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Boots on the Border:  Good for the Border

Earlier this month, Senators Jeff Flake and John McCain of Arizona, along with Senator Ron Johnson, Chairman of the Senate Homeland Security and Governmental Affairs Committee, introduced the Boots on the Border Act.  This legislation is designed to remove the onerous, and at times duplicative, polygraph testing that is currently imposed on applicants that are veterans, military service members and members of other law enforcement entities that are applying for positions with US Customs and Border Protection (CBP).

CBP has not been able to fill 1,100 positions that were funded in the 2014 budget because the overly burdensome polygraph process is eliminating many veterans and current military personnel that are considering a career protecting our nation and our borders.  CBP is reporting that the Tucson sector alone has over 21% of its fulltime positions unfilled.  This condition is perpetuated by the extremely low ratio of job applicants to actual hires at CBP.

Arizona and its federal partners, CBP and the General Services Administration have invested over $400 million in port of entry infrastructure over the last 8 years but there is simply not enough staff to open-up every lane that is available.  Port Directors have to play a constant game of taking from one to open up another in order to minimize the impacts to our ports of entry and to our border communities.  Officers are forced to work extensive amounts of overtime and at times max out and cannot work anymore overtime.  CBP needs to have the necessary staff to ensure the security of our nation along with facilitating trade and tourism that are critical to the Arizona and national economy.

Arizona’s border communities report that at least 70% of the sales tax generated in each community is directly attributable to the Mexican visitor and shopper.  But if visitors have long delays to cross the border then they simply will not come to our stores and our restaurants.  Additionally, Arizona’s trade relationship with Mexico totals over $15 billion in imports and exports and without efficient ports of entry we cannot maximize the opportunities that exist for Arizona companies.

CBP has made great efforts to streamline the recruiting process but they still have a long way to go.  The Boots on the Border Act offers a new tool and a tremendous opportunity for Customs and Border Protection to recruit and hire some of the most qualified individuals our nation has to offer.  We urge the entire Arizona Congressional delegation to support this legislation.

Signed
The Honorable Gerardo Sanchez, Mayor, City of San Luis
The Honorable Doug Nicholls, Mayor, City of Yuma
The Honorable John Doyle, Mayor, City of Nogales
The Honorable Robert Uribe, Mayor, City of Douglas
John S. Halikowski, Chairman, Transportation and Trade Corridor Alliance
Jessica Pacheco, President, Arizona-Mexico Commission
Guillermo Valencia, Chairman, Greater Nogales Santa Cruz County Port Authority
The Honorable Matias Rosales, Chairman, Greater Yuma Port Authority
Carlos Fernandez, Chairman, Douglas International Port Authority
Patrick Scherden, Chairman, Douglas Regional Economic Development Corporation
Gonzalo Avila, Chairman, Fresh Produce Association of the Americas

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For Immediate Release: February 13, 2016
Media contact: Ruth Soberanes
rsoberanes@az.gov -or- 602-542-1287

PHOENIX – Governor Doug Ducey today announced the appointment of Jessica Pacheco as president of the Board of Directors of the Arizona-Mexico Commission (AMC).

Jessica currently is the Vice President of State and Local Affairs at Arizona Public Service.

“I am pleased to appoint Jessica as president of the Arizona-Mexico Commission,” said Governor Ducey. “The vision and professionalism that she brings to her new leadership position will be invaluable assets for our state as we continue to forge stronger economic and diplomatic ties with our largest international trading partner and neighbor to the south.”

She joined APS in 1997 and has held various roles spanning from corporate economic development to customer care in the call center. In addition, she previously served as Senior Vice President for Public Affairs at the Arizona Chamber of Commerce, where she was responsible for general advocacy for the Arizona business community. Jessica has worked extensively in economic and community development arenas throughout Arizona, the southwestern United States and northern Mexico.

“Jessica has shown exemplary leadership since joining our board of directors in 2014,” said Marcos Garay, AMC Executive Director. “She is a respected leader in our community and will continue to play an important role in developing collaboration between Arizona and Mexico. The Arizona-Mexico Commission is very fortunate to have her as president.”

Jessica holds a Bachelor of Arts from the University of Arizona and recently completed the Executive Education Program at Stanford University Graduate School of Business. She lives in Phoenix and is fluent in Spanish and Portuguese.

“I am honored to serve the governor as AMC President.  The importance of Arizona’s relationship with Mexico cannot be underscored enough.  I look forward to working with the AMC team and our friends in Mexico to enhance our partnership,” said Jessica Pacheco.

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Mexico´s Investment Climate: The Least of Emerging Troubles
By Speyside Corporate Relations on January 25, 2016

From the vantage point of the developed world, Mexico is often seen as a Wild Wild West with beautiful beaches. Most people miss the burgeoning and diversified economy that it has become, attractive to foreign investment, with increased FDI and low inflation rates.

Mexico now hosts a large number of companies in the aerospace sector – Boeing, Bombardier, Safran Group–, medical device producers in the Cali-Baja biotech hub, and automotive manufacturers in the Bajio region. In 2015, Mexico grew 2.6%, and is expected to match that in 2016.

Inflation rates reached their lowest value on record in December 2015 at 2.13%. Although corruption and water scarcity pose threats to Mexico´s economic recovery, the country´s openness to international trade, decreased levels of violence, and the introduction of reforms across numerous sectors enable Mexico to stand out amongst other emerging Latin American economies as an investment destination.

A Decrease in Drug-Related Violence
Despite the jarring headlines of recently-elected mayors and investigative journalists murdered in broad daylight, there is a notable decrease in violence related to illicit-drug trafficking. The year 2015 saw the second lowest recorded number of drug-related homicides in Mexico since 2007. Cases of kidnapping and extortion have also decreased considerably. Eduardo Guerrero Gutierrez, a prominent security expert in Mexico, contends that drug cartels’ less aggressive territorial expansion tactics, along with the relocation of their operations to rural areas of the country, have contributed to this decrease in violence. It must be noted that crime-related violence is still a problem, despite the decrease in crimes, gangs have plagued areas in the countryside, especially in Morelos and Guerrero.

The Introduction of Structural Reforms to Enhance Global Competitiveness and Attract Foreign Investment

Mexico currently ranks 38th out of 189 countries on the World Bank’s Doing Business index, and since assuming office in 2012, President Enrique Peña Nieto has undertaken major reforms in a variety of industrial sectors designed to improve competitiveness and economic growth. These reforms, which apply to such sectors as energy, education and telecommunications, are expected to increase Mexico´s GDP by 1% per year over the next decade. Among the most important of these reforms are the reductions to barriers in starting a new business, first implemented between 2013 and 2014. During this time, the Mexican government successfully established an electronic platform to reduce the time required to register new businesses, removed the minimum capital requirement for limited liability companies, removed a requirement to register with the statistical office, and amended its insolvency proceedings law, improving access to credit. Collectively, these measures triggered a 5% increase in the total number of new firms registered between 2013 and 2014. In the medium term, these reforms are expected to attract foreign investment, and boost productivity and job creation.

Sound macroeconomics unlike its LatAm neighbors

Despite the overall decline in Latin America’s economic growth in 2015 compared to 2014, Mexico has managed to avoid some of the more severe pitfalls of its fellow Latin American countries, and continue to position itself as a viable investment destination. Much of Latin America’s decline in growth was due to a fall in commodity prices (particularly oil), currency depreciation, and consumer price inflation. Despite being negatively affected by low oil prices and decreased oil production, Mexico managed to marginally increase its growth by about 2.5% in 2015, due largely to increased exports to the United States, the recovery in domestic consumption and private investment.

Other notable data points to a healthy economy that is staying afloat despite the beating emerging economies are taking across the board. Mexican inflation is the lowest on record and the lowest in the region–at 2.13% in December–as compared to Brazil (10.67%), Colombia (6.77%), Peru (4.40%), and Chile (4.40%). Additionally, the peso has actually depreciated less against the dollar than other Latin American currencies over the same period. A comparison of the depreciation against the dollar of the Euro, the Mexican peso, the Chilean peso, the Colombian peso and the Brazilian real from July 2015 – January 2016 shows the Mexican peso as depreciating around 18% over the seven-month period. By contrast, the Brazilian real and the Colombian peso depreciated over 30% each over the same period.

Potential Boon for Pharma Companies

Over the past three years, Mexico has sped up drug approvals and improved its regulatory framework. Both of these actions make it a potentially attractive destination for foreign direct investment in the pharmaceutical sector, especially for the United States. As a clinical trial destination, Mexico boasts low costs and an approval time of 3-4 months, compared with Argentina, where approval can take up to six months, and Brazil, where approval can take up to a year.

Furthermore, Mexico and the Pacific Alliance countries are in the process of negotiating regulatory coordination, meaning regulatory approval in Mexico, the strictest and most similar to FDA, leads to semi-automatic approval in the other three. Mexico’s desirability as a clinical trial destination, coupled with its robust and speedy regulatory approval process will likely make it a preferred first market for new pharmaceutical products and for pharma companies new to Latin America.

Energy and Electricity Reforms

Although most are focused on the groundbreaking opening of oil & gas exploration, part and parcel of the Mexican Energy reform is the liberalization of the electricity market. The stated goal is to improve efficiency, encourage cleaner energy sources, and lower the cost of electricity for the end user. According to SENER, 85% of the electricity matrix in Mexico is dominated by fossil fuels; Mexico has by far the highest electric transmission loss in the OECD; and the Federal Electricity Commission charges the average Mexican end-user as much as 25% higher than in the United States.

Although it has progressed in parallel with the changes in oil & gas exploration regulation, electricity reform attracts less attention and is not nearly as controversial, and therefore, has been able to advance with little opposition and in keeping with liberal tenets. If done well it could be a stronger driver of economic growth than O&G reform and immediately increase productivity in Mexico’s price-sensitive manufacturing sector.

Education Sector Reforms

Unlocking Mexico´s potential and lifting productivity ties directly to growing its skilled workforce, which will result from improved education policy. In the World Economic Forum’s latest Global Competitiveness Report, Mexico ranked 85th out of 144 countries in quality of primary education, lagging behind poorer countries like Cameroon, Suriname and Zimbabwe.
In 2012, President Peña Nieto introduced a reform to increase the quality and relevance of education, that centers around a test-based hiring and promotion system to break teacher unions´ control, which is widely blamed for the poor performance of the Mexican schooling system. The reform, approved by Senate majority in 2013, also includes measures to stop the sale and inheritance of teaching positions, a longstanding practice within Mexico’s education system. If successful, this education reform will help develop Mexico’s human capital and increase its skilled workforce, facilitating access to more profitable, specialized industries.

Threats to Mexico´s Investment Climate:

Water Scarcity

Despite being a semi-arid country, Mexico boasts diverse natural resources that include large bodies of fresh water, and regions prone to extensive rainfall. Unfortunately, Mexico’s available water suffers from scarcity and a skewed geographic distribution. Across the country, close to 5 million Mexicans lack access to potable water. In Mexico City, 70% of the population has fewer than 12 hours of running water per day, with 18% of the population in the most affected parts of the city having to wait several days for just a couple of hours of available supply. Unfortunately, Mexico’s most water-scarce regions in its northern and central plateaus also happen to be its most populated regions, and the location for the majority of its manufacturing and production. These factors combined with poor infrastructure and pollution threaten water availability. Population growth and climate change also threaten availability of water resources in Mexico, potentially jeopardizing expected growth in Mexico’s manufacturing and technology sectors.

Corruption

Widespread corruption poses another potential threat to Mexico´s investment prospects. In 2014, Mexico ranked 95 out of 175 countries on Transparency International´s (TI) Corruption Perceptions Index. According to TI, Mexico’s level of corruption ties with that of Niger, one of the poorest countries in the world, and is below countries like El Salvador, Swaziland and Botswana.

Corruption is a considerable risk for companies looking to invest in Mexico because it hurts the efficacy of contracts and the security of property rights. Moreover, collusion between the government and criminal groups leads to impunity and a weak enforcement of the law. Such collusion hinders the growth of existing companies, and prevents foreign companies from participating in Mexican markets.

Outlook for 2016

As Mexico continues its current pattern of government deregulation and participation in free trade, we can hope for increased investment in the pharmaceutical and energy sectors, rapid growth and increased stability in the electrical sector, and continued education reforms. At Speyside Corporate Relations, our Mexico City-based team maintains extensive expertise in these growing sectors, and a thorough understanding of challenges to investment in Mexico, enabling us to provide our clients a comprehensive approach to managing their business interests in Mexico.

 

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The Arizona-Mexico Commission was featured in an AZ Week report by Arizona Public Media.  The report entitled “Global Economy Right at Home” highlights the AMC and the 2012 Summer Plenary Session.  The entire story can be found here.

The Arizona-Mexico Commission’s Emergency Management Committee was featured in a Tucson, AZ news report.  The committee meeting took place at the 2012 AMC Summer Plenary Session.