“Indian Companies have a Growing Presence in Mexico” March 2018 issue

An aerial view of patio and docks of seaport of Guaymas in Mexico. The port is located in the northern part of Mexico on the coast of Pacific Ocean and houses one of the world’s best natural deep- water harbours.

“Indian Companies have a Growing Presence in Mexico”

Melba Pría, Mexico’s Ambassador to India

In a freewheeling interaction with The Dollar Business, Melba Pría, Mexico’s Ambassador to India, talks about why trade comes naturally to Mexico and suggests ways to further boost the Indo-Mexican bilateral trade which has been steadily growing at a double-digit pace over the last few years.

Interview by Ahmad Shariq Khan | March 2016 Issue | The Dollar Business

boost the Indo-Mexican bilateral trade

TDB: India is a major trading partner of Mexico. With regards to future economic engagements, in which key sectors would you like to see India and Mexico collaborate?

Melba Pria (MP): Bilateral trade between the two nations has been growing rapidly over the last few years, at double-digit rates consistently, yet it is way below its potential. In 2014, India was the 8th largest importer and 14th largest exporter for Mexico. Most major Indian IT companies, several pharmaceutical companies and auto components manufacturers have a growing presence in Mexico, and are assessed to have maximum growth potential in coming years. Large IT companies like TCS, Infosys, Wipro, HCL, Hexaware, Tech Mahindra, NIIT, etc., have already established themselves as big names in Mexico. Pharmaceutical majors like Sun Pharma, Dr. Reddy’s, Ranbaxy, Wockhardt and auto component manufacturers like RSB Transmission, PMP Auto, JK Tyre, etc., have invested in facilities and plants in Mexico and are taking advantage of the country’s strategic location, large market and investment friendly policies. Besides this, other potential sectors for bilateral trade and investments are mining, chemicals, engineering goods, renewable energy, biotechnology, textiles, and gems & jewellery.

TDB: While automobiles are India’s biggest exports to Mexico, base metals and base metals products also account for a significant chunk. How do you see this segment growing in the forthcoming years?

MP: Mexico is one of the biggest export markets for Indian car makers. As per industry estimates, India’s car exports to Mexico will increase by more than 50% to 1.32 lakh units in FY2015-16, against 82,000 vehicles during the same period last year.

During the first 10 months of 2015, total bilateral trade between India and Mexixo reached $5 billion. Mexico’s imports from India, in the first ten months of 2015, jumped to almost $3.4 billion. This is a significant increase from the same period last year, comprising, inter alia, automobiles & auto parts, base metals, pharmaceuticals, diamonds, textiles & garments, and chemicals & petrochemicals, engineering goods, etc.

In fact, trade and investment in these industries are mutual. So while, Mexican auto components manufacturers like Metalsa, Nemak, GrupoKuo, Katcon have invested millions in India, Indian auto companies like Baja Auto and Motherson Sumi Group are expanding rapidly in Mexico. Not only that, Mexican automotive and auto parts industries are leading the world today and we are elated by the good news that from 2013 to date, over $23.2 billion in new investments have been announced or put to use. In case of base metals, on one hand we have Indian steel giant ArcelorMittal in Mexico and on the other Grupo Villacero in India – both reaching new highs in respective trade destinations.

TDB: Both India and Mexico are undergoing transformations – both being developing economies, characterised by a large amount of small and medium enterprises (SMEs). How do you see SMEs gaining further momentum in the days to come?

MP: SMEs are indeed the backbone of the Mexican economy and they have a heavy impact on job creation and national production. According to the National Institute for Statistics and Geography (INEGI), there are approximately 4.1 million business units in Mexico. Of these 99.8% are SMEs, generating 52% of our GDP and 72% of jobs in the country. This is why it is really important to implement actions that improve the business environment for SMEs.

The Mexican Ministry of Economy has a special department for SMEs that provides and follows up on the different support programmes designed to integrate SMEs into export networks. In 2004, the federal government created a special fund to promote micro, small and medium enterprises known as SME Fund which is run by the Mexican Ministry of Economy. We see plenty of potential in the relationship with India in this regard. The Mexican Ministry of Economy has already signed a memorandum of understanding (MoU) with the Ministry of Micro, Small & Medium Enterprises (MSME) of India for cooperation between SMEs of both countries. The SME sector needs continuous support and policy backing as the sector is critical for rapid economic progress.

We are also currently looking to partner our National Institute of Entrepreneurship (INADEM) with its counterpart in India. This administrative body was set up in 2013 with the aim of implementing and executing the national policy on inclusive support for entrepreneurs, fostering innovation and competitiveness.We believe this agreement would be beneficial for driving the development of new-age entrepreneurship and start-ups in both countries, especially following the launch of the programme “Start-up India, Stand up India”.

TDB: Recently, at a CII event, you pointed out that cross-border investments appear better than trade figures, when it comes to Indo-Mexican business relationship. Is that how you see matters continuing?

MP: Bilateral trade between the two countries is growing rapidly. However, we need to recognise that more efforts are needed. Mexico is an easy and exciting place for doing business. The World Bank places Mexico at 39th rank on its Ease of Doing Business Index. Mexico particularly excels in the ‘Getting Credit’ category, in which it is ranked 12th worldwide. Besides Mexico’s own sizable market and investment-friendly policies, it has a strategic advantage as a gateway to the world’s largest NAFTA market as well as other Latin American markets. Mexico was the leading destination for both capital investment and FDI projects last year in Latin America and the Caribbean region. Indian companies have noticed this and they are increasing their presence in our region by making greenfield investments and setting up joint ventures – thanks to our strategic geographic location, availability of highly qualified human capital, competitive operating cost and free trade network with 46 countries. We expect this trend to continue. Mexico is also the largest source of FDI for India from Latin America and we have 13 leading Mexican companies like Cinepolis, Mexichem, Kidzania, etc., that have already invested in India. We are working hard towards bringing more Mexican companies to Asia, specifically to India, through close counselling and identifying interesting business opportunities for them.

The current slump in oil prices may tilt trade balance between the two countries to India’s favour, but this fall has presented India with an opportunity to increase its oil trade with Mexico in volume.
As it was said in the CII event, that you mentioned, this is an opportune time to harness each other’s complimentary capabilities and derive reciprocal benefits from economic engagement.

TDB: For the last nine years, Mexico has had a trade surplus with India, thanks primarily to crude oil exports that comprises about 80% of Mexico’s exports to India. Do you plan to boost it further?

MP: Crude oil is still the major Mexican export to India, besides iron & steel, ores & metals, electronics, medical instruments, food & beverage, auto parts and other engineering goods. Last year India’s Minister of Petroleum and Natural Gas, Dharmendra Pradhan, visited Mexico. Moreover, two Indian companies have shown interest in exploration and extraction of oil in Mexico which has been made possible by our recent energy reform. However, there are also opportunities to diversify our trade. Mexico is the largest producer of silver in the world and second-largest producer of gold in Latin America. For Indian importers, sourcing gold and silver from Mexico might prove beneficial as it will reduce the overall transaction cost in comparison to their existing global supply chain.

TDB: World Bank President Jim Yong Kim recently praised Mexico for its latest series of structural reforms mainly in financial regulation, taxation, anti-trust, energy and telecommunications. Can you shed some more light on these reforms?

MP: Our government has pushed through several ground-breaking reforms that could set Mexico apart from many of its peers. The energy monopoly of the State has given way to private investment for the first time in almost 80 years. Foreign companies are able to participate in utility, production sharing agreements, service contracts or through State production companies, for hydrocarbon exploration and extraction activities and in electrical energy generation.

There is a huge potential for India and Mexico to collaborate in the energy sector, especially in oil and gas exploration.

Besides energy, there are benefits from other reforms for Indian investors in Mexico. For example, with regards to recently-initiated reforms in telecommunications, I am pleased to say that FDI of up to 100% is now allowed in telecommunications and satellite communications and of up to 49% in radio broadcasting, depending on the reciprocity established by legislation in the country of origin.

Also, as per our latest major financial reforms, limits on foreign investment were lifted in various financial institutions to complement the current regime of investment through subsidiaries. We believe this will foster better and cheaper credit with a focus on financial inclusion. Further, in our path-breaking Economic Competition reforms, the Federal Competition Commission was created to prevent, combat and sanction monopolistic practices in Mexico. With the help of our recently launched broad-based labour reforms, we aim to lower the costs for job severance and compensation, as well as the costs associated with hiring of personnel. We believe these reforms open a whole new set of possibilities for Indian investors in strategic industries in Mexico.

TDB: Mexico, the gateway to Latin America, enjoys many free trade agreements and is part of NAFTA, the Pacific Alliance, and TPP among others. Similarly, India too has arrangements with SAARC and other ASEAN nations. How do you see these arrangements enhancing Indo-Mexican trade?

MP: Mexico is an open economy, and it ranks second worldwide when it comes to the number of free trade agreements. Mexico is proud of its network of 11 FTAs ??with 46 countries, 32 agreements for the Promotion and Reciprocal Protection of Investments (BITs) with 33 countries and 9 agreements of limited scope in the framework of the Latin American Integration Association (ALADI). Our country is part of NAFTA, the largest free trade region in the world, where nearly 474 million people trade freely. Mexico is proudly open for Indian companies, and we want to make it as simple and attractive for Indian businesses to set up shop as possible. India and Mexico already have a Bilateral Investment Promotion and Protection Agreement (BIPPA) in place to promote flow of investment and protect the interests of investors of either country in the other country’s jurisdiction.

The Pacific Alliance is a particularly exciting project that looks towards the East and that has evolved rapidly. This idea became a reality in 2013, when Colombia, Chile, Mexico and Peru pledged to abolish tariffs on 92% of merchandise trade, with the remainder to be freed in 2020. In this time, our countries have also scrapped tourist visa requirements, achieving a free mobility zone along the Pacific coast. We expect India to engage with this block, and make the most of its status as an observer of the alliance.

TDB: How do you see Indian government’s pro-FDI stance? If you were to name the top bottlenecks hurting FDI flow into India, what would they be?

MP: There is no doubt that the Indian government’s pro-FDI stance will help the country to emerge as one of the top destinations globally for FDI. We see India as a promising partner, not only because of future growth potential but also because of the availability of inexpensive labour and current size of local market.

Similar to ‘Make in India’ we had the ‘Made in Mexico’ initiative during 1970s and 1980s. In 1980, Mexican trade was 17% of its GDP. This percentage has grown to 61% ever since, with about $400 billion worth of exports a year, 50% of which are hi-tech equipment.

As per our experience of facilitating Mexican businesses in India, we can highlight underdeveloped infrastructure, procedural delays in land acquisition, red tapism of bureaucracy and most importantly, a low rank in ease of doing business as the major bottlenecks that need to be removed for ‘Make in India’ to have a greater impact.

TDB: And how do you see the Indian government’s recent initiative ‘Digital India’. Do you have any investment planned in these initiatives?

MP: We strongly support ‘Make in India’, ‘Digital India’, ‘Start up India’, and other policies. We see the interest of many Mexican companies in sectors like food processing, IT & telecom, auto components, infrastructure (affordable housing) and others in the framework of the Make in India programme.

Moreover, we believe some of the Mexican experiences could be useful for the initiatives. Mexico has already implemented a successful National Digital Strategy, which has modernised government procedures and endeavoured to close the digital gap in the country.

Further, Mexico is a leading manufacturer. 50% of advanced manufacturing in Latin America happens in Mexico, which means we can be an interesting partner to ‘Make in India’ programme.

Having said this, it does not mean that our support for the Make in India initiative reduces our efforts to attract Indian investment in Mexico. We believe Mexico, particularly at this moment, is without a doubt one of the best places in the world to invest and do business, especially for Indian companies.

TDB: Tourism is one area that has reaped returns for both countries. Please tell us about your recent endeavours to strengthen this segment.

MP: Like India, Mexico is a very diverse country, which makes it a great tourist destination. Mexico has unique architecture from the pre-Hispanic and colonial periods. In fact, it is ranked number one in the Americas and sixth in the world when it comes to housing UNESCO world heritage sites. The country is also full of natural beauty and, like India, it is one of the 17 megadiverse countries. Mexico is home to 10-12% of the world’s biodiversity. We also have a remarkable infrastructure for receiving tourists with luxury resorts, thousands of unique restaurants and 64 international airports.

Mexico has been among the most visited countries in the world and, according to the UN World Tourism Organisation, last year too it was amongst the top 10 most visited countries globally. About 32 million international tourists visited Mexico in 2015. Estimates say that from 2010 to 2013, tourists flow from India to Mexico has also increased by 50%. However, we want to do more to promote these exchanges so we try to facilitate immigration processes as much as possible. For example, an Indian who is a holder of an American visa no longer requires a Mexican visa to visit Mexico. The Embassy is also working towards partnering with travel agencies in India and relevant media in order to spread information about Mexico and its tourist facilities and attractions.

TDB: Indian culture and traditional products, including Bollywood, are slowly gaining popularity in Mexico. How do you see the trend shaping up in the future and how do you plan to enhance people-to-people associations between the two nations?

MP: Although Hollywood is more popular in Mexico due to its proximity to United States, Bollywood could be a powerful partner in fostering people-to-people contact. There have been ideas about inviting Bollywood producers to shoot at locations in Mexico. India’s passion for cinema has been the gateway for a successful Mexican venture: Cinépolis. This cinema screen provider of Mexican origin already holds the 4th position in India, and will be soon present in 30 Indian cities with more than 500 screens.

Today, many multiplex companies are focussing on creating infrastructure. These companies could be enablers for cross-border investments in film production and engaging the two cultures and populations in all ways positive.

People-to-people associations have great potential in the field of gastronomy. Our eating habits are more similar than they would appear at first sight. The use of chillies, spices and homely food is a link between our people. Also, our Agency for International Development Cooperation offers scholarship programmes for Indians. We have identified that there is interest in each other’s cultures, but it has been more of a romanticised relationship with a lack of understanding of contemporary realities. That is why we need more students from both countries living in and understanding each other’s culture. This will create a logical bond between India and Mexico.

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