12 November 2001 - Manyana May Be Worse for Mexico

I was driving on a flat and uninspired stretch of highway along Mexico’s west coast when something happened to me that was rare on my three-year trip — I ran out of gasoline. Fortunately, I always carry a jerry can of extra fuel, something I figured I might need in remote places like the deserts of Africa or a desolate region in Siberia.

I hadn’t expected to need it in Mexico, the world’s seventh-largest oil producer. Still, I couldn’t find a gas station anywhere. There I was, one of those hapless drivers you see scratching their heads on the side of the road, wondering how they managed to end up in such a situation.

Then again, the experience seems fitting since Mexico itself seems to be running out of gas after a nice run of good fortune.

After the peso and banking crisis of 1994 and 1995, Mexican leaders promised to change their inefficient and corrupt ways, rebuilding Mexico into a modern, competitive economy. Initially, people seemed ready to make the right moves: Inflation was brought down, government spending reined in. Old state-run dinosaurs, like the railroads and airlines, were privatized, opening doors to competition.

The North America Free Trade Agreement, the pact designed to open economic borders between the United States and Mexico, also was beginning. I’m a huge fan of trade agreements that open an economy so it can flourish. Already, NAFTA has brought more than 100,000 new jobs to Mexicans. Recently, new trade agreements have been established between European Union, Israel, and other Latin American nations.

A new Mexico caught the eye of the international investment community as well. Foreign direct investment soared to $13 billion in 2000 from an annual average of $5.4 billion from 1990 to 1994. Buoyed by strong oil prices and a burgeoning U.S. economy, Mexico was Latin America’s tiger economy, with its gross domestic product growing at a rate of 6.9 percent in 2000.

Politically, everything also seemed to be headed in the right direction. During the last few years, the government, once hamstrung by a one-party system run by the Institutional Revolutionary Party, moved into the hands of democratically minded non-PRI officials. Vincente Fox won the presidential election in late 1999, the first opposition candidate to take control of the government in more than 70 years. Fox is media-savvy and aggressive, a different kind of leader than Mexico has seen in generations. He’s been smart and charismatic enough to curry favor with Mexico’s important neighbors like the U.S. and Canada.

Unfortunately, Fox came in a difficult time. The downturn in the U.S. economy has curbed demand for Mexican goods, particularly in industries like electronics, textiles, chemicals, and car parts. With the U.S. accounting for 90 percent of Mexico’s exports, the impact has been significant.

Since the terrorist attacks on Sept. 11, about 400,000 Mexican workers have been laid off. GDP growth has stalled. These problems clearly aren’t Fox’s fault but he’ll likely take the blame.

Driving through the country, I found corruption and inefficiency still a way of life. Everyone paid government officials for almost everything they wanted to do. In fact, a recent survey found Mexicans expect to pay extra to get things done.

Infrastructure is inconsistent. A new highway system was built in the last decade but it already needs repair, which leads me to believe whomever was in charge cut a few corners in order to pocket extra cash. Tolls often were higher than we’ve been anywhere in the world. The postal system still appears to work on the pony express: none of the dozen postcards I sent while I was there have arrived yet.

Few people appeared concerned by the country’s high poverty levels. Everyone was confident things would get better someday, maybe tomorrow. I think they’ve got a bad case of manyana syndrome.

My bigger concern is the country’s state-run oil outfit, Petroleos Mexicanos, or Pemex as it is more commonly known. It’s Mexico’s primary bread winner, accounting for 38 percent of the federal government’s revenue. Roughly 80 percent of the oil it produces goes to the U.S.

It’s an inefficient operation run by corrupt officials who live on bloated paychecks. Consider that Pemex employs roughly 137,000 workers to produce three million barrels a day, roughly twice the workforce of countries like Venezuela with similar production levels. Finding a gas station in Mexico exemplifies the problem: stations are located where the government, not the market, dictates.

Clearly, the oil and gas industry should have been privatized years ago. Fox, himself, has tried to sway the unions but oil business has been something of a religion here since it was wrested from the hands of foreign investors in the 1930s. Fox recently tried to appoint four businessmen to the board of directors, a move quickly shot down by Mexico’s congress.

High world oil prices in recent years have been good news, bolstering the economy and generating prosperity in isolated areas. On the streets of Mexico City, the nation’s capital, I found restaurants filled with patrons and expensive boutiques doing a solid business. The same was true in the touristy Yucatan region in the Southeast.

Still, I had to sign my credit card slip when I checked into hotels because so many people try to run out without paying.

Unfortunately, Mexico is running out of oil. Between 1990 and the end of 2000, proven oil reserves fell from 52 billion barrels to about 26 billion. Little investment is being made on new exploration and production — an absolute necessity when you have such declining reserves. Abu Dhabi, the oil-rich nation in the United Arab Emirates, also has declining reserves but with a tiny population, those reserves will allow its people to live on what is left for the next 100 years. Mexico, with a population over 100 million, does not have that luxury.

As the economy suffers, Sr. Fox faces rocky times. He is going to be blamed even though most of the coming problems were caused by previous policies. As a result, I fear Mexico is going to appear even more unstable in the next few years.

I am bullish on oil, but even a bull market in oil will not save the country as its reserves decline. Recent governments haven’t funneled enough resources into exploration and development. Likewise, little effort has been made to expand the country’s refining operations, which are meager at best. In fact, Mexico imports most of its refined products, like gasoline and fuel oil. Pemex may be happy when oil prices go up, but consumers actually suffer! Experts estimate that by 2010, Mexico will have to import nearly a quarter of all the gas it consumes.

The hope seems to be that the United States will find its way out of recession, which will help pull Mexico out of its economic doldrums. Relying on the fate of others, though, is no way to save your country.

It’s a shame. From a tourism perspective, Mexico certainly has a lot to offer. I visited the Yucatan peninsula where there is a thriving tourist industry. What was once just jungle has been converted into massive beach-front property. It reminds me of Miami in the 1920s. Someone clearly had a vision.

In Puebla just southeast of Mexico City, we found a former security stronghold turned into a beautiful, prosperous metropolis. The Church of Santa Domingo there is one of the most extraordinary sites I’ve seen on my trip. Across the country, we found unbelievable architecture, history, cultures – new and old — and markets, but no one seems to put things all together for some reason.

We wanted to visit Copper Canyon, a series of more than 20 canyons running through the northern region of Mexico. The site covers over 20,000 square miles and is four times larger than the Grand Canyon in the United States. Unfortunately, the pilot we hired for $900 never showed. I guess it was just another case of manyana syndrome.

Mexico could be the poster child for Latin American development. But until it’s ready to cast aside its history of corruption and inefficiency, the manyana syndrome — the belief that something will always come to save it from itself — will forever plague the country.

Oil has done that in the past. But with reserves on the decline, oil may no longer be the savior it once was. In fact, instability will be on the rise while everyone is still waiting for manyana. Manyana will be worse.