Sweet spot in Mexico earns second look from investors

By Patrick Rucker

MEXICO CITY (Reuters) - Mexico's improving economic prospects, coupled with low inflation, are winning the country a second look from international investors and fund managers.

Investors see potential in Mexico's services sector and in enticing more companies to market, and are also bullish about new financial tools which could send billions of dollars into infrastructure and private equity deals.

Expected economic growth of about 4 percent this year, combined with inflation of about 3.5 percent, compares well to regional peers, many of which are tightening monetary policy to fend off surging prices.

"In our view, the Mexican economy is very much in a sweet spot," Lupin Rahman, senior vice president of emerging markets portfolio management at bond giant Pimco, told a LatinFinance summit this week.

"In terms of output, in terms of growth, in terms of inflation, all these dynamics point to a very positive 2011 for the Mexican economy."

Mexico's apparent comeback in the sentiment stakes follows several years in the shadow of Brazil, which weathered the global crisis better but is now wrestling with high inflation.

Emerging market investors surveyed by Bank of America Merrill Lynch in February put Brazil at underweight for the first time in the survey's history, while preferences for Mexico are increasing.

But Mexico still has some homework to do.

The economy depends heavily on manufacturing exports to the United States, and while the recovery in U.S. consumer demand has prompted economists to lift forecasts for Mexican growth, investors also look for diversification and for structural reforms.

"If Mexico can turn the engines and start opening its service sectors it will be a fantastic run for the economy," said Alfredo Thorne, head of global markets at Banorte bank.

"It can seriously not only grow at 6, 7 percent but actually perform much better than the BRICs." Brazil's growth is expected to slow in 2011 to 4.5 percent, according to the International Monetary Fund.

Thorne estimates Mexico's drugs war, which has killed more than 34,000 people in the last four years, is cutting 1-2 percentage points from annual growth, but says it will be worth it. "If Mexico manages to win this war, it will be the most important structural reform," he said at the summit.

Luis Harvey, co-founder of private equity firm Nexxus Capital, said Mexico's service sector was underrated.

"You have a huge internal market which has a per-capita income twice as big as Brazil's," he said.

Leisure, health and consumer finance are some of the industries getting a lift from the expanding middle class and sectors where Harvey has put money to work.

Buyout firms typically drive their acquisitions toward a public offering and the Mexican exchange has room to grow with $550 million of shares swapping hands daily compared to the roughly $3.6 billion traded daily in Brazilian stock markets.

"You need to get more companies going to the market; more people investing in equities," said Harvey.

NEW FINANCIAL TOOLS

New financial instruments are also helping improve Mexico's reputation among global investors, after bureaucratic hurdles and inertia caused many to lose patience.

Brazil buyout firm GP Investments (GPIV11.SA), for one, opened a Mexico City office four years ago intending to make a splash in Latin America's second-largest economy, but pulled out. Partners remember the attempt as a costly mistake.

Carlyle Group CYL.UL also retreated, leaving behind one money manager who has spent much of the last two years in a time-consuming effort to draw Mexico pension fund investment. Now he is finally starting to see results.

Mexico is rolling out new investment options, such as real estate investment trusts (REITs) and a hybrid security designed solely to serve the country's retirement funds.

Those Mexican pension funds, which sit on 1.4 trillion pesos ($116.5 billion) in assets, are expected to drop sizable investments into REITs. Joaquin Avila, the Carlyle veteran, expects his EMX Capital will soon win pension fund financing.

"It has been a tremendous amount of work. To some extent cumbersome and to some extent understandable," said Avila. "These are new securities to Mexico."

Local money managers say the new securities will bring welcome efficiency and competition to Mexican markets.

"Now we are seeing real sophistication in the financial marketplace," said Juan Alberto Leautaud, a local real estate money manager whose infrastructure investment plan recently won $220 million in pension fund cash.

New financing has drawn money managers like Paul Ahlstrom, who brought his wife and six kids to Monterrey in Mexico's north as he made a private equity pitch to the funds.

It took nearly two years, but Ahlstrom says a deal is near with his Alta Growth Capital that will blend pension cash with $75 million of outside capital.

"This deal will happen. It's just painful to be a pioneer," he said. "I hope we don't become the pioneer with arrows in his back."

(Additional reporting by Guillermo Parra-Bernal in Sao Paolo, Editing by Chizu Nomiyama)
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Rebuilt border crossing aims to speed traffic

By Sandra Dibble and Janine Zúñiga
Long lines and lengthy waits have become an inescapable burden for tens of thousands of cross-border commuters at the San Ysidro Port of Entry.


Proposing to dramatically decrease crossing times for both vehicles and pedestrians, authorities Thursday formally launched a $577 million expansion and modernization of the world’s busiest land-border crossing.

Wait times during peak hours can currently stretch to more than two hours, and a 2009 study by the U.S. General Services Administration showed that if nothing is done, those waits could stretch to 10 hours by 2030.

Planned for completion by 2016, the new facility would reduce maximum waits to 30 minutes, according to U.S. Customs and Border Protection.

Added lanes, more booths and high-tech inspections are at the heart of the overhaul. It is the largest and costliest infrastructure project the U.S. government has ever undertaken along its land border.

“The need for a new facility is clear, and the stakes are high,” said Martha Johnson, administrator of the GSA, speaking at an outdoor ceremony at the port that drew authorities from the United States and Mexico. Over the next two decades, she said, traffic through the San Ysidro port is expected to increase by as much as 90 percent.

Growing delays have stifled myriad transactions on both sides of the border. San Diego’s supermarkets, shops and restaurants have lost large amounts of business from Mexican customers. Baja California’s hotels, restaurants and other tourist amenities have suffered a devastating drop in U.S. clientele in recent years, partly as a result of tighter security measures adopted following the Sept. 11 terrorist attacks.

The San Diego Association of Governments’ latest estimate, from 2007, calculates that the congestion at California’s border with Mexico costs the region close to $7.2 billion and more than 62,000 jobs annually.

“For most people who don’t go back and forth across the border, it’s just out of sight, out of mind,” said Christina Luhn, director of the Mega-Region Initiative at the San Diego Regional Economic Development Corp. “They don’t understand what a two- or three-hour wait can mean.”

San Ysidro’s current facility has long been outdated. When it opened in the mid-1970s, the country was recovering from the Watergate scandal, disco was all the rage and terrorism wasn’t a domestic concern.

“It’s a changed society and buildings have to change with it,” said Ramon Riesgo, land port of entry adviser for the GSA, which is overseeing the construction of the new port.

The new facility is being called the “port of the future.” While San Ysidro now has 24 northbound lanes, including six with two inspection booths each, the rebuilt facility will include 34 northbound lanes with 64 inspection booths. Expanded pedestrian facilities will include a shaded path and 20 inspection stations.

To handle beefed-up inspections southbound, six lanes are being added on the U.S. side of the border.

The design, by Seattle-based Miller Hull Partnership, includes a translucent roof structure that shields cars and officers from rain and sun. The project is being planned to conserve both energy and water, and the aim is to achieve LEED Platinum certification, a recognition for environmentally friendly structures.

Another environmental benefit being cited is improved air quality at the crossing, due to the decreased wait times and shorter lines.

The new port “will enable us to better manage traffic in many many ways,” said Thomas Winkowski, assistant commissioner for U.S. Customs and Border Protection, the agency that operates the port of entry. The changes will allow for improved use of technology, greater flexibility in opening and closing lanes, and the expansion of trusted traveler programs where prescreened crossers are processed more quickly.

U.S. authorities have worked closely with Mexico in designing the project. The Mexican government is planning changes south of the border costing more than $53 million, including expanding the number of lanes from six to 20, said Juan José Erazo, who directs border crossing infrastructure projects for Mexico’s Communications and Transportation Secretariat.

Mexico is also building bridges and access roads to the new crossing, as well as an intermodal facility that would allow San Diego Trolley passengers to connect directly to a rapid transit bus system being planned on the Mexican side.

While many community groups seem hopeful the expansion project will achieve its aims, not everyone is convinced that infrastructure is the only answer.

“It comes down to efficiency of inspections,” said Jason Wells, executive director of the San Ysidro Chamber of Commerce and member of a coalition fighting to improve security and border-crossing times while providing support for local businesses.

“We could spend $600 million and have a new port of entry, but if you have agents in primary inspection lanes getting on their knees tapping on tires and opening trunks, we could still have a 2-3 hour wait time,” he said.

The U.S. modernization project is being conducted in three phases. Only the first phase, totaling nearly $293 million, has been funded. It includes a pedestrian bridge scheduled for opening next month, an expansion of the northbound inspection facilities, and a southbound pedestrian crossing. The second phase involves improvements and construction of pedestrian processing facilities. The third phase entails new southbound lanes.

At Thursday’s ceremony, U.S. Rep. Bob Filner, D-San Diego, said the fight to fund the second and third phases continues in Congress. Last week, the House voted to cut $1.5 billion from the GSA budget. “We’ve got to make sure those cuts don’t stay,” he said. “Because they threaten the economic viability that we’re celebrating today.”



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If facts don’t lie, is Mexico safer than the U.S.?

By Patrick Osio


Here comes Easter break again and young people will be young people – high school and college kids will travel to distant places where the drinking age is either less than it is in the U.S. or where authorities don’t care to enforce minors’ drinking laws. For several decades Mexico has been one such place of choice where the legal drinking age is 18. Mazatlan , Acapulco , Puerto Vallarta and Cancun were the fly to favorite places and Rosarito Beach and Ensenada the favorite drive to places from Southern California . – But not this year, or for that matter neither was it last year.

Our government and the U.S. media have convinced most Americans that Mexico is not a safe place to visit as drug traffickers are fighting it out to see which gang will have the right to sell their illicit drugs to the very group that will not be visiting Mexico . They will have to wait until they return from Easter break to get their Mexican smuggled drugs at home.

But what really struck me was that the preferred country to visit this Easter break in lieu of Mexico is the Dominican Republic . It struck me because Dominica is rated as the number one country with the highest propensity for crime in the world. According to facts gathered by NationalMaster.com, their total crime per 1,000 residents (per capita) is 113.822 –Compared to the U.S. that is 8th in the world in total crimes at 80.0645 per 1000 residents, making chances of being a victim of a crime in Dominica better than 10%, and slightly less than an 8% chance of being a victim in the U.S.

But here is the real clunker – Mexico, the country our government tells us not to visit and the media has a field day reporting any crime be it significant or not to further put the fear of God into staying away from there – well, it ranks 39th in total crime in the world with a per capita of slightly less than 13 crimes per 1000 residents that is a 1.3% chance of being a victim of crime in Mexico.

So Mexico is out, Dominica is in, yet the chances of being a crime victim there is greater than in the U.S. and the chances of being a crime victim in the U.S. is greater than in Mexico . But, for our own safety we need to stay out of Mexico .

Have you ever felt like you’re being duped but you can’t quite put your finger on why – what’s the motive? Is it to keep us from facing some bitter truths? We keep reading how crime is down, how safe we are compared to most other parts of the world. But is it true?

So here are some multiple choice questions for you:

1. Which country has a higher crime rate per 1,000 residents?

a. Mexico, b. Germany, c. Canada, d. U.S.

2. Which country has the highest murders with firearms?

a. Mexico, b. El Salvador, c. U.S.

3. Of the following countries, which has the least number of drug offenses?

a. Germany, b. United Kingdom, c. Canada, d. Switzerland, e. Mexico

4. Which country has the most prisoners?

a. United States , b. China , c. Russia , d. India, e. Mexico

(Answers: 1. d. U.S. , 2. c. U.S. , 3. e. Mexico , 4. a. U.S.- Source: http://www.nationmaster.com)

In one of the only bright spots due to its recent gang related murders, Mexico , on a per capita, ranks as more dangerous than the U.S. occupying No. 24 and Mexico No. 6 in the world, but in total number of murders the U.S. is No. 5 and Mexico No. 6.

In fact, much of the crime data per capita 1000 population suggests that in many respects Mexico is safer than the U.S.: in assaults the U.S. ranks No. 6, Mexico No. 20; burglaries the U.S. No. 17, Mexico No. 34; car thefts U.S. No. 9, Mexico No. 22; fraud U.S. No. 18, Mexico No. 29; Rape (Canada No.5), U.S. No. 9, Mexico No. 17.

No doubt that at the expense of Mexico we are being duped. Is it to hide our insatiable appetite for illicit drugs and cheap labor, and so by pointing the finger of guilt to the biggest supplier of both we exculpate our actions or at minimum pacify our own guilt?

Maybe it’s time for “the home of the free, and land of the brave” to take note.