News Column

Pena Nieto's Term Might Bode Well for Business

Dec 17, 2012

Steve Clark

Pena Nieto

The election of Enrique Pena Nieto asMexico's new president bodes well for economic relations between Mexico and the United States, including the Rio Grande Valley.

At least that's the view of Pablo Rhi-Perez, associate professor of business at the University of Texas at Brownsville, who noted that some members of Pena Nieto's cabinet have deep ties to the Brownsville-Matamoros region.

Rhi-Perez worked as a consultant on Imagine Brownsville, which produced the Brownsville Comprehensive Plan adopted by the city commission in 2009, and he is currently consulting with the city of Matamoros on a similar project, Imagina de Matamoros. Both plans emphasize interacting on joint projects to the benefit of both cities -- basically taking part in each other's strategic plan. One such project calls for the creation of secure business centers located near the bridge on either side of the border as a solution to security issues dogging Matamoros.

Projects like these require collaboration at all levels of government -- municipal, state and federal -- and Rhi-Perez anticipates support from the Pena Nieto administration. In general, Rhi-Perez expects "strategic partnerships" to thrive between the United States and Mexico during the coming years -- particularly in the oil industry.

Pemex, the Mexican state-owned petroleum company, recently made massive oil discoveries in the ultra-deep Gulf waters near the U.S.-Mexico border. Pemex has proved it's capable of finding oil, but getting it out of the ground and to market is something else, Rhi-Perez said. Mexico lacks the infrastructure to transport millions of barrels of oil from the Gulf to its refineries in Cadereyata, Nuevo Leon. Building such infrastructure will be extremely expensive.

"Mexicohas a lot of recently discovered resources that require a lot of investment in order to be able to market them," Rhi-Perez said. "Mexico has the money for this type of business. However, it doesn't have the talent and expertise to be able to extract the oil and take it to the market. It requires a lot of expertise and know how."

It makes more sense to build a refinery in Matamoros, though that too is very expensive, and such a project is rife with environmental issues, he said.

"Mexico has very little refining capacity itself," he added. "As a matter of fact, Mexico imports gasoline to satisfy the demand."

Strategic partnerships between Pemex and U.S. oil companies to move the Perdido crude to refineries in Houston and New Orleans via existing seafloor pipelines is the most logical solution, Rhi-Perez said. Pena Nieto has, in fact, said he's in favor of opening up Pemex to more private investment to boost Mexico's oil industry.

Brownsvilleand the Valley could stand to gain as well.

Rhi-Perez thinks Pena Nieto's policy regarding drug cartels -- combating kidnapping and extortion as opposed to former president Felipe Calderon's policy of bringing the fight to drug traffickers' front door -- will eventually make it easier to do business in Mexico. The lack of adequate security in the nation has discouraged investment in Mexico and driven many business people out of the country and into the United States-- something Brownsville is seeing firsthand.

Removing obstacles to economic development in Mexico will benefit the United States as well, Rhi-Perez said. He thinks Pena Nieto will be more mindful of the myriad forces that foster economic growth than was his predecessor. A stable financial system -- which Mexico has -- is essential but not enough by itself.

"The point is you have to balance all the factors," Rhi-Perez said. "That's what happened in the Calderon government. Some areas were highly developed and other areas were not."

Auto manufacturing is another opportunity for strategic partnership, he said. The fact that more U.S. companies are pulling manufacturing operations out of China due to increasing costs and moving them to Mexico is a good thing for the United States in the long run, Rhi-Perez said, adding that it could also be good for the Valley as well -- if a few other things fall into place.

The development of advanced manufacturing technology has suffered in the United Statessince domestic manufacturers began moving plants overseas. The upshot is that most of the innovation and implementation of manufacturing technology that was originally developed in the United States now occurs in nations like China and Mexico.

"We don't control the technology anymore because we don't have the manufacturing operations located in the United States," Rhi-Perez said.

The good news is that moving manufacturing to Mexico means more opportunities under the North American Free Trade Agreement umbrella for strategic partnerships that could again spur innovation in the United States. This year the President's Economic Council identified restoration of U.S. innovation in manufacturing technology as vital to the nation's economic security.

"In order to accelerate this aspect, there has to be strategic alliances between the manufacturing technology and the innovation technology," Rhi-Perez said.

The movement of manufacturing from China to Mexico means industrial parks south of the border are booming. In Matamoros, the Mexican government has authorized creation of a federal innovation center for scientists and specialists in advanced manufacturing, Rhi-Perez said, adding that the same thing should be happening in the Valley. Government research centers here supporting the oil and aerospace industries could do for Brownsville what the federal superconductor lab in Austin did for that city, he said.

"We need to have federal laboratories here, U.S. government labs," Rhi-Perez said. "We're going to have the offshore business, so we need to have a lab that helps us integrate the processes that are needed to bring the oil to land and transform it into gasoline, plastic, et cetera. All of these require innovation technology by labs that need to be coming down here. We don't have that."

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