A Blossoming of Cross-Border Ties With Mexico

What has changed between California and Mexico--indeed, between the U.S. and Mexico--to cause the celebration surrounding the visit of President Ernesto Zedillo this week? Mexico is now “showing the money.”

The possibilities for business with Mexico are greater than ever.

Mexico and the United States now exchange more than $170 billion in goods annually. Mexico bought more than $22 billion worth of services, such as telecommunications, education and data processing, from the U.S. last year.

And Mexico bought $13.3 billion worth of goods from California, according to official figures that understate the actual amount of commerce. Mexico sent 1.3 million visitors to the Los Angeles area last year, for example, making it the No. 1 source of tourism.

California also is home to more people of Mexican heritage than any other U.S. state and, fittingly, is the state that can most help Mexico and benefit most from its development.

But to understand the emerging economic relationship between Mexico and California, we must think beyond today’s statistics to those of tomorrow. Mexico’s economy is still relatively small, $335 billion in annual output of goods and services--roughly 1/25th the size of the U.S. economy. Most of its 98 million people still struggle economically.

Fortunately, Mexico’s promise is greater today because it is operating in a larger context.

“Mexico has become part of a growing North American economy, along with Canada and the United States,” says Robert Day, chairman of TCW Group, a major Los Angeles-based investment firm.

Zedillo’s visit marks the beginning of a trend, not the culmination of one. “Mexico’s development is not a one-year phenomenon; it will carry on,” Day says.

Mexico has become a focus of investment for U.S. firms, and Asian ones, too, which now have more than $30 billion invested in that country, with an additional $10 billion projected this year.

The important point is that today’s investment is different from other times. Years ago, before the 1994 signing of the North American Free Trade Agreement and the 1995 devaluation of the peso, foreign investment was short term in bonds and shares, or in cheap-labor plants along the border called maquiladoras.

Now investment is more permanent. U.S. companies, such as Solectron of Milpitas, Calif., are investing in long-term production-sharing facilities in Mexico’s interior. U.S. companies are investing in real estate and in infrastructure projects.

Two of Mexico’s railroads are now partly owned by the U.S.-based Kansas City Southern and Union Pacific. San Diego-based Sempra Energy is building natural gas pipelines along with Proxima of Mexico to supply gas to Tijuana and Mexicali.

Small companies in Southern California are enjoying growing business in Mexico. Rainbird Sprinkler Manufacturing Co. of Glendora is seeing increasing sales of its drip irrigation equipment to Mexican agriculture.

Universal Agua, a Santa Fe Springs company, is selling water-purification equipment to hotels, resort areas and cities. Universal, which has 100 employees and about $17 million a year in sales, also sells water-bottling equipment in Mexico--”a major growing market,” says Universal Vice President Dennis Nesicolaci.

Mexico is investing in California, too. The phone company, Telefonos Mexicana, or TelMex, will open its U.S. headquarters in San Diego during Zedillo’s visit this week. TelMex’s move of its U.S. headquarters from Houston is a nod to the larger market among millions of people of Mexican heritage in Southern California.

Still, that heritage hasn’t helped California much before now. Texas does three times the trade with Mexico that California does, says Raul Hinojosa-Ojeda, a professor of international political economy at UCLA.

But things are changing. San Diego is involved in cross-border manufacturing of computers and telecommunications equipment, as well as television sets, for sale in Central and South America.

“This region is a production zone for the global economy,” says Charles Nathanson of San Diego Dialogue, a public policy research organization.

So Zedillo’s visit celebrates a more cooperative spirit between California and Mexico. But the Mexican leader also is calling on California to help solve deep problems that remain in Mexico’s economy.

“Mexico’s economy still has serious weaknesses,” says John Rhoads, a California-born Mexican businessman.

For one thing, official Mexican unemployment figures of 3% are woefully short of the actual mark, he says.

“The real wage is $3.50 a day, under-employment is widespread and interest rates of 30% and above mean that small- to medium-sized businesses have no chance to develop,” he adds.

Rhoads, who founded one of Mexico’s main investment firms, has been developing a plan for a Nasdaq-type equity market to encourage entrepreneurship. Officials of the Mexico City Stock Exchange may approve those plans this very week.

What can California do to help? Simple, California’s government and business officials should do what is in their self-interest--work to expand markets for California products and to create investment opportunities for California investors and companies, says USC professor Abraham Lowenthal, a renowned scholar on Latin America.

Lowenthal focuses on Mexico’s need for capital, and for the products and expertise that California can offer in abundance to improve Mexico’s water and transportation, electricity and fuel systems.

He sees opportunities for capital in an obvious place: the money that immigrants here send back home to Mexico.

“California’s government should facilitate mechanisms by which immigrant savings . . . can be combined with local Mexican resources to improve job prospects in the communities that send the most migrants to California,” Lowenthal says.

In a relationship, each partner helps the other. What is new here is that California and Mexico’s relationship is finally moving in that direction.

James Flanigan can be reached by e mail at jim.flanigan@latimes.com.

* ZEDILLO ARRIVES: Mexican leader’s visit prompts a mixed reaction in California. A1