A leading source for news and analysis about Mexico and the U.S.-Mexican border.
By David Gaddis Smith
Latin America is "the least bad of the areas of the world to invest," investment strategist Luis Maizel told the Institute of the Americas this month. "Is it time to invest in Latin America? The answer is definitely yes," he said.
The co-founder of San Diego-based LM Capital Management said tax codes are being adapted to make investing in Latin America more attractive, and noted that capital gains taxes do not exist in Mexico and that there is no double taxation.
The Harvard Business School graduate said that with interest rates so low, investors who want to get more return on their money should consider Latin America. He said foreign debt is under control in most Latin American countries, in large part due to rising commodity prices — "call it oil in Mexico, copper in Chile, bauxite in Jamaica ... grain in Argentina." He said that in Latin America, "You have a big ignored population" to be marketed to. "There is a growing internal market," he said. "There is a tremendous need for infrastructure and there is not enough liquidity or will by the people locally to invest."
Maizel, named by Latino Leaders Magazine as one of the 101 most influential Latinos in the United States and by Hispanic Business magazine as one of the 100 most influential, was born in Mexico. He was such a math whiz as a child that he was nicknamed "The Calculator." He moved to San Diego in 1984. His company manages more than $4 billion in assets, and he gave those who attended his talk at the University of California San Diego a concise, whirlwind tour of what is happening financially in the world and Latin America.
Although some have recently said that Chinese wages have risen to the Mexican level, and Maizel said their hourly rates are similar, he said China's "fully-loaded wages" are 40% of Mexico's. "Labor is cheaper, or I would say, more exploited in China than it is in Mexico," he said. But add in factors such as the proximity to the U.S. market, including lower transportation costs, and Mexico can be an excellent place to invest, Maizel said. "Definitely, Mexico is one of the better places to invest right now." He said aerospace and auto manufacturing and auto parts should do well this year.
Maizel acknowledged that there are a number of issues holding Latin America back, such as corruption, violence, lack of infrastructure and lack of long-range planning.
Corruption and property rights: He said that while corruption is a problem, it also is just as bad or worse a problem in China and Russia and other places where foreign investment still is taking place. Maizel also lamented the lack of rule of law on property rights in Latin America.
Violence in Mexico: Maizel said violence is overemphasized, but also said: "There is a major concern by companies that they have their people at risk and that something could happen there." He also said: "There have been some unfortunate casualties with tourism, but you can count them with one hand, probably." He added, "No matter how hard you try in terms of public relations, when you have the media of the other countries fighting you, you're going to lose that battle.... Now there was a State Department warning about 18 states in Mexico that are dangerous. And I think that if Detroit was a state in Mexico, it would be No. 1, it's more dangerous in Detroit than anywhere in Mexico." NeighborhoodScout.com says Detroit is the sixth-ranking U.S. city with a violent crime rate of 23.8 per 1,000 residents; it had 310 murders out of a population of 713,777, about 43 per 100,000 residents. Officials said there were 471 homicides in Tijuana in 2011, a rate of about 30 per 100,000. (Tijuana had 1,559,683 residents in the 2010 census). "Violence in Mexico is mostly fighting amongst the drug trades," Maizel said. Baja California prosecutor Rommel Moreno says 80% of Tijuana homicides last year had to do with drugs. Maizel said the best thing people who have confidence in Mexico can do is take friends across the border to have a good time.
Infrastructure: "Infrastructure doesn't show. It's very expensive, like the foundation in a building," he said. He included education in the infrastructure category, and said Latin America has a long way to go. "Most of Latin America is suffering from older infrastructure that is not being revitalized" to deal with future needs. Maizel said: "If you analyze how many airports, ports, roads, etc. have been built in Mexico in the last 25 years, the answer is almost none.... If you go to China, there is a major airport every 30 kilometers."
Maizel said Mexico's port facility expansion has not taken enough into account how highways and rail lines need to also be modernized. "You don't grow the railroads, you don't grow the roads, so it becomes a bottleneck. It has to be an integral growth," he said. He added that Hong Kong-based "Hutchison (Port Holdings) ... is trying to sell the concession (in Lázaro Cárdenas). They want to leave. And they think that that (an infrastructure deficit) is what's causing it. The profitability of the ... concession is not coming up to what they expected because they cannot move what they were supposed to move. If you see the (port) numbers for the U.S., they really have not dropped that much in spite of the increasing capacity of the Mexican ports, and they were supposed to take away a lot of the cargo from the U.S. and they have not been able to for lack of transportation and lack of the other things."
January article from Truth about Trade & Technology about efforts to improve the Mexican rail system.
Earlier this year, Hutchison got a Mexican court to put on hold Netherlands-based AP Moller Terminals' recently awarded 30-year concession to build a $900 million deepwater container terminal at Lázaro Cárdenas, saying it violated the terms of Hutchison's concession. Business News Americas story. Story from ThaiShipper.com. December 2010 press release on APMT concession.
Energy costs, clean-energy investment opportunities: In China, Maizel said, "The electric capacity, the power generation is ready for 2040. You have Brazil and Mexico starting to curtail their delivery of power because there is not enough for current needs.... And both countries are very expensive for electricity. It's very hard if you are a manufacturer of anything that needs a lot of electricity to go to a country where you know there is a shortage today. And there is not really anything major being done to solve that shortage." He also said, "The cost of producing electricity in Latin America is much higher than anywhere else and they are trying to find ways of lowering that to make manufacturing more competitive.... Solar is not that big yet, except for Brazil, that's starting; almost non-existent in Mexico and non-existent anywhere else in South America.... Wind and water are definitely in the radar." He said he thought clean energy would be open to investment in Mexico and Brazil.
Stock and bond investing: "If you like Mexican companies, and there are some extraordinarily well-run companies, like Bimbo, a great company, Telcel, the América Movil — the phone company that is now a global company — all of them have great ADRs (American depository receipts that allow them to trade on U.S. stock markets), and that's probably the easiest and cheapest way to buy them here. If you go on the Mexican exchange it is much more expensive." He said there are good private bonds to buy in Latin America for judicious investors.
Education in Mexico: "You have to start with the teachers. Unfortunately, the wages they pay the teachers are so low it is not a motivation to become a teacher.... Education is by far the biggest budget item in the government, and it's numbers more than quality.... As long as the driver is providing the education and not the quality of the education, it is going to be very hard to change that."
Mexican politics: LM Capital Management's fourth quarter 2011 newsletter said polls showed the Institutional Revolutionary Party would likely return to power in Mexico's July 1 presidential election: "They are better financed, have a very active national organized base and have won most state elections. PRI should bring bring stability to the country though the fight against organized crime would probably become a lesser priority with a possible negative backlash in the future."
In his talk, Maizel said: "Mexico came very close six years ago to electing a leftist, and maybe they did; they said they didn't.... And today the left in Mexico has lost a lot of power, nobody expects (Andrés Manuel) López Obrador to ... (be a) major force in the coming elections. The PRI is probably going to come back."
Mexico's reserves: "Mexico today has $145 billion in reserves and a total government debt of about $48 billion, not including state-owned enterprises, that raises it to $160 (billion)." He said Mexico's major sources of foreign currency are oil, tourism, remittances and exports, with all of them having dropped. (Although Mexico recently announced that more tourists visited the country in 2011 than in 2010, total revenues from tourism were down.) He said if the price of oil came down in a major way, it would be a crushing blow to the Mexican economy.
Commodities: Maizel said Latin American countries need to develop their economies more so as not to depend so much on commodities in order to avoid being badly hurt when commodity prices fall. He said John Deere just had better earnings than expected, but that it warned that falling commodity prices, specifically grain, could curtail sales of its farm equipment as producers will have less income to spend.
2005 San Diego Union-Tribune article on Maizel by Dean Calbreath (a member of the newspaper team that won the 2006 Pulitzer Prize for news reporting).
Event invitation for Maizel's Feb. 15, 2012 talk at Institute of the Americas.