Mexico will invest MX$8 billion (US$785 million) on expansion and improvements of the Port of Veracruz, according to a Bloomberg report today.  The government will commence accepting bids for the project in 2009.  The project includes the building of two container terminals that should open in 2010.  Veracruz is located on the eastern coast of Mexico on the Gulf of Mexico.

Businesses engaged in the sale or assignment of loans or other extensions of credit in Mexico, whether through securitization or otherwise, may wish to read a nice article published in the July 31, 2008 issue of Latin American Law & Business Report by my colleagues John E. Rogers and Leonora Olmedo Beltran.

The article discusses the February 2008 amendments to the Law Regulating Credit Information Companies (Ley Para Regular las Sociedades de Informacion Crediticia), which mandate that any financial institution or other lender that sells or assigns to any other person loans or receivables that were previously reported to any Credit Information Comapany (Sociedad de Informacion Crediticia – CIC) inform the CIC thereof within 20 business days after the relevant customer of the financial institution or other lender is required to be so notified under applicable law.  The article suggests that the failure of the seller or assignor and buyer or assignee to contractually agree regarding which party will assume the reporting and other obligations set forth in the amendments could lead to unintended consequences.

Arturo Sarukhan, Mexico’s Ambassador to the United States, will give the keynote speech at a half-day seminar to be held on September 10, 2008 in Washington, DC on “New Legal Developments of Doing Business in Mexico”.  The seminar is hosted by the District of Columbia Bar Association and those interested may register here.

In the photo, Ambassador Sarukhan is accompanied by his lovely wife, Mrs. Veronica Valencia de Sarkhan.

Mexican President Felipe Calderon and other high ranking federal, state, and local governmental officials are expected to hold a series of meetings over the next few weeks in an effort to deal with the wave of kidnappings and violence that has plagued the country during past several months, as reported today in La Reforma. 

Mexico’s growing kidnap epidemic, much of which appears to bear the fingerprints of the Mexican police, has become a major focus of the government since the tragic abduction and assasination last month of Fernando Marti, the 14-year-old son of Alejandro Marti, founder of sporting goods chain Grupo Marti, S.A.B. de C.V.  According to a Bloomberg report,

“Marti’s body was discovered in the truck of a car in southern Mexico City on Aug. 1, almost two months after the boy, his driver and bodyguard were stopped at a false police checkpoint.  The boy’s family paid a ransom to the kidnappers before he was found dead.”

The report said that policemen the main perpetrators of the crimes against Marti, his driver (who was tortured and killed) and bodyguard (who was tortured but survived).  Two police officers have been detained in connection with the case and others are under investigation.  The crimes against Marti are most recent in a spate of kidnappings and assasintations targeting medium- and high-profile Mexican citizens and foreigners:

• On August 7, 2008, Cenovio Argaez, a well-known fruit grower in the state of Tabasco, was found garroted with barbed wire in his car on after his family paid US$500,000 in ransom to his kidnappers, as reported by McClatchy.
• On July 30, 2008, six members of a family that had worked for Agricultural Minister Alberto Cardenas were stabbed and shot to death in a home in Jalisco, according to a Reuters report.  The report said that two girls, aged 7 and 8, and a 15-year-old boy were among the dead, all of whom were found shot in the back of the head and shrouded in blankets.
• On July 14, 2008, CNN reported that five South Koreans were kidnapped while driving in Reynosa, Tamaulipas, across the border from McAllen, Texas.  The kidnappers falsely identified themselves as police officers and demanded US$30,000 ransom.  The victims were later released unharmed.
• On October 13, 2007, EFE reported that Spanish businessman Jose Maria Sanchez, was kidnapped from a seaside restaurant in Baja California Sur.  He was found wandering along a highway outside Tijuana with his hands bound and his eyes blindfolded.  It is unknown whether ransom was paid.

This list is not exhaustive.  Mexico has been ranked No. 2 in the world for kidnaps after Colombia.  In 2007, 438 Mexicans were abducted, according to official Mexican government statistics.  However, many kidnaps are unreported by victims and their families in fear of reprisal. Although some kidnaps in Mexico may be drug-related, the kidnap-for-ransom model, and particularly kidnaps of children, appear to be on the rise, as evidenced by the recent crimes against Marti. 

In August 2008, the Mexico City government announced reforms to its police investigative unit, which include the restructuring of corrupt units, the establishment of an anti-kidnapping hotline, and the payment of cash rewards of up to MX$500,000 (approximately US$49,400) for people who provide information to police leading to the capture of kidnappers.  Those reforms are a step in the right direction, but Mexican governmental officials will need to undertake a comprehensive overhaul of federal, state, and local police forces and other public security forces to root out corruption.  The U.S., which has a strong interest in Mexico’s political and economic stability and growth, should offer to assist Mexico in managing these complex issues.

In the meantime, what can businesses with Mexican (and other foreign) operations do to protect their key personnel from kidnapping and crime?

• Obtain kidnap/ransom and extortion insurance policies for key personnel.  Chubb, AIG, Lloyds, and Cigna all provide such policies. 
  • Although sophisticated kidnappers will target victims who are likely to have kidnap/ransom insurance, executives would unlikely be better off without it.  Kidnap/ransom insurance policies usually cover most kidnapping-related expenses, including hostage negotiation fees, lost wages, and ransom, all up to certain agreed amounts. 
  • Good policies also provide country-by-country security risk reports and other important security-related services through third-party security consultants like The Ackerman Group, run by former CIA offical Mike Ackerman (disclosure: I worked for The Ackerman Group for a short period in 2000), Kroll Associates, Control Risks Group, or Pinkerton Burns.
• Provide bodyguards, armed vehicles, and defensive tactics training for key personnel.   
• Establish the locations of plants, offices, and key personnel residences in secure neighborhoods. 
• Arm plants, offices, and residences with adequate and functioning security equipment.
• Brief executives on country security risks and procedures before all travel on the basis of up-to-date risk analysis.
• Tell key personnel to keep a low-profile, be vigilant, use hired drivers when possible (avoid gypsy taxis at all costs), and refrain from walking dangerous streets (in Mexico City, that means most streets) at night.

“Policia” photo by Mike Malazarte.

Baja Mining Corp., (TSX: BAJ; OTCBB: BAJFF.PK), which owns a majority interest in a mining operation located in Santa Rosalia, Baja California Sur, called the “El Boleo Project”, announced that it would invest US$991 million in the project starting in 2009, when mining operations are expected to commence, according to a report in today’s El Economista. The report said that the El Boleo Project is funded by a consortium of investors, led by Korea Resource Corporation and including LS-Nikko Copper, Hyundai Hysco, SK Networks, and Iljin Copper Foil.  The property on which the mine is located is reported on Baja Mining Corp.’s website to contain polymetallic (copper, cobalt, zinc, manganese) deposits.

Empresas ICA, S.A.B. de C.V. (NYSE: ICA) announced that it won two construction contracts worth a total of approximately US$63.1 million, according to a Bloomberg report today.  The report said the contracts are to build a convention center in central Mexico and renovate a runway at Mexico City’s airport. 

Empresas ICA is Mexico’s largest construction company and a major competitor of Carlos Slim’s Carso Infraestructura y Construccion, S.A.B. (CICSA).  It is headed by Chief Executive Officer Jose Luis Guerrero, who holds a Ph.D. in Engineering from the University of Illinois at Urbana-Champaign.  Empresas ICA was founded by a group of Mexican engineers in 1947 as Mexico boomed after World War II.  Some analysts have said that Empresas ICA’s long and successful track record in Mexican infrastructure give it an advantage over its less experienced competitors.  Keep an eye out for ICA as the Mexican government issues bid awards for infrastructure projects as part of its 2007-2012 National Infrastructure Program.

William Armbruster and Bill Mongelluzzo recently wrote an interesting article in the Shipping Digest discussing how many businesses that have outsourced manufacturing operations to China are now transferring (or seriously considering transferring) those operations to the U.S. or Latin America, particularly Mexico.

In deciding whether to leave China, businesses are focusing on “total cost of ownership” of their China operations, which, according to the article, “include the costs of labor, raw materials, transportation, taxes, port congestion, intellectual property protection and import duties.”  The article suggested that the dramatic appreciation of the Chinese yuan in relation to the U.S. dollar over the last 3 years has substantially affected certain elements of the total cost of ownership.

The article continued:

“Higher transportation costs must be factored into the entire supply chain, from the sourcing of raw materials used in the manufacturing process, to the ocean and inland costs of transportation of the finished product as it moves from the factory to retail outlets. On that scale, Latin America, and especially Mexico, rank favorably.

Manufacturers of products that include petroleum, plastic or steel have made Mexico a popular location for new or expanded production because those raw materials can be sourced competitively in Mexico.

Although wages in Mexico are higher than in Asia, they are still much lower than in the United States. In addition, Mexico’s proximity to the U.S. market cuts down on transportation costs, especially for bulky products such as appliances. Central America and the northern rim of South America also enjoy a time advantage in comparison with Asia. The faster delivery time can be important for producers of fashion items and apparel that change with the seasons.”

In reviewing the total cost of ownership, businesses considering transfer of their manufacturing operations to Mexico or other Latin American countries should carefully analyze, among other factors:

• The ways, if any, in which the North American Free Trade Agreement (NAFTA), the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA), and other free trade regimes (including Free Trade Zones and maquiladora and similar programs) may reduce the total cost of ownership. Businesses contemplating a move to Mexico might also consider President Felipe Calderon’s National Infrastructure Program (NIP), a 5-year, US$141 billion initiative to improve Mexico’s infrastructure (including the planned Punta Colonet port facility near Ensenada), which may, in the long-run, help manufacturers reduce the shipping and port congestion costs of the total cost of ownership.
• The cost of security of their personnel and property.  Security-related businesses seem to be booming in in Latin America as kidnapping has become a greater threat in the region and drug traffickers have attempted to penetrate the legitimate export shipments of well-known companies with contraband, as I reported on August 8, 2008.
• Whether their Intellectual property can be adequately protected.  Although the strength of intellectual property laws and their enforcement is subject to considerable variation in Latin America, a 2007 International Chamber of Commerce survey ranked Mexico as the 16th most unfavorable jurisdiction in the world for intellectual property protection (China ranked as the 1st most unfavorable jurisdiction, Brazil ranked as the 4th, and the U.S. ranked as the 27th).

   

The Mexican Senate Tax Commission filed a petition today with the Ministry of the Economy (Secretaria de la Economia - ME) requesting that the ME comply with new laws requiring the implementation of electronic security measures to reduce the importation of contraband and pirated goods to Mexico, according to a report in today’s El Financiero.   

The report said that the petition reminded the ME that Mexico’s Congress approved reforms to the Foreign Trade Law (Ley de Comercio Exterior) so that non-tariff restrictions and regulations could be implemented and enforced through electronic means and that Article 4 of the Law requires federal governmental entities to share electronic data regarding contraband and pirated goods with the ME and the Ministry of Tax and Public Credit (Secretaria de Hacienda and Credito Publico).  Two years have elapsed since the reforms to the Foreign Trade Law became effective, according to the report, and the ME has to date failed to implement the electronic communication tools required to comply with the Law, which are essential to national security, protection of the environment, and health.

According to a Bloomberg report today, Empresas ICA, S.A.B. (NYSE: ICA) won a $148 million contract in June over Carlos Slim’s Carso Infraestructura y Construccion, S.A.B. to finish widening the 201-mile road from Mexico City to Tuxpan, a port city in the Veracruz state. The contract is part of President Felipe Calderon’s $250 billion plan to improve Mexican infrastructure, according to the report.

KIO Networks and Google, Inc. have announced the formation of an alliance in which they will collaborate to market and sell Google Apps, according to a report in today’s El Universal.  Kio Networks is a Mexican company founded in 2001 that operates data centers and related services in Mexico and other Latin American countries.

KIO will contribute its experience in technology and data center management and integration to the alliance. 

Google will contribute its Google Apps platform to the alliance.  Google Apps is a web-delivered software application and collaboration system that includes tools for word processing, spreadsheets and presentations, a shared calendaring system, and access to a flexible intranet system.  It is also the only application and collaboration system that guaranties information back-up through multiple data centers. 

Google Apps is known in the IT industry as a SaaS (Software as a Service), a software depoloyment model in which applications are hosted by a service provider and delivered to customers via the internet in exchange for a subscription fee.

Be prepared for the arrival of more SaaS programs from software vendors: the Google Apps platform appears to be the wave of the future.