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Viva Mexico

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As Australia’s largest trading partner, just ahead of Brazil according to Austrade’s 2010 figures, Mexico is a land of opportunity for Australian exporters. In addition its market for energy, a strong mining industry and government-backed infrastructure projects, manufacturing costs in Mexico are lower than in Brazil, China or India. Australia is also regarded as a growth market for Mexican exports and a source of investment into developing enterprises. This potential has been recognised by both countries’ governments through a series of memoranda of understanding agreed over the last decade. These cover agriculture, mining, education and training and energy as well as health cooperation and formalising of political consultations. In 2006 Australia and Mexico initiated a process aimed to strengthen trade and investment between the two countries, which included the mooting of a free trade agreement and a jointly hosted Joint Trade and Investment Commission in Mexico City in April 2010.

Established exporters

In the last 10 years bilateral trade between Australia and Mexico has increased by almost 200 percent and Australian export in trade and services is now valued at approximately $803 million. Coal is the most significant export, having more than tripled since 2007 and accounting for over half of the total value of exports. "Beyond coal there are important opportunities in the energy sector," says Radek Divis, Austrade's trade commissioner in Mexico. "One of those is in engineering and consultancy services. Another area of opportunity is in the sale of mining equipment, technology and services." Other Australian exports include primary industry exports such as live animals, meat, dairy, wool, leather and wine; building products, IT and electronic technology; professional and financial services and tourism. In spite of its dependence on the United States as its major trade partner, which meant the Mexican economy took a king hit with the global economic crisis, in 2010 the banking system remained strongly captalised at around 15-16 percent and infrastructure investment reached a historic maximum, providing a positive environment for continued growth for exports in these areas. "There’s major investment going on in improving infrastructure in roads, airports and ports," Divis reports.

Existing exporters

The Mexican government has pursued an agenda of modernising the energy sector since 2000, with large budgets assigned to the three leading federal agencies for traditional energy sources. Mexico has also aligned itself with environmentally focused initiatives and is a potential market for liquified natural gas, while the oil industry continues to generate demand for related equipment and technology. Similarly, the long established mining industry (silver, bismuth, lead, tin and copper) is well regulated, attracting investment and direct participation from entrepreneurial Australian companies as well as technolgy and service providers. Mexico is Australia’s fifth largest market for education and training, with increased demand for training to increase productivity and skills across the major energy, mining, agriculture and food processing sectors anticipated as a flow-on effect from current governmental reforms intended to boost the economy. "Mexico is looking to increase its proportion of liquified natural gas in its supply and in its energy mix. In the next few years I think there will be opportunities for Australian suppliers of LNG exports and the whole area of clean or alternative energies which is also expected to increase as part of Mexico’s energy production," Divis predicts.

He says Mexico has voluntarily taken on a number of Kyoto Protocol programs and targets in reducing emissions. "It also has a reforestation program and is moving to incorporate clean and alternative energy sources including wind power and water power." To promote a knowledge interchange with Australia, Austrade has helped organise exchanges of Mexican researchers and academics with Australian institutions. "We also conducted a clean energy and environment seminar here in 2009, inviting a number of Australian companies to participate, and we’re looking at doing something later this year to highlight Australian technologies in water management. Mexico has a number of tax incentives for companies that invest in the clean energy sector."

New exporters

Since signing to the North American Free Trade Agreement in 1994 and the Nation Action Party (PAN) coming to power in 2000 with an agenda of pursuing macroeconomic goals, Mexico’s economy is now ranked 14th in the world by the International Monetary Fund. It has the second largest GDP in Latin America after Brazil and 12 FTAs with 44 countries (and others under negotiation), with low labour costs and access to US markets attracting overseas companies and investors. The leading growth sectors today are aviation, automotive supplies, electronic components, energy, water and waste management, construction, including housing and franchising. "I think Mexico is an attractive export and investment destination for quite a few reasons, one is that it’s an economically stable country and there’s a legal framework that provides security protection for investment and beyond that we have the bilateral investment protection and promotion agreement which further stabililses opportunites for investment," Divis says. "Mexico also has a very skilled and competitive labour force and it’s strategically located in the Americas. Australian companies looking to Mexico for export can benefit from really good access to the North American and Latin American markets through Mexico’s extensive network of free trade agreements. It’s one of the most open economies in the world and its FTAs or regional trading agreements between them give the country free trade access to about 50 other countries."

Barriers

Mexico is a price sensitive and conservative market. Until the FTA under negotiation with Mexico is formally agreed Australia remains at a disadvantage with competitors in many market sectors. Divis says that Austrade is working with the Mexican authorities to reduce tariffs on certain products. Importers’ liquidity is also an issue; payment risks are high and the possibility of non-payment needs to be factored into exporting arrangements. A further logistical consideration is that transport regulations and road weight restrictions vary in different areas of the country. Businesses and personnel on the ground should be aware that in spite of a governmental military campaign to fight drug trafficking and related violence both have continued to increase over the last decade, with gangs seeking to influence commerce and politics. Divis recommends that companies looking to export to the Mexican market take advantage of Austrade’s access to a wide range of services including market intelligence and what the challenges and the opportunities are. "In Mexico face to face contact is very important in order to build relationships. It’s not possible here to always rely on email to do business," he warns. A newly established Mexican chamber of commerce, the Australian New Zealand Mexico Business Organisation, is another resource for businesses engaging in bilateral trade.

The future

Overseas trade activities are stimulating competition, with private sector enterprises blooming, while economic governance and transparency are improving, fostering a positive environment for investment, partnerships and export generally. The prospective FTA with Mexico will allow Australian businesses to take advantage of NAFTA terms, adding to existing Australia-US Free Trade Agreement options, and Mexico’s well developed access to North American markets. Exporters should position themselves to enjoy these opportunities.

Case study

Cool nrg

In 2009 Australia’s cool nrg, a small Victoria-based company that designs and delivers emission reduction solutions, collaborated with the Mexican government to implement the world’s first registered program under the United Nations’ Clean Development Mechanism. The program, called Luz Verde, or Green Light, involved the free exchange of 1 million compact fluorescent light globes for incandescent ones to low income homes in Puebla, southern Mexico. The projected reduction to emissions over the next 10 years is 242,838 tonnes of carbon dioxide, saving about 20MW of peak demand electricity. To fund, deliver and publicise the program cool nrg brokered strategic partnerships with Eneco Energy, Trade BV, Philips Lighting, ING and Mexico’s Coppel, Comex, Fundacion Televisa and the Consejo de la Communicacion. Funding was achieved through a mix of debt, equity, grant money and an innovative Emissions Reduction Purchase Agreement. The Mexican government is continuing the program on a national basis.

MEXICO PROFILE

Capital Mexico City Government Republic Language Spanish Currency Mexican peso (MXN) Tipping custom Waiters around 10%, porters 50 to $1 per bag. Taxi drivers don’t require a tip. Visas Australian residents do not need a visa. Religion Roman Catholic Seasons Summer: Apr - May in the South, Jul - Sep on the Pacific Coast and May - September in the Yucatan. Winter: December, January, February. The Yucatan can remain hot even in the coolest months. Source: FCm (www.au.fcm.travel)

RISK PROFILE

Country rating A4 Business climate rating A4 GDP 2011 (f) 1,093,700 (US$ million) Foreign debt (% GDP) 2011 (f) 19.9 One strength A manufacturing power notably capitalising on its membership in the North American Free Trade Area (NAFTA) One weakness Excessive concentration of exports to the United States and competitiveness problems in relation to China Source: Coface

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