell & Moring

5th Mexico Real Estate Investment Forum

The U.S.-Mexico Chamber of Commerce, Northeast Regional Chapter organized the event named 5th Mexico Real Estate Investment Forum on Thursday May 24th at the offices of New York City-based law firm Shearman & Sterling LLP. In the fifth edition of this annual event, the USMCOC-NE formed two panels in which experts not only presented the current state of the real estate market in Mexico, but also analyzed the future options and the possible solutions for this growing market. The general topics of discussion included: a profile of the actors in the real estate market; the return, risk and liquidity of the market; financial innovation in Mexico; infrastructure and real estate trusts (FIBRAS) and capital developments certificates (CKDs); the legal and fiscal aspects; investments in new projects; restructures, and various others.

The first panel “The Mexican Real Estate Marketplace was formed by Gabriel Fernández, Director of Real Capital Investment Management; Carlos Ibarra, a partner of the Ibarra, del Paso and Gallego SC law firm; Raymond A. Pérez, Director of Frontera Capital, all active members of the U.S.-Mexico Chamber of Commerce. During their respective exhibitions, the speakers presented a general panorama of the investment possibilities in Mexico, considering the advantages and disadvantages, as well as the legal and fiscal aspects of said market.

On the one hand, Gabriel Fernández commented on the high level of development that Mexican institutions have accomplished, the low inflation, the low rates of unemployment, and how this data indicates a positive real estate market for foreign investors. Similarly, Fernández stated that the change in Administration will not affect this market and that the insecurity that the Mexican territory experiences is principally in the north of the country, which does not serve as a risk or threat to foreign investments. He emphasized the fact that declarations of a fallen state in Mexico are false. In fact, companies like Coca-Cola and Audi are currently investing in Mexico to open new plants. Unfortunately these stories are not always published in the United States media. The investment chances during the 1990s did not produce very much opportunity, but today those funds have proven to be an effective medium for private equity with greater results. Additionally, the CKDs (capital developments certificates) have had a large impact and have collaborated to improve the liquidity in this area. Fernández concluded his intervention by stating that the conditions of investment in the market have improved and that the results of the investment are anticipated, thus generating security and consequently development in this market.

Raymond Pérez of Frontera Capital then explained how in the first few years of the new millennium, the conditions of investment return in Mexico were not expected to be very high, because the financial crisis affected the market so strongly. In addition the H1N1 virus, hurricanes, and other natural phenomena plagued the country. It was not until the year 2010 that Mexico’s situation began to improve. In order for investment in Mexico to be fruitful, it is necessary to present accounts clearly so that they are transparent, and to be familiar with Mexican society.

The first part of this forum ended with a detailed presentation of the legal and fiscal aspects of the Mexican real estate market. Lawyer Carlos Ibarra began his presentation by revealing the conditions of the agricultural lands of Mexico and the efforts of the private sector to collaborate with the public sector in the last few years so that these lands can be separated from the agrarian system. Ibarra discussed the growing use of real estate title insurance and transactional deposit operations (escrow) as well as the different precautions foreign investors must take: under the new provisions on asset forfeiture, negotiations should not be hasty, cash payments should not be accepted, and one should have common sense. The statutory audit estate must not only be fast and effective but also methodical and sophisticated; it is advised to scrutinize the land before executing negotiations and corroborating the legitimacy of the company and the real estate. For the evaluation of projects and operating companies, there exist anti-corruption models that all institutional companies should follow; the documents that demonstrate the transactions must be transparent; negotiations with non-cash payments exist but should be evaluated with caution in order to assure legality. In short, without disregarding windows of opportunity, no negotiation should be so simple to the point where it appears too good to be true. The partner of Ibarra, del Paso and Gallego also mentioned the legislative reforms that have an impact on the real estate market including the legislative reforms of last year regarding collective action and the protection of personal information and its impact on real estate projects, as well as reform proposals that will significantly affect real estate if approved: climate change, AML of money and the growing modernization of the digitalization of public registers of property and trade. Lastly, Ibarra explained the convenience of homologating the state and municipal legislations and regulations by way of taxes and domain transfer in order to ensure the prosperity of infrastructure and real estate trusts (FIBRAS), which was further discussed during the second panel.

In the second panel titled “Financial Innovation in the Mexican Real Estate Market,” the speakers Julian Allen, Director of Real Estate & Lodging Group, Citigroup Global Markets Inc; Adrián Cano, Vice President of Evercore Partners Mexico; Gabriel del Valle, partner of Ritch Mueller, S.C; and Malcolm K. Montgomery, partner of Shearman & Sterling LLP, principally discussed the financial vehicles in the real estate market.

The panel began with an explanation of the characteristics and differences between capital developments certificates (CKDs) and infrastructure and real estate trusts (FIBRAS). FIBRAS were established as the first vehicle for pension funds because before them there was no other way by which one could invest in the real estate public market. One of the conditions of the FIBRAS is that they must invest at least seventy percent of their assets in real estate and their income must be primarily from this market. Some of the differences of the FIBRAS with the existing financial vehicle in the United States (REIT: Real Estate Investment Trust) is that the FIBRAS do not have proof of income but as active, the FIBRAS must be compensated with cash; they must pay taxes to the investors; when there is property acquired, the value of their contribution must be certified. Unlike CKDs, a real exchange does not take place; additionally, CKDs are driven in a fund group and consequently, the time spent negotiating can be very extensive, from 12 to 18 months. For this reason, a subsidiary was created for FIBRAS so that investments could be made in government IOUs and assets. Nonetheless, FIBRA 1, the only one that currently exists in Mexico, took two years to form. For this reason, it is possible that the investors would prefer purchasing bonds in a FIBRA that already exists rather than forming a new one; this does not diminish the possibility of others generating FIBRAS since they are a very safe and dependable vehicle.

CONSAR (the National Commission Savings System for Retirement) is very interested in promoting these methods of investment in the real estate market and it is possible that a bit of uncertainty exists due to the upcoming federal elections; however, the money will not leave Mexico, since it is a prohibitive characteristic of fund groups. Nonetheless, the financial market in this area demonstrates stability for the future.

The members of the panel discussed the possibility of institutionalizing investment of private equity and reached an agreement that it would aid individuals without strong capital and give them an opportunity to invest. The aforementioned statement also applies to investors with foreign capital. The exponents agreed that it was necessary to attract more investors, not only with fund groups, but also with foreign investment retail. In fact, recent cases of companies involved in corruption will force subsequent negotiators to be more transparent and comply with the verbatim.

Both panels coincided in stating that in actuality, the investors take the history, records and their actors into account so that the information of the transactions is readily for available for viewing. In the end, transparency is essential for the growth of the real estate market.

Alejandro Ramos, Executive Director of the U.S.-Mexico Chamber of Commerce, Northeast Regional Chapter. Host: Shearman & Sterling LLP From left to right: Raymond A. Perez, Senior Managing Director, Frontera Capital ; Gabriel Fernández, Managing Director, Real Capital Investment Management; and, Carlos Ibarra, Partner, Ibarra Del Paso Gallego SC.
From left to right: Julian Allen, Director, Real Estate & Lodging Group, Citigroup Global Markets Inc.; Gabriel del Valle, Partner, Ritch Mueller, S.C; Malcolm K. Montgomery, Partner, Shearman & Sterling LLP; and Adrián Cano, VicePresident, Evercore Partners Mexico. 5th Mexico Real Estate Forum. Host: Shearman & Sterling

Translated by Grecia Barboza

Presidential Candidates Series “Mexico: 2012 Elections”

Enrique Peña Nieto’s Advisors: Emilio Lozoya and Arnulfo Valdivia Machuca

The U.S.-Mexico Chamber of Commerce, Northeast Regional Chamber, welcomed advisors to presidential candidate Enrique Peña Nieto of the Partido Revolucionario Institucional (PRI) on May 7, 2012 for the first session of the 2012 Presidential Election Series. The featured speakers were Emilio Lozoya Austin,  International Affairs Coordinator for Mr. Peña Nieto’s Presidential Campaign, and Arnulfo Valdivia Machuca, Mexicans Abroad Coordinator for Mr. Peña Nieto’s Presidential Campaign.

Mr. Lozoya spoke about topics including the energy industry in Mexico, the state of the economy, and Mexico in comparison with the rest of Latin America. Mr. Lozoya said that the energy industry should be a great source of competitiveness. He encouraged PEMEX to be open to private investment, as energy reform is linked to fiscal reform. Mr. Lozoya also referenced Mexico’s credit as a percentage of GDP (23 per cent), and explained this to be a structural problem. Brazil is lending much more, and Mexico needs to see an improvement in its credit system. In addition, Mr. Lozoya spoke about the need for a stronger foreign policy and further integration with the U.S. and Latin America, especially in terms of energy and infrastructure.

Mr. Valdivia spoke about the importance and relevance of Mexicans abroad, and their impact on the Mexican election. There are millions of Mexicans living abroad, even a larger population of any state in Mexico. 90 per cent of those living abroad live in the U.S. Mr. Valdivia also recommended a more strategic approach to lobbying on behalf of Mexicans to help pass better immigration laws.

From left to right: Michael D. Grohman, Partner, Duane Morris; Rosa Ertze, Associate, Duane Morris; Emilio Lozoya Austin, International Affairs Coordinator for Mr. Peña Nieto’s Presidential Campaign; Arnulfo Valdivia Machuca, Mexicans Abroad Coordinator for Mr. Peña Nieto’s Presidential Campaign; and, Alejandro Ramos, Executive Director of the U.S.-Mexico Chamber of Commerce, Northeast Regional Chapter. Host: Duane Morris.

Andrés Manuel López Obrador’s Economic Advisor: Fernando Turner

In the second session of the Presidential Election Series on May 24, 2012, the Partido de la Revolución Democrática (PRD) was represented. The featured speaker was Fernando Turner Dávila, Economic Advisor of Presidential Candidate Andrés Manuel López Obrador.

Turner’s presentation centered on economic policies, economic development, and macroeconomic strategy. Turner focused on the importance of labor, and emphasized that while population has increased, labor opportunities have not. The effectiveness of growth without job creation is meaningless. The advisor to Mr. López Obrador considered that Mexico has had one of the worst economic performance of Latin America, and that Mexico’s poverty is unacceptable due to its amount of resources. Turner brought attention to Mexico’s manufacturing ability, among the best in the world, and that the lack of development is due to a lack of reforms in the last twenty-five years, as well as a lack of competitive goods due to monopolies. Turner asserted that there has to be a change in Mexico’s macroeconomic strategy, which requires more investment in many industries. Turner believes in promoting foreign and private investment, as public investment in Mexico now accounts for 75 per cent of all investment.

The Northern businessman, Mr. Turner, answered questions about energy and education. He explained that there have been only few advances in the energy industry because of lack of capital. He spoke about the fact that PEMEX is not subject to privatization and that there are important issues to be addressed first: efficiency improvements, lower corruption, and divisions. In terms of education, Turner stressed that Andrés Manuel López Obrador is the only candidate who has not had connections with the head of the Teacher’s Union, and that Mexico’s education system will not improve until she is gone.

From left to right: Alejandro Ramos, Executive Director of the U.S.-Mexico Chamber of Commerce, Northeast Regional Chapter; and, Fernando Turner Dávila, Economic Advisor of Presidential Candidate Andrés Manuel López Obrador. Host: Duane Morris.

Josefina Vázquez Mota’s Coordinator for International Affairs: Rubén Beltrán Guerrero

In the third installment of the Presidential Election Series, the U.S.-Mexico Chamber of Commerce, Northeast Regional Chapter, welcomed Ambassador Ruben Beltrán Guerrero, Coordinator for International Affairs for Partido Acción Nacional (PAN) Presidential Candidate Josefina Vázquez Mota. The event was graciously hosted by Duane Morris on June 1, 2012.

Ambassador Beltrán stressed the reasons that make Ms. Vázquez Mota a unique candidate, such as proposing a coalition vote by sharing power in the cabinet in exchange for votes in the Congress, thus increasing the likelihood of successfully passing reforms. Ambassador Beltrán then went on to outline five more points that he believes are the most concerning for the Mexican state today, and thus the Presidential Election: security, education, the economy, PEMEX, and foreign policy.

On security, it is clear that the Mexican public is unanimous in its view that the government should not back down to organized crime. There is also the need for a continued relationship with the U.S. to receive intelligence, technology, and training for personnel. Ms. Vázquez Mota is the only candidate to have proposed a unique police force (as opposed to continuing to use the army). In terms of education, Amb. Beltrán made it very clear that Josefina Vázquez Mota left the Education Ministry because of her disagreement with head of the Teacher’s Union. Furthermore, Vázquez Mota is the only candidate that has spoken directly and against her.

Amb. Beltrán’s focus in terms of foreign policy was to emphasize Mexico’s growing role in the world economy, also citing that Mexico is the tenth most contributing member of the UN. Therefore, Mexican foreign policy needs to be active, risk-taking, and engaging in operations such as peace keeping. In addition, Mexican efforts to change immigration policies in the U.S. need to be more aggressive, and Mexico has to make a stronger effort to increase the growth of NAFTA (North American Free Trade Agreement) to reap a bigger economic benefit.

From left to right: Michael D. Grohman, Partner, Duane Morris; Rosa Ertze, Associate, Duane Morris; Emb. Rubén Beltrán, International Affairs Coordinator for Presidential Candidate Josefina Vázquez Mota

Mexican Elections and Markets

The U.S.-Mexico Chamber of Commerce, Northeast Regional Chapter, partnered with Scotiabank to bring together several expert panelists to discuss “Mexican Elections and Markets” on June 12, 2012. The panel discussed the upcoming Mexican Presidential election, as well as the effects it will have on the Mexican economic horizon and investment opportunities. Questions were fielded by the panelists on potential policy and regulation changes in fields such as the energy industry, education, and security. The expert panelists were moderated by Joe Kogan, Head of Emerging Markets Strategy, Scotiabank Global Banking and Markets, and the conference was followed by a cocktail hour.

First on the agenda was an analysis of the election polls by Francisco Abundis, Associate Director at Parametría. Abundis drew attention to the fact that this election will feature more measurement than any before it, with many polling firms trying to capture as much data as possible. In his analysis of the polling trends, Abundis affirmed that there is a general consensus on which candidate is the clear front runner (Enrique Pena Nieto, PRI), second place (Andrés Manuel López Obrador, PRD), and third place (Josefina Vázquez Mota, PAN). However, sources do not agree on the point differences between the candidates, with newspapers ranging between claims of four and twenty percent differences.

Following this, Shannon K. O’Neil, Council of Foreign Relations Douglas Dillon Fellow for Latin American Studies, offered an analysis of the polling results through the lens of Mexican party politics. Mexico has a history of notoriously entrenched party politics, but O’Neil did say that this election campaign has been about personalities. Nevertheless, the success of the candidates can be directly tied to the role that political parties have played in showing support for them. For example the PRI, containing a very wide spectrum of political beliefs, has still managed a very united front in their support of Enrique Peña Nieto. In contrast, the PAN has perhaps shown the least unity and support for their candidate Vázquez Mota.

Nick Panes, Vice President, Corporate Investigations, Mexico, Central America & Andean Region, Control Risks, presented a view on how security concerns have affected investment in Mexico. While admitting that violence dominates the media perspective of Mexico, Panes insisted that more specificity about the kind of violence, and what region is involved, is needed to fully understand the Mexican security outlook. In the short-term, Mr. Panes sees little improvement in the security situation, but in the long-term he sees no deterioration. Mr. Panes identified the main concern as the ongoing battle for territory supremacy between drug cartels, and this is unlikely to be resolved soon or easily. These “turf wars” are currently being fought heavily in the northern region of Mexico, where it is attractive for companies to have their operations due to its manufacturing superiority and its proximity to the U.S. However, Mr. Panes maintained his support of Mexico and that the security problem in Mexico is a manageable risk, especially compared to other global alternatives. In addition, Mr. Panes asserted that Mexico’s political risk is not as acute as in other desirable markets.

Carlos Kretschmer, Head of Capital Markets, Scotiabank Mexico, discussed the state of financial markets in Mexico. Citing figures on GDP and financial deficit, Kretschmer asserted that Mexico is “as good as the U.S. or better” in many economic areas. However, Kretschmer faults the markets for Mexico not being able to prove these results yet. He believes Mexico is heading in the right direction for improvement and growth, and that there is no reason for concern about major changes in regulatory that could negatively impact financial markets.

Joe Kogan then asked the panelists to discuss any uncertainty in the election, and what this could imply for Mexico’s future. Mr. Abundis responded that it was unforeseen that López Obrador would overtake Vázquez Mota, and this reflects a need by the lower classes to be represented, and the future President, and future presidential candidates would do well to remember this. Ms. O’Neil discussed the uncertainty in the future governance of the country in terms of the make-up of the PRI. The PRI has both “old guards” and “new guards”, and it will be difficult to keep its promises to everyone, and even to keep the party together. To achieve congressional support for legislation, the PRI will have to “bring some PAN and PRD on board”.

Mr. Kogan then asked the panelists about potential reforms, and addressed the future of energy reforms in Mexico. While there are always promises of reforming Pemex in every presidential campaign, “it doesn’t happen”, according to Mr. Kogan. In 2008 there was a mild but significant reform that has since been stalled. In addition, candidates are never specific about what reforms they would put in place. So the question according to Mr. Kogan is not, “Will there be privatization?”, but instead one should look at privatization as a continuum. In fact, to some extent Pemex already has access to foreign technology as evidenced by a Pemex oil rig Mr. Kogan visited that was actually installed and maintained by a Texan oil rig company. In summary, investors are putting no chance into Pemex reform, and the market is underpricing the probability of reform.

Nick Panes addressed security reforms by stating that there are probably no significant reforms on the horizon, as President Felipe Calderón was largely unsuccessful in his security efforts. The main concern would be if the PRI tried to revert to its previous tactics; forming an “entente cordiale” with drug cartels. While this would improve the immediate security concern, the entire issue of territory war would not be ameliorated. Ms. O’Neil then stressed the importance of implementation over legislation. For example, the importance of properly training the police force and ensuring its incorruptibility is more important than filing more legislation. The important factor in legislation is not to vote in favor of the initiatives, but rather the implementation of them. The strength of the institutions and agencies is what ultimately can improve Mexico’s condition. O’Neil mentioned that governments can be divided into right and left, but in Latin America, at least, she considers a more crucial factor the level of autonomy and efficiency of the institutions. According to the Council Foreign Affairs expert, Mexico presents this condition, which then surrounds the country in stable characteristics.

The panelists closed the discussion by ending on a positive note for investment in Mexico. Mr. Kogan drew attention to the low credit to GDP ratio, compared to Latin America, saying that there are “good opportunities” for investment in Mexico on lending sectors. Ms. O’Neil mentioned the growing middle class and infrastructure development as positive factors in future investment. She also highlighted Peña Nieto’s term as State of Mexico’s governor where one of his main achievements was infrastructure development (at least that is what he promotes in his campaign). Finally, Kretschmer talked about how Mexican currency is an asset today. The devalued peso adds to the competitiveness of the country, and has actually been a good “pressure valve” in global financial markets. He insisted there should be no concern about inflation and that monetary policy will move “in tandem with the U.S.”.

The questions from the audience were varied, addressing concerns ranging from technology outsourcing, to education and labor reform expectations, to the “Yo soy #132” student movement. Mr. Kretschmer said that financially Mexico needs more seed money, private equity, and talent staying in Mexico to finance more industry. In fact he mentioned that Mexico has to be grateful to Presidents Bush and Obama because the financial situation in the U.S. has resulted in many talented citizens returning to Mexico, promoting a different set of values and ideas, hard work and civism. Ms. O’Neil said that if Peña Nieto feels indebted to Elba Esther Gordillo then it will be hard to remove her from her position of power. However, Ms. O’Neil did mention the rise of private education in all income levels (mostly middle class). While this type of education is not necessarily better, it is a visible effort to improve education in Mexico. Ms. O’Neil also addressed the #132 movement, saying that the elite, privately-educated students who founded it could break the political gridlock in Mexico in the future. Mr. Abundis also explained that while the #132 is fairly non-partisan and against media monopolies, there is support for the least popular candidate, Quadri, in the movement; despite the perception that the demonstrators are supporting the PRD candidate. In fact, polling results show that the actual segment of the population giving López Obrador his momentum is not college-educated, and while 17.6 per cent of Mexican voters are between the ages of eighteen and twenty-four, only one-fifth of these are college-educated.

In summary, all panelists agreed that Mexico could continue “coasting” at a two to four percent growth level easily, but with the proper reforms and changes in the next sexenio (six-year administration), it could fulfill its potential and jump to six or eight percent “where it should be”.

From left to right: Carlos Kretschmer, Head of Capital Markets, Scotiabank Mexico; Shannon K. O’Neil, Council of Foreign Relations Douglas Dillon Fellow for Latin American Studies; Joe Kogan, Head of Emerging Markets Strategy, Scotiabank Global Banking and Markets; Nick Panes, Vice President, Corporate Investigations, Mexico, Central America & Andean Region, Control Risks; and, Francisco Abundis, Associate Director at Parametría. Panel: Mexican Elections and Markets. Host: Scotiabank
 
After the panel a cocktail followed. Host: Scotiabank  

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