Features

Mexico: Beyond borders

29 Nov 2018 by BusinessTraveller
Monte Albán, a pre-Columbian archaeological site near Oaxaca

Recent media attention may have focused on the US president’s wall, but there is much more to Mexico for both tourists and investors. Chris Moss reports

All nations are to some extent caricatured by lazy stereotypes and headline-grabbing sensationalism by the media. Few, however, get as bad a press as Mexico. You’d never guess, in the slew of lurid stories on drug and gun trafficking, horror-film criminality, Trump’s wall and immigration, that the United Mexican States, one of the oldest territories settled by Europeans in the mainland Americas, is the world’s 15th biggest economy, second biggest in Latin America, home to the largest Spanish-speaking population in the Americas – and a powerhouse of literature, the arts, architecture and gastronomy. 

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

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

Mexico City's Soumaya Museum

Wheels of industry

Underlying the cultural diversity is an industrial giant. Mexico’s US$1.15 trillion economy (IMF) is built on petroleum, iron and steel. The Organisation for Economic Co-operation and Development (OECD) rates Mexican people as the hardest-working in the world. One of the most diversified economies in its region, it is also the only Latin American nation to edge into the economic complexity top rankings.

Mexico is always near the top of the table of global tourism. According to the United Nations World Tourism Organisation (UNWTO), 39.3 million people visited Mexico in 2017, making it the sixth-ranked tourism destination; admittedly, the numbers are pumped up by busy borders such as Tijuana-San Diego, but with a 12 per cent increase on 2016 figures, Mexico was among those countries recording the greatest increase.

Growth has taken place in spite of crime and security problems in states such as Durango and Michoacan and, above all, in cities close to the US frontier. May 2018 was widely reported as “the deadliest month” recorded in Mexico since the government began releasing homicide data in 1998.

Tourists to Chiapas, Oaxaca, Yucatan and the silver-mining cities of Guanajuato, San Miguel de Allende and Zacatecas may be blithely unaware of the tensions of the marginal zones even of the cities they are visiting. Quantifying the impact of security issues on commerce is difficult, to say the least. Who stays away? Which countries withhold investment? How problematic are perceptions as compared with hard facts?

“Security and crime costs are immense from a social and business perspective,” observes Enrique Dussel Peters, economics professor at the Universidad Nacional Autonoma de Mexico (UNAM).

“Organised crime in Mexico and most of Latin America, however, is a regional problem and particularly related to the US. Unless the region as a whole, including the US, acknowledges it as such, there are few changes for starting to solve it in the long term. Organised crime includes not only money and drugs, but also arms, persons and body parts, and it’s a two-way street mainly with the US.”

In August, US and Mexican law enforcement authorities announced a joint venture, setting up a team based in Chicago targeting the leaders and finances of drug cartels that ship opioids into the United States. But, earlier in the year, business leaders in Mexico’s powerful Consejo Coordinador Empresarial (CCE) business lobby issued a statement that “the high levels of violence have become the greatest obstacle to (economic) activity.” This came on the back of Mexican dairy producer Grupo Lala shutting a distribution centre in the northern state of Tamaulipas and the world’s biggest Coke bottler, Coca-Cola Femsa, indefinitely closing a 160-employee distribution centre in south-western Guerrero state.

Neighbourly relations

To outsiders, it can appear bizarre that the richest country in the world cannot work closely with its neighbour to resolve crime – and drug-related matters. But Mexico’s relationship with the US has been troubled since even before the Mexican War of 1847, which saw Mexico lose about one-third of its territory to the US. When Donald Trump took over in Washington DC, there was a noticeable cooling-off in diplomatic relations and the language, at least from the US side, hit a new low.

In principle, of course, Mexico’s proximity to the US represents an enormous opportunity in terms of value-added employment, learning processes and general development. The problem, says Professor Dussel Peters, is that the North American Free Trade Agreement (NAFTA), signed in 1994 by the US, Canada and Mexico, has been at best uneven and, in some sectors, totally ineffectual.

“NAFTA has substantially polarised Mexico’s economy, in that only a small group of households, firms, regions and global value chains have integrated through exports to the US, the vast majority not.”

According to Peters, the newly renegotiated NAFTA, now known as the United States-Mexico-Canada Agreement, or USMCA, which was formally agreed on October 1, has few new and relevant topics. In fact, the most significant aspect of the agreement is that that it was signed at all.

The most surprising issue of the USMCA, Peters says, “is that it does not counter the increasing disintegration within NAFTA”. According to Peters, intra-NAFTA trade increased from 42 per cent in 1994 to 46 per cent in 2001, but dropped to 39 per cent in 2017, a fall particularly noticeable in global value chains, such as auto parts and automobiles. He concludes: “The main challenges for NAFTA are not intra-NAFTA issues, but those that lie beyond NAFTA members, particularly with Asia and China.”

Surprising no one, Trump claimed a US victory on the deal, but some observers believe it will be good for Mexico and will lead to increased trade volumes within the three countries. USMCA also ended months of uncertainty that compelled Mexico’s central bank to maintain high interest rates in case of a run on the peso. The country is now able to loosen monetary policy, giving a short-term boost to GDP that’s already expected to grow by 3 per cent in 2018.

Early morning on the Rio Grande, which serves as a natural border between Texas and Mexico

Fresh thinking

On July 1, 2018, Mexico elected a new president, Andres Manuel Lopez Obrador, a former mayor of Mexico City, standing for Juntos Haremos Historia, a coalition of the left-wing Labour Party, right-wing Social Encounter Party, and social democratic National Regeneration Movement. Nicknamed “AMLO” in the local and international press, he’s regarded as a populist, a nationalist and something of a maverick, and has been described as a “foil” and “natural enemy” of Trump as well as “Juan Trump”, allegedly by Trump himself.

But AMLO is no upstart and certainly not a political novice, having been active across various left-wing parties for more than 40 years. He ran for president in 2006 and lost by a hair to Felipe Calderón. As mayor of the megalopolis, he was, on the whole, a successful and occasionally inspired leader.

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

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

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

Olson points out that a planned amnesty for small producers of illicit drugs, and the possibility of creating regulated markets for some drugs, may well be a worthwhile consideration, but could fail to satisfy Mexicans’ expectations of the new government.“What is needed… is a very specific strategy to rebuild the state at local level,” argues Olson. “A centralised top-down approach, limited to building a strong federal police or a military police, does not address local problems where the state is not providing security and where it is actually crumbling.”

Mexico City Cathedral

Economic growth

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

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

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

On the downside, shrinking wages, falling growth and a weakening peso were 2017 trends that need to be reversed. A lot is hanging on the incoming Mexican president as well as the current US one.

But Mexico doesn’t do Brexit-style doom and gloom. In fact, says Enrique Dussel Peters, the main problem may be a tendency to be too rosy about the nation’s future prospects.

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

Staying in Mexico City

Las Alcobas

Beautifully designed and subtly luxurious, this hotel is on a smart avenue in the upmarket Polanco district. A member of Marriott’s Luxury Collection, it provides guests with highly personalised service and boasts one of the best restaurants in Mexico City. Interiors are by celebrated design duo George Yabu and Glenn Pushelberg. Rooms from US$297 (£229). lasalcobas.com

St Regis

In the landmark 31-storey Torre Libertad – built by Cesar Pelli – on the throbbing Paseo de la Reforma, this is a very well-run, luxurious leisure property, with seven dining options, the Remède Spa, and an indoor swimming pool. Rooms from US$500 (£385). stregishotelmexicocity.com

Habita Hotel, Mexico City

Habita Hotel

Minimalist, contemporary and very cool, Habita pioneered boutique stays in Mexico City. In the heart of Polanco, the hotel with its frosted-glass façade (right) still impresses. Inside, it’s all white, and the rooftop bar and pool are great for evening socials. Rooms from US$135 (£104). hotelhabita.com

W Mexico City

This 237-room tower in smart Polanco has the W brand’s colourful, funky décor (Frida Kahlo cushions, vibrant hues, big artworks) and a cool Hispano-Mexican culinary offering at in-house restaurant J by Jose Andres. Guests are mainly corporate, but the Living Room Bar draws in local hipsters. Nine meeting studios and a spa complete the bill. Rooms from US$257 (£200). w-hotels.marriott.com

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