June 20, 2012 7:55 pm
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Latin America: Bloody but booming
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By Adam Thomson
Drug violence is terrifyingly brutal but investors find Mexico has distinct advantages over China
One Sunday last month, just as some residents of Cadereyta were getting ready for mass, Mexican security officials discovered what, even by the standards of the country’s gruesome drugs war, was a chilling sight: 49 corpses dumped by a highway in plastic rubbish bags.
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Each of the 43 men and six women had been decapitated. To make identification more difficult, the murderers had severed their hands and feet. One person at the scene said there were signs the victims had been killed at least two days earlier.
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“Some of them were crawling with worms,” he told local media. “It was horrible.” One month on, authorities, who blame drug gangs for the crime, have still not been able to name a single one of the victims.
.Surprisingly, though, Nuevo León, the northern state where the atrocity took place and one of the main theatres in recent years of Mexico’s continuing war against organised crime, is experiencing the biggest foreign direct investment boom in its history.
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Just 40km west of Cadereyta along Highway 40 in the city of Monterrey, international companies are setting up or expanding plants in what they consider to be one of the best homes for supplying North America and, increasingly, the rest of the world.
Javier Treviño, former lieutenant governor for the state government, says he expects the city to break the $2bn-mark for FDI this year in what would be a record. Cautiously, staff at Nuevo León’s economic development ministry talk of figures closer to $2.4bn.
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“Foreign companies increasingly see us as the logistical centre of North America,” he told the Financial Times this week.
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In many ways, Monterrey is a condensed version of what is happening in the rest of Mexico. In the past five years, drug-related violence has spiralled as ever-larger and better-armed criminal gangs dispute territory and smuggling routes at the same time as federal police and the army try to disrupt their illegal trade.
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Since the beginning of 2007, more than 50,000 people have died as a direct consequence of the violence, a figure that has pushed the country’s overall murder rate up to about 22 per 100,000 inhabitants compared with roughly eight when centre-right President Felipe Calderón took office in December 2006.
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Yet over the same period, Mexico has attracted more and more foreign companies, in particular the world’s leading automobile manufacturers, which see the country as an attractive base for supplying North America, South America and even China.
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Last year, FDI totalled $18bn, and economists expect it to reach similar levels this year. “International companies realise that they have to be in Mexico if they want to export to the Americas,” Bruno Ferrari, the country’s economy minister, told the FT.
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One of the reasons for the investment inflows is that Mexico has become more competitive vis a vis China. Rising transport costs have made basing operations for export in Asia far more expensive than at the start of the century. Wage inflation has all but closed the once-yawning gap that separated Mexican and Chinese labour costs. For all its criminal instability, Mexico is a paragon of macroeconomic orthodoxy.
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But what about the violence? Alejandro Hope, a security expert at the Mexican Institute for Competitiveness in Mexico City and a former high-ranking government intelligence official, argues that foreign companies in Mexico are sometimes physically close to the violence but are also largely immune to it. Although a Mexican subsidiary of PepsiCo was attacked with fire bombs last month, there does not appear to be a trend towards attacking multinationals.
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“Organised crime doesn’t know what to do when it comes to multinational companies,” Mr Hope explains. “It has made a business of extorting small and medium-sized Mexican companies but, when it comes to multinationals, the drug lords don’t even know who to call.”
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Raúl Benítez, a professor at Mexico City’s Unam University and an expert on security, agrees. He points out that most multinational companies manufacturing for export in Mexico operate near the border with the US in large industrial parks. Strict security makes it hard to enter. Once inside, it is hard if not impossible to work out who the owners are, he says.
.“Drug gangs don’t even know where to start with multinationals,” he concludes. “They are too complex and too faceless, so they just extort the Mexican company on the street corner.”
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Like many international companies in Mexico, Alcoa, the world’s largest manufacturer of primary and fabricated aluminium, is busy expanding its plant. Located on Monterrey’s southern fringes, the factory churns out thousands of aluminium truck wheel rims, almost 24 hours a day, practically every day of the year.
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Monterrey, just a couple of hours from the Texas border, may have suffered its most violent month in July last year but Alcoa plant operators say they have never been the victim of extortion and cannot even remember the last time they suffered a loss of material through robbery.
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The plant accounts for about 25 per cent of Alcoa’s global production of aluminium truck rims, up from about 15 per cent six years ago. Management says that it expects to increase production at the plant 15 per cent by 2014.
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That expansion, says Mr Hope, is fast becoming the norm.
“International companies manufacturing for export are not really affected,” he says. “They operate in a bubble.”
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Copyright The Financial Times Limited 2012.
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