In the autumn of 2016, film director Alfonso Cuarón began shooting his Academy Award-winning masterpiece Roma in Mexico City. The film would bring him his fourth Oscar win, along with a BAFTA for best film, and would add a modest gain to the estimated $600m all his movies have made in the box office, combined.
It would also consolidate Mexico as a source of groundbreaking talent in the industry, challenging conventional narratives of a country more commonly known for its alarming rates of crime, violence and poverty.
But even Cuarón was not exempt from his country’s dysfunction. One November morning, as his crew rolled their cameras on the streets of the leafy Tabacalera neighbourhood lined with Art Deco buildings, a local delegate turned up with a handful of police officers to disrupt the shoot. Caught on a video that went viral, the official accused them of "walking in here as if it is no man’s land" and demanded to see their permits.
Arguments quickly turned violent and the altercation, the production company said, resulted in five crew members being taken to hospital and a complaint against the police for assault and robbery. In the end, the local delegate (now a senator) issued an apology and the ordeal was put to rest.
Cuarón’s experience is one that illustrates the unexpected contrasts of Mexico. It is a country of 130 million people, rich in talent and with enormous potential. It is also a place where government and business culture often work against its own success.
There is no doubt that drug-related crime is a real problem, with some regions reporting homicide rates similar to those of a war zone. Corruption persists, with Mexico languishing in Transparency International’s perception index at 138 out of 180 countries.
Some 34 per cent of the population lives in poverty and salaries remain prohibitively low with the minimum wage currently paying 102.68 pesos (£4.10) per day. While it is true that millions of Mexicans have moved to the United States in search of better-paid opportunities, the current migratory flow from Mexico to the US sits at just below a net zero, as more Mexicans leave the US than enter.
What is less well-known is that Mexico is home to two out of Latin America’s top five universities, the National Autonomous University of Mexico (UNAM) and Monterrey Institute of Technology and Higher Education (ITESM). It’s where the largest bread-maker in the world, Bimbo, was born and is based. Same goes for the world’s third biggest cement producer Cemex.
According to a survey of 3,200 executives by consulting firm PricewaterhouseCoopers released in January, chief executive officers of companies across the world see Mexico as one of the top 10 countries to invest in this year. It is also the region’s second-largest economy after Brazil and, while some parts of the country remain dangerous, others have crime rates similar to those in Western Europe.
With a new, left-leaning federal government taking office last December, Mexico broke with political continuity and elected a new party that is guiding the country in a new direction. A shakeup was already in place, however. It started when US President Donald Trump launched his campaign in 2015 attacking the country directly and threatening to end Nafta, a trilateral trade agreement which has been in place for over 20 years entwining Mexico with its northern neighbour.
The Mexican peso took a hit when Trump won the election and, even though a new trade agreement has been negotiated and awaits congressional approval, there is a strong view that the ties that bind the two countries together have weakened.
Business as usual
On any given weekday, Mexico City’s business district feels like a busy whirlwind of traffic and swishing bicycles. You can hear fragments of passing conversations in different languages fading into each other. Street taco and coffee vendors rush to take orders from office workers in suits and heels.
The area is bisected by Paseo de La Reforma, a wide boulevard modelled after Paris’s Champs-Élysées that runs across the very heart of the city. In the spring, jacaranda trees cover both roads and sidewalks with falling bright pink and purple flowers, while monuments and statues to independence and an Aztec ruler dot the 15-kilometre long avenue.
Reforma, as it is colloquially known, was built in 1867 during the brief rule of Austrian emperor Maximilian I and is now home to most of the country’s tallest skyscrapers and where many of the world’s global companies and embassies are based. Right on Reforma, conveniently located just a few blocks away from the US embassy, are the offices of the American Chamber of Commerce of Mexico. Known as AmCham, the non-governmental lobby group has been around since 1917 and now has more than 1,400 member companies that profit from trade across the border.
For Ana López, vice president and director general of the group, the perception that the US has weakened its commercial ties with Mexico is far from the truth. "Mexico and US relations go far beyond the political moment," she says. The two countries share 3,000 kilometres of border that one million people cross legally every day, along with more than $1bn in products. Historically, investment from the US has represented over 50 per cent of foreign direct investment (FDI) and AmCham-member companies alone represent just over 20 per cent of FDI to Mexico today.
"This is because they know the true value of the Mexican market," explains López, who once worked with a former federal administration as part of the First Lady’s team. "They know their sectors well, they understand the benefits of our geographic location, the skilled labour, they know that Mexico has a network of 12 free trade agreements so they understand that it is an exporting platform with access to 46 countries.
"If you ask me ‘What needs to happen so that more companies keep investing, operating and competing in Mexico?’ Well, there needs to be a competitive business climate with clear rules. We need legal certainty."
New government, new rules?
Mexico has, along with many other countries in the world, begun to ride the wave of outrage and indignation that led to the landslide election of Andrés Manuel López Obrador, leader of a populist government on the left.
The previous six-year administration, led by Enrique Peña Nieto of the Partido Revolucionario Institucional (PRI), was one riddled with corruption and embezzlement scandals. Insecurity worsened with the recurrent discovery of mass graves and rising homicide rates reminding Mexicans of a failing war against organised crime. Taxes on the middle class increased and protests became a regular occurrence across the country.
Amlo, as he is locally known, is a career politician who had run for president twice before. His platform was clear: to rid Mexico of corruption and "neoliberalism" and serve "the poor first". He is also, undeniably, anti-business and opposed Peña Nieto’s historic opening of the energy sector, which remained closed to private companies for over 80 years.
"They have confiscated the institutions, they have kidnapped the government," López Obrador said of the private sector at a public business forum last year. "The government does not represent all Mexicans, it is at the service of this rapacious minority."
He vowed to take power away from business and to put it back in the hands of people, a promise that resonated with millions who suffer from staggering income inequality. In an exercise carried out by the London School of Economics in 2017, academics found that the four richest men in Mexico could hire up to three million workers paying a minimum wage and would suffer no significant detriment to their wealth. Data by the OECD also shows that Mexico has the third highest income inequality in the world.
In the months between the July election and taking office, the 65-year-old president-in-waiting walked the walk and announced he would cancel a $13bn new airport for Mexico City, which was close to 30 per cent finished, citing corruption and irregularities that benefitted a handful of businesses to the detriment of taxpayers. The project, designed by world-famous architect Norman Foster, was meant to be the landmark infrastructure project of the Peña Nieto administration.
The unexpected cancellation shook the business world. Global markets reacted aggressively with a rise in borrowing costs for Mexican debt and a tumble for the currency. It has been estimated that calling off the project will cost between 100bn and 120bn pesos in payments that will postdate Amlo’s six-year term.
More recently, in one of his daily morning press conferences, he named former government officials who, he claims, have conflicts of interest with large national and multinational energy companies, which signed contracts that were not "favourable to the state". He called on these companies to renegotiate the terms or risk cancellation. It’s hard to imagine that the president is bluffing.
Despite López Obrador’s economic ambitions to make the country more self-sufficient – to stop depending on imports or investment from the private sector – Mexico’s needs, from basic services like energy and telecommunications to consumer goods, must be met. This represents an opportunity for businesses willing to navigate the uncertainty created by the new administration.
"If companies find that doing business under these conditions is still profitable, they should come and invest," says Sergio Rivas, an independent consultant who has worked with foreign firms in search of business opportunities in Mexico for the last 20 years and who currently heads the International Energy Cluster of Mexico. "Pay little attention to the words used by our president to describe the private sector. What we have today is a very local focus and narrow-minded thinking."
There are opportunities for both local and foreign investors, he says, but it’s important to be clear about the risk – and that risk has definitely increased.
Foreign firms have a better chance of succeeding if they find a local partner that knows their sector and the communities where they will operate. It doesn’t matter if they are a dominant or minor player in their market, what matters is having someone that provides local insight but who has a global view of J business and is willing to adapt to work with people from outside Mexico.
"I recommend finding one that has a squeaky clean track record," he says. "The most severe type of due diligence is required."
For others, such as security analyst Christian Ehrlich, Mexico is a country that requires going further than a due diligence report; better to commission a ‘due intelligence’ report, an integral assessment that outlines where an investment will land safely and won’t be met with resistance from local authorities.
Mexico, points out Ehrlich, director of intelligence at management consulting firm Riskop, is a country, like others in Latin America, where informal power structures often have more influence than formal institutions. There are families and networks that control entire economic activities and sectors. Faced with innovative business models that disrupt their revenues, they can resort to violence and extortion.
Such groups usually find support in local authorities, whether they are at the municipal or state levels. The World Bank’s Enterprise Surveys show that unofficial payments for municipal permits are higher than in Latin America generally, with 35 per cent of companies surveyed having been offered the option of paying a bribe in exchange for a government contract; 50 per cent of them said corruption is a "serious" impediment to doing business.
"The truth is," said Ehrlich, "and I’m the first one to feel a bit of shame in admitting this, the country is currently facing a situation in which several things are coming together that make it a bad time for investors."
On one hand, the federal government is "decidedly inept" and has no sense of how to provide the certainty that businesses need. On the other, he says, rule of law is weak.
"I see the lack of rule of law as a growing problem that is endemic in Mexico and Latin America and goes back decades," he observes."
Carlos Dávila learned that the hard way. For four years, the 35-year-old architect worked long hours to make his small cinder block plant into a profitable business in the northern city of Monterrey, Nuevo León, located some three hours away from the US border with Texas. A few months ago, after failing to make enough to sustain the factory, he had to shut it down.
Business in Monterrey looks and feels quite different from that conducted inside the skyscrapers of Mexico City. An arid desert surrounded by mountains, summer temperatures get as high as 47 degrees. The metropolitan area, home to some 4.7 million people, is a combination of urban sprawls and large industrial parks.
Traffic is constant and there is no Reforma avenue lined with jacarandas. Instead, a large square adequately called La Macroplaza sits at the centre of the downtown area, one of the few common spaces where people come together on the weekends to listen to Banda music under the scorching sun.
Some of Mexico’s largest companies, such as concrete-maker Cemex, were born in Monterrey and the city identifies strongly as the industrial centre of the country. Nuevo León has the highest income per capita and economic growth is consistently over the national average, making Monterrey a type of alternative to the ‘American Dream’ for the poorest workers who don’t manage to settle in the United States.
But for aspiring business owners such as Dávila, the city comes with hurdles that are at times too high to jump. His biggest problem? Local authorities.
"The municipality would constantly show up, telling me I wasn’t complying with the ecological norms, which do not even exist," he says, as he drives his large SUV down the wide, American-style roads of the city. "They would threaten to shut down the factory and when I would try to argue my way out of it, they would ask for money."
Bribes could be as low as 2,000 pesos but would only allow him to continue operating on that day. The same people could show up on another day and demand new payment. If he failed to pay, he says, police would show up to cordon off the area. At times, any vehicle attempting to go near the factory would be fined, resulting in disinterested clients or suppliers.
"It’s just nasty extortion, just like you see in the movies," he says.
The gender dividend
Dávila says he faced problems with his workers too. Out of the 17 he employed on average to operate the block factory, only a handful of them were reliable and turnover was high. Most would often turn up intoxicated, late or simply failed to show up again.
"Mexico’s cheap labour comes hand-in-hand with irresponsibility," he argues. "I started hiring women for things that women don’t normally get hired to do in Mexico because the construction sector is seen as one where physical strength is required. And it really worked for me, they were much better workers than men. They are much more responsible. By the end, 50 per cent of my workers were female."
For all the promises that have been made about Mexico’s economic potential as an emerging market, much has also been made of its ‘demographic dividend’, the window in time when the share of the working-age population is larger than the non-working-age population.
To profit from this, Mexico has to raise the quality and level of education of young people entering the work force, says Silvia Giorguli, demographer, sociologist and president of Mexico’s most prestigious academic research institution El Colegio de México.
"We haven’t seen in Mexico the boom that we saw in South Korea because they invested in their education system," she explains. "In Mexico, we see a lag in the education system but I would like to believe that there is still a chance to do it, that this demographic window will extend to 2030."
Women, Giorguli adds, hold a slight advantage over men in terms of the level of the education they attain. Women continue to participate very little in the labour market, at only around 45 per cent. If more women are encouraged to join the workforce, this could bring additional economic advantages.
Dávila may have experienced multiple problems with his staff but, says Mónica Flores, CEO for Latin America at Manpower Group, the country’s strength has actually transferred from its natural resources to its people.
Flores, a Mexican based in Mexico City, points out that, unlike more advanced economies which face challenges in filling positions across many sectors, Mexico is one of the few countries left in the world that still has a potential demographic bonus – and that can be a boon for employers who are willing to train their staff.
Workers here, she says, should be recognised for the quality of their work and service, not just for their low wages. "Mexican service is known for its attention and warmth: we are recognised around the world for the quality of the service we bring to the hospitality industry," she says.
And it’s not just in restaurants and hotels that the service is good: nurses trained in Mexico are in high demand around the world and recognised for their treatment of patients.
"The biggest reason behind this is our culture, really," explains Flores. "If we could tackle this challenge of improving our education system, we would have competitive talent at the global level."
Clearly Mexico brings many challenges for businesses, not least of which are the high rates of crime and corruption and the uncertainties created by the new government but, Flores concludes, for the right businesses those challenges are not insurmountable.
"Do we have challenges as a country? Yes. Are we a perfect country? No," she says. "Businesses need to be well-informed but there is a window of opportunity for those who have innovative ideas, who are serious about doing business and who want to contribute to the economy."
Mexico's surprising economic power
-- Mexico recently opened up its energy sector to private companies for the first time since 1938.
-- It is home to two Fortune Global 500 companies: state-owned oil producer Pemex and telecommunications company América Movil.
-- One of the most attractive sectors is technology, with the western city of Guadalajara positioning itself as a tech hub cheaper than Silicon Valley but "closer to San Francisco than New York".
-- Mexican workers with the best reputations around the world include nurses and ship welders, according to Manpower Group.
-- More than 30 million Mexicans work in the informal sector – that’s 57 per cent of the economically active population – including construction work, small-scale manufacturing and street stalls.
-- Mexico City is home to one of the largest piracy markets in the world. It is estimated that the market is tended to by some 20,000 vendors.
Images copyright: Getty