Tim George Australia Ambassador to Mexico

Editor’s Interview

How do you grade the competitiveness of Mexico for Foreign Investment?

There is no doubt that Mexico is an attractive destination for foreign investment.

Mexico is blessed with geographical proximity and deep integration with the world's largest economy, and NAFTA partner, the US. And it has growing links to markets in South America through the Pacific Alliance, a region that will be one of the world’s most reliable growth centres for the foreseeable future.

With one of the world’s broadest free trade networks and significant domestic market potential with its fast-growing middle-class and on the back of the structural reforms in 2013 and 2014, the longer-term outlook is very positive for Mexico.

The logic for Mexico to serve as a gateway to the Americas for Australian and other international companies is compelling.

No doubt, there are challenges to Mexico’s competitiveness. Foreign investors need to carefully work through the implications for their business of Mexico’s security, rule of law and corruption challenges.

Another concern relates to Mexico’s education system and an adequately skilled workforce. These are issues that are being addressed by the Mexican Government and the Mexican people.

What is the current situation of the diplomatic relationship between Australia and Mexico and what is your plan of action at the Embassy to strengthen the bilateral relationship between Australia and Mexico?

Australia and Mexico have long been natural partners, with a history of collaborating productively across a range of international issues and built on a solid economic partnership.

We have a strong foundation of fruitful cooperation in multilateral economic organisations, most notably the G20, WTO, APEC, OECD, and more recently, the Pacific Alliance, to which Australia is an engaged observer.

As Australia and Mexico approach the celebration of 50 years of diplomatic relations in 2016, it is clear that our relationship is entering a new phase – one of broader and deeper engagement on multilateral and bilateral issues.

Our collaboration through the new, informal grouping MIKTA, a ‘diplomatic start-up’ less than two years old consisting of Mexico, Indonesia, South Korea, Turkey and Australia, is at the heart of this enhanced engagement. The MIKTA countries are realising there is a great deal we can gain from dialogue about issues of mutual concern, in support of global governance and prosperity.

We are also realising there is much more we can do together. MIKTA offers a mechanism for deepening bilateral partnerships, including between Australia and Mexico. Australia is very much looking forward to taking over as coordinator of MIKTA as of September 2015.

In addition, the Embassy is very focused on what we call economic diplomacy. This refers to the process by which we use our international diplomatic assets to advance Australia’s prosperity and global prosperity.

Australia’s economic diplomacy agenda is based on four key pillars: 1. promoting trade; 2. encouraging growth; 3. attracting investment; 4. supporting Australian business.

As Australia’s Foreign Minister, Julie Bishop, says, “[I]f the goal of traditional diplomacy is peace, then the goal of economic diplomacy is prosperity”.

In the case of Mexico and Australia, there is an abundance of opportunity on the commercial front and this is another driver of a closer and more fruitful relationship.

What is the current situation of the commercial relationship between Australia and Mexico?

Mexico is already Australia’s largest merchandise trading partner in Latin America with almost US$2 billion (A$2.42 billion) in goods traded in 2013-14 and services trade of around US$154 million (A$199 million) in 2013-14.

Australian companies have also invested around US$4.13 billion (A$5.34 billion) in Mexico. So we have a solid foundation of commercial interaction.

Yet for the size and importance of our economies – Australia is the twelfth largest economy with the fifth highest GDP per capita globally and Mexico is the fourteenth largest economy globally, with a very positive medium-term trajectory, these figures are modest.

Given the complementary nature of our two economies, there is potential for significant growth in bilateral trade and investment.

In recent years, there have been clear signs of greater commercial engagement between the business sectors of our two countries. Many Australian companies, encouraged by the structural reforms carried out in the country, are now exploring opportunities in Mexico.

And, as Australia and Mexico do not have an existing free trade agreement, successful conclusion of the Trans Pacific Partnership (TPP) negotiations offer an opportunity to truly transform our trading and investment relationship.

Which other areas of opportunity do you see to strengthen relations between Australia and Mexico?

In addition to the areas mentioned above, Australia and Mexico are rightly focused on taking advantage of the dynamism in the Asia-Pacific region. There is much we both stand to gain from greater economic integration with this region, principally through the TPP.

TPP members account for almost 40 per cent of the global economy and 25 per cent of global trade – making the TPP the world’s largest regional free trade agreement.

Australia is pursuing ambitious, comprehensive market access outcomes, including liberal rules of origin, which will promote economic growth and further integration in the Asia Pacific region.

Principal sectors of opportunity for both countries include advanced manufacturing, agribusiness, education and training, energy, telecommunications, food and beverages, mining and infrastructure, tourism and financial services.

By eliminating or reducing tariff barriers, we will see enhanced export opportunities for both Mexican and Australian companies in each other’s markets and other TPP markets.

The TPP will also provide a platform for Australian companies to take advantage of the landmark reforms to Mexico’s energy and telecommunications sectors, including amendments that will allow foreign investment in these sectors for the first time.

A number of Australian companies are already exploring opportunities for collaboration with PEMEX and Mexican companies as Mexico opens its oil and gas sector.

Oilfield goods and services suppliers, engineers, lawyers and other professional service suppliers will be well placed to participate as foreign investment in these sectors increases and Mexican companies expand into international markets.

What is the current situation for bilateral investment between Australia and Mexico?

As I mentioned above, we have a solid foundation of Australian investment in Mexico of around US$4.13 billion (A$5.34 billion). As the earliest Australian fund managers to enter the Mexican market in 2007, Macquarie has been Australia’s largest investor in Mexico in recent years with over US$2 billion of funds under management, and ambitious near-term plans for expansion.

Australian funds manager, IFM, made its first major investment in Mexico in December 2014, injecting US$600 million in a major toll road.

Importantly, there is substantial potential for significant growth in Australian investment in Mexico in the near-term.

Following Mexico’s ground-breaking reforms in 2013 and 2014, there is rapidly expanding awareness amongst corporate Australia of the scale, scope and diversity of the opportunity that Mexico offers.

The energy sector perhaps provides the platform for a fundamental shift in the nature of the commercial relationship – several significant Australian companies, including BHP Billiton and Woodside Petroleum, are now weighing up options to make very substantial investments in the sector.

Australia already has a significant presence in the infrastructure sector, but there is more we could do. I’d like to see more Australian fund managers explore the infrastructure opportunities in Mexico, in light of Mexico’s ambition to invest over US$550 billion in infrastructure in the coming years.

What other areas of opportunity are being seen by Companies from Australia to invest in Mexico?

Beyond energy and infrastructure, mining is a key sector of interest for Australia in Mexico.

While deeply embedded in other parts of Latin America and globally, Australian companies are under-represented in Mexico, despite the country being the fifth most popular destination for mining investment in the world.

A key focus going forward will be increasing Australian participation in the provision of mining equipment, technology and services in Mexico.

The automotive sector also offers an opportunity for Australian companies to penetrate some of the global value chains (GVCs) that exist in Mexico, following the recent structural overhaul of Australia's industry.

It was very encouraging to see Futuris Automotive recently acquire a US firm that has operations in northern Mexico, employing some 3500 people.

Another strategic opportunity for Australia and Mexico is in the area of agriculture. Mexico and Australia share very similar challenges and ambitions on this front - we are focused on improving the productivity of the land; we produce many of the same commodities and face similar environmental challenges, including the management of water.

Yet, it is unlikely we will ever be great competitors in each other’s markets. For both countries, our natural export focus is to the north – for Mexico, the NAFTA countries and for Australia, Asia.

The greater medium-term opportunity exists for shared investment plans in both countries in this sector.

In addition, we’re also seeing some innovative Australian services companies enter the Mexican market. LatAm Autos, an Australian listed company, is looking to capitalise on the shift to internet advertising in the Mexican, and Latin American, car sales market.

And Australian fintech companies Digital CC and Crowd Mobile are aiming to capitalise on the opportunities to lower costs for the enormous remittance market here in Mexico with some innovative products.

What is the role that Mexico plays for investment from Australia for the NAFTA Market?

Mexico’s geographical proximity and deep integration with the world's largest economy and NAFTA partner, the US, has seen a number of large Australian manufacturers set-up operations in Mexico over the past twenty years.

These include leading Australian companies such as Incitec Pivot (chemicals, fertilisers and explosives), Orica (explosives market), Ansell (health care solutions), and most recently Futuris in the automotive sector.

Following last year’s 20th anniversary of NAFTA, the trend of North American integration is, if anything, likely to intensify over the next twenty years, such that analysts are increasingly talking about the North American competitive zone.

This is particularly the case in the fields of energy and education, but also in the complexity and integration of regional and global value chains.

For Australian firms interested in deepening their links with North America, Mexico must figure prominently in their plans and strategies.

What is the level of satisfaction of Australia companies with their operations in Mexico?

Feedback from Australian companies I’ve received to date has been largely positive about their experiences in Mexico. I hear often from companies about the advantages I mentioned above about Mexico’s competitiveness as a foreign investment destination.

I also hear about some of the challenges and we’ve been working with some Australian companies to overcome those. But, overall, the level of satisfaction is quite high.

Is there any additional investment from Australia in Mexico to be expected in the near future?

We are certainly seeing an increased awareness of Mexico’s advantages and opportunities amongst Australia’s corporate sector.

So I’d imagine over the coming months and years, we’ll see more Australian investment into Mexico.

And vice – versa. Mexican companies are similarly increasing their presence in Australia, as Mexico enhances its focus on the Asia-Pacific region.

Mexico’s largest investor in Australia is Grupo Gruma. Under its Mission Foods brand, Gruma has successfully built a substantial market share.

In a similar fashion to the way in which Australian companies can view Mexico – as a gateway to the Americas, I’d like to see Mexico view Australia in the same light – as a gateway to Asia.

Australia has worked systematically over the past decades to deepen economic integration with Asia. This has been further cemented in the past two years with landmark trade agreements concluded with Japan, China and South Korea, building on the agreement with ASEAN countries.

As Mexico’s foreign investment footprint grows and as Mexican companies turn their focus towards the opportunities in Asia, Mexican companies should think of investing with Australian companies to access these markets.

Brazil’s JBS, for example, is finalising a US$1.22 billion (A$1.45 billion) takeover of Australian smallgoods producer Primo, partly as a launching pad into Asian markets. This is not to mention the very attractive investment case that Australia itself offers to Mexican fund managers and multinationals.

Australia is the fourth easiest place in the world to set up a business (World Bank Doing Business 2013 report) and our workforce is one of the world’s most educated.

Australia’s economy is in its 23rd year of uninterrupted growth, an achievement unequalled by any other developed economy. Getting to know each other better is a key factor.

Australia Unlimited is Australia’s brand – it tells the story of contemporary Australia; the positivity of our people and our nation and one that is creative, confident, ambitious and globally engaged. We’re focused on telling the Australia story to Mexican investors.

Any last comment for the MexicoNOW subscribers?

One of our great challenges is for our people to get to know each other better. Our countries both enjoy rich indigenous heritage, wonderful natural resources and talented, entrepreneurial populations who have much to learn from one another.

For reasons of history and geography, there traditionally hasn’t been a great deal of engagement between our peoples.

But this is changing. While Australia enjoys a positive reputation in Mexico, we can and should do more to deepen mutual understanding of our respective countries.

This is already happening organically as increasing numbers of Australian tourists visit Mexico. Almost 80,000 Australians visited Mexico in 2014, up from only 25,000 in 2007, so this is a terrific trend.

On the other hand, I would like to see a significant increase in the number of Mexicans who visit Australia for tourism, which is only around 4000 each year. Direct flights would help in this regard.

Education is a sector in which the bilateral relationship has real potential for substantial growth. Over 2,000 Mexican students studied in Australia last year, and Mexicans have access to scholarships through the Endeavour Awards program and fellowships and short courses through the Australia Awards program, but I’d like to see more Mexicans benefit from Australian education.

For example, I’d like Mexicans to take advantage of Australia’s world class expertise in energy and related fields, with Mexicans undertaking studies at Australian universities under the Mexican government’s recently announced energy scholarships scheme.

As Mexico’s middle class expands and its economy sees greater demand for specialised skills in energy, infrastructure, water management and English, Australia should become a favoured destination for Mexican students.

On the cultural front, it was wonderful to see the success of a major Aztec exhibition in Sydney and Melbourne in 2014. These education, people-to-people and cultural exchanges, and the relationships that flow from them, will only serve to enhance our broader engagement.