In an effort to spur growth in Mexico's poor and flagging southern states, President Enrique Pena Nieto has unveiled a new legislative proposal to create three special economic zones (SEZs).
Pena Nieto said during his announcement of the legislation in Chiapas that the new special economic zones intend to reduce the economic contrast between the country's northern and lowland areas and the marginalised southern states.
“What these three regions have in common is that despite their high productive potential and, no doubt, their obvious logistical advantages, they haven't been put to good use,” Pena Nieto said.
The zones included in the legislation are the Tehuantepec Isthmus, and the ports of Chiapas and Lazaro Cardenas. If passed into law, the initiative would create a Tehuantepec Interoceanic Corridor connecting the Gulf of Mexico with the Pacific Ocean, stretching from the state of Michoacan across the southern Pacific coast through Guerrero, Oaxaca, Veracruz and Chiapas, and continuing into the Yucatan Peninsula's states of Tabasco, Campeche, Yucatan and Quintana Roo. Along with Lazaro Cardenas and Chiapas, the corridor would include the Pacific port of Salina Cruz and the Gulf port of Coatzacoalcos.
The proposal was developed in concert with the World Bank, which has established similar SEZs in China, Malaysia, South Korea and Turkey.
The zones would provide tax incentives to domestic and international companies to encourage development of real estate, retail, infrastructure, and residential assets in the region, and would provide access to credit through Mexico's Development Bank.
While optimistic, World Bank country leader for Mexico Gerardo Corrochano issued a warning that SEZs aren't an automatic win, and that not all attempts at their establishment have found success-a February World Bank report prepared by senior economist Douglas Zhihua Zeng focused on African and Chinese SEZs noted that while some have achieved great economic success, some tend to lag behind in providing “commensurate social and urban services”, particularly in remote or lagging regions. Such zones, the report said, “have problems attracting high quality investments and talents, and face great challenges in sustaining their growth or upgrading their industrial structures”.
Juan Francisco Torres-Landa, an expert on the Mexican energy space at Hogan Lovells, said his firm believes the trade incentives created by the programme, including a special customs regime with specific incentives related to import and export activities, will be sufficient to draw investors to the region. Once relevant legislation is enacted, the firm believes it will be a good tool to spur development both directly in the SEZs, and indirectly in the surrounding areas.
“China´s experience is a good example of how economic zones may attract investment in selected regions. If Mexico follows, for example, the policy of Deng Xiaoping of 'crossing the river by feeling the stones', it would reduce risks, since that is why Mexico plans to first open just a few zones to measure success of the project before embarking on creating multiple zones,” Torres-Landa said in an email.
Adding a note of caution, however, he said that he and his colleagues believe in order for the new SEZs to succeed, absolute transparency will be an essential ingredient.
“It is also important to highlight that in our opinion, an important part of the success of this programme will be based on domestic involvement (at least during the first few years of implementation) and the results that can then be portrayed to convince foreign investors to follow suit,” he said.