If the U.S. economy sneezes this year, will Mexico catch a cold?
Orange County companies doing business on the ground in Mexico say they aren’t overly worried about a slowdown in the U.S. economy spilling southward.
Even if Mexico slows in the near term, local executives say they have confidence in the long-term prospects of U.S.-Mexico bilateral trade, a pro-business Mexican president in Vicente Fox and a pro-Mexico U.S. president in George W. Bush.
Officials at Aliso Viejo-based engineering company Fluor Corp. say they expect continued growth in the business of building power plants in Mexico,in part because of California’s energy woes.
“We’re expecting more construction activity of plants along the border as more companies move in to take advantage of the NAFTA rules,” said Mark Stevens, a senior executive of marketing and strategy at Fluor.
Fluor has a joint venture in Mexico,Mexico City-based ICA Fluor Daniel. The company handles contracts with Mexican and U.S. clients.
Aside from its work in the power sector, Fluor has put in 3,500 miles of cable in Mexico for WorldCom Inc. And the company just completed a $750 million contract building a nitrogen production plant in southern Mexico. Fluor bought a $30 million equity investment in the plant.
Mexico accounts for about 5% of Fluor’s annual revenue, according to Stevens.
Beckman Coulter Inc., a Fullerton maker of medical diagnostic products, saw its Mexico sales grow 19% last year over 1999. The company has the biggest market share in Mexico for all its product lines being sold there, according to Jorge Gonzalez, director of Beckman Coulter’s Latin American field operations.
“NAFTA has been very, very good for us,” said Gonzalez, who believes Mexico is benefiting strongly from the trade pact, “more so than the U.S. or Canada,” he said.
Beckman has a long history in Mexico,its wholly owned subsidiary, Mexico City-based Beckman Coulter de Mexico, is celebrating its 35th anniversary this year.
Gonzalez forecasts “aggressive growth” for Beckman in Mexico.
“Healthcare is a priority for Fox,” he said.
Gonzalez said he believes nothing short of an economic crash in Mexico will dent Beckman’s product sales there, due to the inelastic nature of demand for healthcare services and products.
“If your salary falls, you won’t buy a car,” he said. “But you’ll still buy healthcare products and go see the doctor.”
After decades of one-party rule, Fluor’s Stevens was upbeat about what a new administration would bring to Mexico.
“Fox will create a business environment that will be very positive,” he said.
Jim Peterson, chief executive of Santa Ana-based chip maker Microsemi Corp., said he expected Fox’s presidency to boost Mexico’s economy.
“I think we’ll see over the next four or five years and beyond some positive influences,” he said. “Fox is a great supporter of NAFTA,he’s done the research. The moves he’s making have been well thought-out.”
Beckman’s Gonzalez said that Fox’s policies could help fuel “tremendous” economic growth in Mexico.
“Fox thinks as a commercial operations manager does,” said Gonzalez. The Mexican president at one time headed Coca-Cola Co.’s Mexico operations.
Fox’s election win last year caused sales of Beckman’s products to fall briefly, Gonzalez said.
“People in Mexico’s healthcare sector grew nervous,” he said. “They didn’t know how Fox was going to change the country’s healthcare reimbursement rates.”
After Fox was installed as president in December, sales went back up as people relaxed, he said.
Madeline Grant, an export manager with Lake Forest-based cosmetics maker Pacific World Corp., also saw an initial phase of business hesitancy in Mexico following Fox’s swearing-in ceremony. “But we’re seeing more consumer excitement there now,” she said.
Anil Puri, dean of the College of Business and Economics at California State University, Fullerton, echoed the sentiments of OC company officials.
“Fox has embarked on a very potentially productive economic policy for Mexico,” he said.
Still, Mexico is starting to feel the negative effects of the American economic slowdown,no wonder, considering the U.S. accounts for about 80% of Mexico’s total trade. Analysts are forecasting gross domestic product growth for Mexico at 4% this year, down from 7% last year.
“The U.S. economic slowdown means we can’t buy as much from Mexico, which means their economy is going to slow down as well,there’s a chain reaction effect,” said Esmael Adibi, director of Chapman University’s Center for Economic Research in Orange. “They, in turn, won’t be able to buy as much from us.”
Adibi expects the slowdown to temper Orange County’s trade growth with Mexico: “We think that exports from OC to Mexico won’t grow as fast as they did in 1999,” he said.
Cal State Fullerton’s Puri also said he expects Mexico’s increased oil production against a backdrop of Organization of Petroleum Exporting Country output cuts to help offset slowdowns in both the U.S. and Mexican economies.
“Many of the impacts of the OPEC reduction will be negated by Mexico’s increased production,” Puri said.
One local company official, who asked to remain unnamed, forecasted a devaluation in the Mexico peso this year. Such a devaluation, if it happened, could boost trade by making Mexican goods and services, including labor, more competitively priced relative to the dollar and other major foreign currencies.
Beckman’s Jorge Gonzalez also expressed optimism regarding U.S. President George Bush’s policies toward Mexico.
“Bush knows Mexico and knows Mexicans,” said Gonzalez, who expects Bush to focus more on Latin America than “any other president” in U.S. history.
Fox and Bush “think alike,” he said.
Bush is scheduled to meet with Fox in Los Pinos,Mexico’s equivalent of Camp David,later this month in what will be Bush’s first-ever foreign sojourn as president. n
