Jaime Roberts – President Mexican Association of Industrial Parks

HOW WAS THE INDUSTRIAL REAL ESTATE MARKET IN MEXICO IN 2011?

During 2011, the market remained stable from a slow recovery that started to show signs in the second half of 2010. The economic soundness of the Mexican domestic market coincided with an improvement in the U.S. automotive market.

That is why this year, we saw important new foreign manufacturing initiatives landing in Mexico, specifically from the automotive and the aerospace industries. Some examples are the $1.4 billion expansion announced by Nissan; the $1.5 billion Ford expansion announcement for its plant in Hermosillo and the $500 million expansion project of General Motors in Toluca; besides the new $5oo million value project of Mazda Sumitomo Corp in Guanajuato; the new Honda $800 million venture in Guanajuato; the $500 million Fiat project with Chrysler in Mexico for the production of its 500 model in Coahuila; and most recently, the $1 billion project from Daimler AG and Nissan Motor Co for a new operation in Mexico to attend the U.S. market.

In the aerospace sector, we had, for instance, the $100 million project of Hawker Beechcraft fuselake in the State of Chihuahua, and the $130 million projects of Eurocopter and Safran in Queretaro.

These new foreign direct investment projects of big automotive assemblers are being critical for industrial parks in Mexico because they trigger at the same time, new operations of Tier1 and Tier2 suppliers. This fact that is reflected in higher occupancy rates in industrial buildings. Some testimonials are the new plants of autoparts multinational companies, such as Delphi Packard in Durango, Thyssenkrupp Automotive System from Germany in Puebla, a new division of Magna International Inc in San Luis Potosi, Pirelli and Schaeffler Group in Guanajuato, and Delphi, Thermal Systems in Ciudad Juarez, among others.

I guess that this recovery is being possible, even though the turmoil of the global economy, thanks to Mexico's economic stability, reflected in an economic growth rate of 4.4%, at the end of 2010; a deficit of just 2.5% of GDP; a record of $114 billion dollars in international reserves; and a foreign debt equivalent to 20% from GDP, in comparison to other countries in crisis, such as Greece with a debt of 140% of GDP. All these good figures provide an important economic certainty to investors looking for long term projects in the country.

WHAT IS THE OUTLOOK FOR THE MARKET IN 2012- 2013?

The global economy has not recovered yet from the 2008 global economic and financial crisis. According to the Scotiabank Bank Global Economic Research, the world economy is set to slow further in 2012, mainly due to sovereign debt problems at the euro zone, a situation that affects the markets, creating uncertainty and therefore volatility in stock markets and exchange rates.

On the other hand, the U.S. economy has shown a slight economic recovery, reflected in factors, such as an increase in the manufacturing activity and in exports, as well as some job gains that have helped to reactivate consumer spending. That is why manufacturing in Mexico has been growing during 2011. Although the recovery of the Mexican market depends largely on U.S. economic indicators, it is expected that it will continue in 2012, with both new and existing companies expanding operations across different industries, especially in the automotive and aerospace sectors. And this will be possible in part, because Mexico offers manufacturing costs that are 25% lower than in the US.

According to experts, by 2014 automotive production in Mexico will reach 2.4 million units, as the country hosts 8 of the 10 leading OEM's assembly plants. For industrial parks this fact has already been translated in more than 300 Tier1 suppliers manufacturing for GM, Ford, Chrysler, WV, Toyota, Nissan and Honda, as well as for heavy truck manufacturers including Kenworth, Volvo, Daimler, Navistar, Dina, Scania and Isuzu. If this trend continues, it will reinforce the demand of Class A buildings, especially with better location and more efficiency for logistics.

WHAT ARE THE MAIN OPPORTUNITIES AND THREATS IN THE NEXT FEW YEARS FOR INDUSTRIAL PARKS IN MEXICO?

At the macroeconomic level, the main opportunities for attracting new tenants are in taking advantage of the country's geographic location, which offers great potential for savings in manufacturing and logistics costs. If we talk about China, we see that Chinese wages are now much higher than a decade ago, due mainly to inflation problems in the country. For now, the gap between salaries in both countries is almost zero. Additionally, China is further away than Mexico from the US market. With today's expensive energy, rising transport costs give Mexico an edge, particularly when it comes to heavy and bulky items addressed to the NAFTA region.

Ironically, the big threat for Mexico in terms of industrial real estate business is that the geographic location is not enough, as an advantage for FDI. The authorities need to do their job properly. We still have many outstanding issues in the Congress agenda, in relation to structural reforms in labor, fiscal, energy and education, among others issues. If we fail to overcome the political obstacles, especially now on the eve of presidential elections in July 2012, the country will not be able to grow as much as necessary to create all the jobs needed to become a more prosperous economy.

At the local level, industrial parks need to receive more attention from the government. There is a big need to have special incentives for developers. Up to now, there are a lot of obstacles for new industrial park projects. These obstacles are mainly bureaucratic red tape, permits and utilities costs, as well as a lack of an integrated national FDI promotion plan.

Authorities must realize that industrial parks in Mexico are an important part of the country's competitiveness, since they mitigate the legal and operational uncertainty for investors, as "plug & play" sites for manufacturing and logistics facilities.

At the same time, industrial parks help to strengthen the country's worldwide reputation and position as an international manufacturing leader. We therefore need to foster a real alliance between the public sector and the private industrial real estate developers, in order to improve the occupancy rates of buildings and to increase, at the same time, the creation of new jobs.

ONE OF THE MAIN COMPLAINTS OF FOREIGN INVESTORS IN MEXICO IS THE HIGH COST OF ELECTRICITY AND TELECOMMUNICATIONS. HOW ARE INDUSTRIAL PARKS HELPING TO MITIGATE THESE COSTS?

This is a problem not only in industrial parks but also in the rest of the industries in the country. As long as the Mexican State allows the existence of monopolies in the market, the difficulty of high energy and telecommunications costs will continue.

Meanwhile, owners of industrial parks are currently evaluating alternatives for sustainable energy, such as photovoltaic, as an option to be more efficient and thus to offer better service to its tenants.

AMPIP VISITED PANAMA RECENTLY, WHAT WILL BE THE MAIN IMPACT OF THE EXPANDED CANAL IN MEXICO'S INDUSTRIAL PARKS?

The study tour that AMPIP organized to Panama had the objective to learn more about the new expansion project of the Canal, which has implied a total investment of 5.2 billion dollars, and a time span of 8 years, concluding in 2014. Basically, with this project, the canal will be able to receive the so called "postpanamax" ships, the ones with capacity to hold about 12 thousand TEUs (Twenty-foot Equivalent Unit), versus the current ships with a capacity of only 5 thousand.

What we first learned was that the impact of such a project will be reflected in the goods movement coming from Asia to the US market, specifically in the costs of transportation through maritime ports. Although only 5% of the world's total goods use the Panama Canal, we believe that Mexico has to prepare itself as a country to better face this competition that will definitely impact the transportation through the Mexican ports at the Pacific side.

This means that the Lazaro Cardenas and the Manzanillo ports are obligated to become as competitive as the Panama Canal in its new set of excluses, in terms of access to post Panamax ships, as well as in service to expedite customs and administrative procedures, and, the most important, in overall transportation costs.

However, we also realized that the key success factor for the Panama Canal expansion is its systemic integration to the rest of the Panama's government public policies related to logistics.

During the different meeting our group had with authorities and private companies, we were surprised to hear that everybody had the same vision and arguments towards one main national goal: to become the most efficient logistics country, by constructing a long term national intermodal system, including train, air and maritime transportation, besides the availability of industrial real estate, as a part of the infrastructure for this purpose.

Therefore, Mexico needs also to coordinate better strategies in transportation issues, if we really want to become also a competitive logistics hub. The efficiency of intermodal connections all along the Mexican territory is critical. In this sense, we hope that the National Program for Logistics Platform, leaded by the Ministries of Transportation and of Economy, can have the impact to coordinate the entire stakeholders, in order to be successfully implemented in the midterm.

HAVE SECURITY CONCERNS AFFECTED THE LEVEL OF FOREIGN INVESTMENT IN MEXICO'S INDUSTRIAL PARKS?

Despite the impact of drug cartels hostility in Mexico, which has certainly affected the image of the country abroad, we are confident that new projects will continue to come. There are other important advantages of Mexico, such as its geographic location, competitive labor costs, the network of free trade agreements and the availability of talent, among others, that make the country still very attractive for manufacturing, particularly for those companies exporting to the US market.

A recent Goldman Sachs analysis said that Mexico is among the next 11 countries with great potential over the next 40 or 50 years to rival the G-7 nations in terms of economic importance. Besides, the World Investment and Political Risk 2011, edited by the World Bank's Multilateral Investment Guarantee Agency, ranked Mexico as the fifth host country for foreign direct investment inflows.

The problem is that Mexico is not telling the story of what the country really means for investors. The International media has focused more on negative news. However, there are plenty of positive facts about Mexico that need to be told. For instance, Mexico has less number of annual homicides than Colombia; Mexico has a strong middle class; and Mexico is among the 10 most favorite countries for multinational companies, according to the World Investments Prospect Survey 2011 (UNCTAD).

HOW ARE MEXICAN INDUSTRIAL REAL ESTATE DEVELOPERS CONTRIBUTING TO IMPROVE MEXICO'S OVERALL COMPETITIVENESS TO ATTRACT FOREIGN INVESTMENT?

Mexican developers are obligated to provide the right infrastructure and service to their tenants and to potential clients, in terms of construction standards, internal by-laws, maintenance and security, among other factors.

With the community, they must be committed to respect the environment, to be sustainable, to be also friendly in the daily contact with the people and neighbors, and to collaborate in social projects that can offer a positive impact to the society. If they comply with these requirements, then industrial parks will definitely contribute to Mexico's competitiveness.

WHAT IS THE CERTIFICATION OF INDUSTRIAL PARKS IN MEXICO AND HOW MANY PARKS ARE CURRENTLY CERTIFIED?

The certification of industrial parks based on the standard NMX-R-046-SCFI-2011, is a voluntary regulation that defines the criteria for the design and the infrastructure required for the optimal operation of manufacturing industries within an industrial park. In Mexico, the process to obtain permits and licenses, as well as the service of utilities can be complicated, especially for a foreign investor that is not familiar with the business environment in the country. This standard serves as an evidence to guarantee the availability of utilities, the appropriate architectural design, and the ownership title of land and buildings. Therefore, a certi- fied industrial park can be considered as a "plug & play" facility, minimizing risks for the investor in this regard.

But the most important thing is that the standard promotes the culture of quality among real estate developers. Today, there are 36 certified industrial parks in Mexico, and through the Mexican Association of Industrial Parks (AMPIP), an additional 45 industrial parks will be certified in the short term.

WHAT ARE THE MAIN PLANS/PROGRAMS FOR AMPIP IN 2012?

For 2012, the Association will reinforce the activity towards its 6 strategic goals: representation of the sector, financing, promotion, security, sustainability and education. In this way, we will continue working through our different committees, and for that we will expect the active participation of our members and sponsors.

We will also be discussing the topics related to these strategic goals, in our quarterly meetings that for 2012 will be held in Pachuca (March), Mexico City (June), Queretaro (September) and the annual convention in Mazatlan (November).

Besides, we have the objective to expand the number of certi- fied parks to a total of 100, so we will try to continue working with the Secretary of Economic and with the PYME Fund, to support the certification process as well as the promotion of certified parks, among potential investors.

With our international partners, we are eager to coordinate events in parallel with the NASCO (North America's Corridor Coalition); with the Texas-Mexico Consortium, headed by Dr. Barry Lawrence from the University of Texas A&M; and with NAIOP (US Commercial Real Estate Developers Association).

At the end of the day, the most important thing for AMPIP is to highlight the importance of industrial parks in Mexico, as a part of the country's competitive advantages for investors, by promoting its advantages in different national and international forums and also more directly with authorities and potential tenants.