Update On Economic Development In The Yucatan Fall 2002
It has been several years since I last wrote about the business climate in the Yucatan. Many changes have taken place in Mexico and the Yucatan since then. First, there was the historic election in which Vicente Fox of the PAN party won the presidency. Second, the PAN won the governorship in the State of Yucatan. Third, there have been NAFTA-type free trade agreements between the U. S. and a number of other countries in the Caribbean basin, which diminished the competitive advantage of Mexico. Finally, the recession that hit the United States has also impacted the Mexican economy.
I wanted to know how the new State Government was addressing economic development given the changes that had occurred over the past few years. Therefore, I obtained an interview with Bernardo Cisneros, the Undersecretary for Economic Development for the State of Yucatan. Here is what I learned.
There has been a change in philosophy concerning the approach to economic development. Bernardo explained that the thematic approach in the past centered around the idea that private companies would do well economically when the government did well. He says, "We now know that the government will do well when private companies prosper". This is a fundamental paradigm shift in thinking and one that in my opinion bodes well for the economic future of Yucatan. The point was stressed that the new government recognizes that private investors who place capital at risk are looking to the government for solutions and to be a facilitator.
While "talk is cheap", I did have occasion to test the veracity of claims of a new philosophy. A client had moved to a new factory and needed three new phone lines. Telmex, which has a monopoly on installation and local service, told the client that there were no additional phone lines available. For a cost to the client of the equivalent of about $50,000 USD, Telmex would install additional equipment that would provide sufficient capacity to bring in the additional lines. A call was made to the State Economic Development office and the following day Telmex called to assure the client that the new phone lines would be installed and working by the end of the week at no cost to the client. Indeed, this is concrete evidence of a new philosophy.
With respect to specific economic development plans, the major thrust is two-fold. The State has several projects that have been categorized as "strategic". These strategic projects relate to all sectors of the state. For example, the port facilities and the airport are undergoing renovation and expansion. The Merida airport is already the third largest airport in the country behind only Mexico City and Guadalajara.
Another set of development plans involve focused sectors, or industries, in the state. These plans reflect insightful thinking and recognition that government resources are limited and should be allocated where the biggest bang for the allocated resource can be obtained. Six sectors were identified as worthy of special attention due to natural competitive advantage in the region.
Textile and apparel:
Merida already has numerous apparel factories. The apparel industry is becoming more competitive as more trade is done with Asia where the cost of labor is about half what it is in Mexico. The Mexican apparel industry developed primarily as maquiladora operations. That is, U.S. and other foreign countries would ship raw material to Mexico where it would be assembled into a final product and shipped back. Now, however, the textile industry in the U.S. is on the brink of collapse. Therefore, it is becoming more difficult to obtain cloth from the U.S. Complicating the issue, most of the Asian apparel industry provides what is known as "full package" whereby the apparel manufacturer is responsible for obtaining the cloth. The textile industry is well-developed in Asia. Therefore, Mexican apparel manufacturers are at a competitive disadvantage. For this reason, the government is attempting to attract investment in textiles.
There is a medical school in Merida and the region is recognized as having the best medical care in the Southern part of Mexico. Some of the hospitals in Merida already have associations with U.S. hospitals. The strategy is to find possible alliances with U.S. and Canadian groups to take advantage of low cost of living in the Yucatan for retired citizens of those countries and to provide medical care that is approved by private or governmental insurers in the U.S. and Canada. There are current discussions with a Canadian group to implement this strategy. Another possibility is to promote a housing development that provides medical care and other services within the housing compound that are reimbursable by the U.S. or Canadian insurer. There is little doubt that more retirees would move to the Yucatan given the safety and low cost of living if U.S.-style medical treatment and facilities were available.
Due to the high cost of labor in the U.S., many types of manufacturing are migrating from the U.S. to low cost labor countries. Asia is not as competitive in this industry because there are often secrecy issues that should not be put at risk in Asia. PCC Airfoils has recently moved to Merida and plans ultimately to employ as many as 5,000 people.
The soil in the Yucatan reputedly has characteristics that enhance the flavor of fruits and vegetables. There are several research centers in Merida that specialize in agricultural research and have made advances in genetic improvements. Furthermore, there are some exotic fruits and vegetables that are indigenous to the region that have export potential.
The three-state area of the Yucatan Peninsula has many different types of exotic hardwood. Various types of bamboo are also native to the Yucatan. Indigenous artisans have worked with wood for centuries. Because of these natural resources, state officials have sought furniture manufacturers. Accordingly, a large and well-known furniture manufacturer may be relocating to the state in the near future.
Merida has four universities, one of which is a technology institute which produces a relatively large number of engineers and computer information system types. Some software companies from the U.S.A. have contracted with local companies to develop software with low cost labor. The state is actively pursuing other companies in the U.S.A. and Europe to set up this type of information maquiladora.
The government recognizes that in order to properly develop these six sectors it must also work at developing the supply chain supporting the industries. A good example is the aforementioned attempts at attracting the textile industry in order to support the apparel industry.
Another project which bodes well for the state is ferry service that will begin in November 2002 from Tampa. The ferry has capacity to take automobiles and freight as well as passengers. For more information, go to www.yucatanexpress.com.
The federal government is now providing financial assistance to companies that increase employment in the state through a program known as Marcha Hacia al Sur . The program will pay companies, new or previously existing, between 2,000 and 4,000 pesos per new employee contracted. There are no strings attached and several companies have already received funds.
The state has several programs of its own. Most of these programs pay the employer for training employees.
In conclusion, the new state government has a renewed dedication to economic development. Coupled with a professional approach and the state's natural advantages, I expect the Yucatan to have greater economic growth than the rest of Mexico in the coming years.
The reader can go direct to the Undersecretary at the State Economic Development office through email at: firstname.lastname@example.org.
Finally, do not hesitate to contact me (Gus Gordon) at (email@example.com).