News, Insights and Best Practices for Manufacturing in Mexico

Mexican energy still untapped

25 Feb 2014

Category: Manufacturing in Mexico, Politics & Regulations

Eugenio Madero is CEO of SANLUIS Rassini North America, a Mexico-based maker of suspension and break systems for the automotive industry. He is happy with the North American Free Trade Agreement (NAFTA). It has been very beneficial for manufacturing in Mexico. But he wants to see it expanded to include more integration of Mexican energy, according to Manufacturing.net.

Madero's company has seven plants in Mexico. Revenues have grown exponentially in the past 25 years to $11.5 billion pesos annually. When NAFTA came into effect in 1994, Manufacturing.net reported the company grew significantly.

Not only has Madero's company grown, but companies elsewhere have expanded tremendously, and many U.S. corporations have begun to see offshoring advantages since NAFTA. Investment there by U.S. parties has grown over 400 percent to $92 million, according to the source.

The three NAFTA countries (Canada, the U.S. and Mexico) met recently to showcase the advantages that businesses and industries have enjoyed from the agreement that was signed 20 years ago.

However, Madero said one item not on the list was energy.

Reforming Mexican energy
If Mexico reforms its energy sector, opening the oil industry to investors from foreign countries, then Mexico's oil supply could be tapped, and, in consequence, the three NAFTA countries could find themselves energy independent.

In the short term, the price for electricity could go down, which would make the cost for manufacturing in Mexico even more cost-effective than it is now.

Mexican President Enrique Peña Nieto has been pushing for energy reforms and recently signed a bill that would end the oil monopoly, according to Manufacturing.net. This could mean the future for Mexican oil and gas is bright.

Peña Nieto has also been working on Mexican education and tax reforms.

U.S. Commerce Secretary Penny Pritzker recently brought 17 companies to Mexico to do business there for the first time.

"Our goal right now is to help those companies figure out where their next opportunity is," she said. "They know the Mexican government wants them there."

Mexico sees its share of improvements
"[The bill to end the oil monopoly] will allow Mexico to generate more energy," Peña Nieto told CNN. "It will make it more efficient and that will increase the competitiveness of our country."

In recognition of this, Moody upgraded Mexico to an A-grade credit rating. Additionally, the oil reforms will add 2.5 million jobs by 2025, according to the Mexican government.

As a result of these changes, illegal immigration from Mexico to the U.S. has been in decline because of increased job opportunities in Mexico.

Some analysts are also saying that not only energy reform, but NAFTA itself is the root cause of these improvements.

"It's NAFTA that was implemented 20 years ago finally having the impact we were hoping for," said Christopher Wilson of the Wilson Institute to CNN. "It's the U.S. economy, which has downturned. It's increased border security. And all of these added up mean Mexico is not a sending country to the United States."

American companies can take advantage of these benefits for themselves by expanding to Mexico. The cost of labor is more efficient than in the U.S., and its proximity to the U.S. border, along with NAFTA's virtual elimination of tariffs, mean a company's supply chain and customer response time may improve dramatically.

 

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