Seizing the Initiative

In the aftermath of the coronavirus pandemic, the flaws of placing all of one’s eggs in one industrial basket have been put on display. As countries shut down, so to did their trading partners supply lines, causing global shortages and production shortfalls. Now, companies are desperate to diversify and future-proof their industrial bases, presenting us with a grand opportunity to improve the fortunes of our country. President Obrador is intent on seizing this opportunity to boost his administrations lackluster economic performance. The government will introduce these new measures to encourage the relocation of industrial operations to Mexico:

Streamlining Customs

Over 80% of Mexico’s imports cross the northern border, the process of which is currently sluggish and clumsy. In order to rectify this, the transportation authorities will utilize modern technology to digitize the customs and duties process for imports and exports, cutting down on the time and cost of moving goods around the country and across its borders. Furthermore, transportation safety and customs officials will work together in the same booths to increase the efficiency of clearing vehicles through land ports of entry. This will be complimented by lowering the threshold to be considered a ‘Certified Importer’, which affords less inspections, lower clearance times and express lanes for large companies deemed trustworthy. President Obrador has also pledged $350 million over the next 4 years to upgrade and expand Mexico’s highway networks between ports, major industrial centers and its borders, to ensure freight travels with relative ease throughout the country as the current road systems in many areas are unable to sustain heavy truck traffic without significant damage.

Bridging the Isthmus

Every administration has had a plan to develop the Tehuantepec isthmus, but we will be the first to turn this dream into a reality. Given current trends, demand will continue to outstrip the capacity of the Panama Canal even if it continues to expand. While we cannot build a canal, the 200km isthmus provides an opportunity for an interoceanic transport corridor to create a more efficient flow of goods for Mexican and international firms. The project will encompass a large highway, freight and passenger rail connection between the ports of Salina Cruz in Oaxaca and Coatzacoalcos in Veracruz, both of which will receive major expansions for the increased demand. Accompanying these developments will be a Special Tax Zone and 10 major industrial parks to spark industrialization and revitalize the flat economy and deeply impoverished communities in the region. $400 million will initially be set aside for the expansion and modernization of the ports, rail and road networks, including feeder and connecting infrastructure, however it is expected private investment will help cover much of the costs. A further $50 million will upgrade and expand the sanitation, electrical and telecommunication grids in the surrounding towns where it is expected people will flock to for the new work. In order to encourage private investment and industry to move to the region, the corporate tax rate will be decreased for companies operating in the industrial parks or adjacent municipalities. The VAT tax will also decrease by 50% to 8% for these same areas, stimulating economic activity.

Many of these new industrial zones will be centered in Oaxaca, so reform must occur to ensure business can be done efficiently in the state. Currently, there are 570 municipalities for a population that should only have 66. This is largely due to the high indigenous population and the proliferation of a system that allows them to govern using native traditions and practices. While maintaining their cultural heritage is important, it can be done in ways that do not hinder economic development for their communities. The number of municipalities will be reduced to 230 which will reduce the bureaucratic costs of doing business and distributing funding in the state, while also reducing the affects of insular isolated communities. People in these communities have very little will to leave, preventing the flow of ideas and human capital throughout the region. Furthermore, dispute resolution mechanisms previously organized by municipal authorities will be decided by state level authorities, as the differences in contract enforcement and decision making severely hampered the ability for investment in the state. Many locals have also indicated that lack of access to financial institutions is a major source of frustration for businesses, with many being forced to rely on small credit unions and predatory lenders. To remedy this, the Mexican government will offer low interest, small business loans to jumpstart the economy amid the hopeful influx of new workers, as well as encouraging banking institutions to open branches in the region.

The Yucatan

As part of Mexico’s slew of new infrastructure projects, last year President Obrador announced the beginning of construction on the Mayan Train – a $7.4 billion, 1,525-kilometer rail and road project traversing the Yucatan Peninsula with the goal of reinvigorating the infrastructure and economy of the underdeveloped southeast regions of the country. The route will better connect the tourist and urban regions of the peninsula, as well as opening routes to new tourist spots within the jungle and starting a new era of eco-tourism with 17 stations along the route. While the price tag is hefty, it is expected to create 100,000 jobs and the President has assured the public it will be an important step in economic recovery post-COVID. To reduce environmental damage, 90% of the transport routes will be laid through already cleared land to preserve the natural rainforest. Many advocacy and local groups have condemned the project as ‘devastating for the already fragile local ecosystem’, especially in relation to the jaguar, an already threatened species that would have its hunting grounds bisected by the project. In response, the administration has committed to building 12 biological corridors over the transport lines at a cost of $500,000 each, a small concession in comparison to the overall cost. Furthermore, this would bring the current highway up to environmental standards as it currently has no protections for wildlife effected by it.