Throughout the fourth quarter of 2017, pundits and business media in general in Mexico have focused mainly on the jarring ups and downs of NAFTA renegotiations between the United States, Mexico and Canada. As the year winds down, this topic has lately been eclipsed by the passage of tax reform legislation in the U.S., and at least on this side of the border, how it might affect the Mexican economy going forward. These high profile issues have served to overshadow an economic development initiative in Mexico that otherwise might have captured more attention: The declaration of Zonas Económicas Especiales (ZEE), or Special Economic Zones, aimed at stimulating investment in six southern states.
In its public statements the federal government has said that the underlying goal of the ZEE is to address the gap in economic development and productivity between the northern and central states and the southern region. Southern states such as Chiapas, Oaxaca and Guerrero, despite being cultural powerhouses and important magnets for tourism, are commonly considered something of a backwater when it comes to manufacturing and economic development in general. The idea behind the ZEE is to provide incentives such as tax breaks, credit facilities and access to venture capital within specific geographical areas to entice companies to set up operations in the areas. This would theoretically spur creation of direct and indirect new employment in areas that traditionally suffer from low education, high unemployment and their associated social ills.
The five newly created ZEE, established through presidential decrees on September 28 and December 19 of this year, are as follows:
1) Puerto Chiapas, Chiapas
2) Coatzacoalcos, Veracruz
3) Lázaro Cárdenas-La Unión, in the states of Michoacán and Guerrero
4) Salina Cruz, Oaxaca
5) Progreso, Yucatán
The five new ZEE are all sea ports, with three on the Pacific and two on the Atlantic, and plans exist to boost the number of ZEE to a total of eight in the future. Among the many press releases and speeches in support of the new program, government officials have focused closely on projections of future investment in the zones while saying little about the mechanics of how they will work. Recent reports estimate currently committed private sector investment in the program at approximately US$6.8 billion, and Mexican President Enrique Peña Nieto recently projected the ZEE will generate US$36 billion in investment over the next 15 years. Among the few specifics reported, U.S. gas and oil company Southwest Energy announced plans to invest approximately US$460 million in the Salina Cruz ZEE to build plants for processing natural gas, methanol and synthetic lubricants. The Progreso, Yucatán ZEE, on the other hand, reportedly will focus on developing new patents in software and other technologies for the digital economy.
It’s not clear whether the ZEE program was born of fears over the shaky status of the NAFTA free trade agreement, but Mexican officials have not lost sight of the need for a “Plan B” should the NAFTA pact collapse. The Director of the ZEE Federal Development Authority (AFDZEE), Gerardo Gutiérrez Candiani, recently declared to the media that the ZEE’s fiscal incentive package is more competitive than U.S. President Donald Trump’s recent tax reform for attracting direct foreign investment. We imagine that the Mexican government continues to hope this is not put to the test by a discontinuation of NAFTA.