Luis Velasquez Quiroa
President
Consultoría Internacional
Guatemala City, Guatemala
luis.velasquez@consuinter.com

LATAM FDI: Today we have Luis Velasquez Quiroa with us. He’s the President of Consultoría Internacional, a firm located in Guatemala City. Today, we are going to discuss foreign investment in Guatemala. Hello, Luis. How are you doing today?

Luis Velasquez: I am doing excellent in Guatemala City, Central America. Thank you for this opportunity to speak with you and your thousands or millions of followers worldwide.

LATAM FDI: Well, that’s great. I hope you’re right about the millions. Let’s start by talking about your background. You have a very interesting resume. You can give the audience a taste of what you’ve done in your career.

Luis Velasquez: Well, I am a member of the fifth generation of a family that came to Guatemala in the 18th century. I have been in different business. My father and mother always told us how to create jobs, how to create opportunities, and how to attract foreign investment in Guatemala. That’s what we have been doing all our life. I am also teaching my grandchildren that the economy is vital worldwide, specifically for Guatemala, Central America, and Latin America. I have experience in agriculture and industrial services. I have been to many different countries around the world. I was also the Minister of the Economy of Guatemala. I was Secretary of State and a candidate for President of Guatemala. I have my TV program. It has existed for 16 years and produced 740 programs. I am also promoting different foreign investments in Guatemala and Latin America.

LATAM FDI: Thank you for providing us with that informational background. It’ll help contextualize some of the answers to the questions I’ll be asking you over the next 20 or 25 minutes. How does Guatemala’s geographic location impact its attractiveness for manufacturing investments, considering its proximity to key markets and transportation routes compared to other countries?

Luis Velasquez: Do you remember the experts say location, location, and location? We are here located in the center of the American continent. God has blessed us to be in this part of the American continent. We are strategically situated because we have the Pacific and Atlantic Oceans. We are a country that is close to the most significant market all over the world. I mean the NAFTA region. Also, the proximity to the United States is by ship, two days and a half from Guatemala to Miami for the Atlantic Ocean. We are only four and a half days from Guatemala to Los Angeles for the Pacific Ocean. If you go by plane, we will be in Miami in 2 hours and 20 minutes, 2 hours and 45 minutes in Houston, Texas, and Dallas if we can go to Panama in less than 2 hours. We are a very strategic location for attracting businesses. It doesn’t matter if they will be installed on the Pacific or the Atlantic coasts. I will give you an example. The Korean companies, the cluster in textiles and clothing, chose Guatemala. They generate over 100,000 direct jobs or over 5,000, I’m sorry, 500,000 indirect workers. They have invested millions and billions of dollars in Guatemala starting 30 years ago. They chose Guatemala as their operational hub to export to the United States, Central American countries, Canada, and Europe.

LATAM FDI: For companies interested in engaging in foreign investment in Guatemala, can you give us an idea of cost costs regarding industrial real estate prices and worker salaries and how those two things compare to neighboring countries?

Luis Velasquez: Yes. This is a critical issue because to be very competitive, you have to take care of the cost related to each product and industry. Here in Guatemala, a square meter costs $4, an excellent price. In other countries, it’s more expensive. To give you an idea, this is the real estate. I give you the actual cost. Worker salaries here are close to $450 per person per month. But most companies are coming here to pay the minimum wage and invest in Guatemala because we are excellent workers. You are living in the United States. You have seen many Guatemalan people and know we like to work. Companies engaged in foreign investment in Guatemala give incentives based on production. They are going to be more competitive here with Guatemala workers. In terms of electricity, we have a lot. Also, we produce our electricity. We are 100% very competitive. Also, we export electricity to Mexico, Honduras, El Salvador, Costa Rica, and sometimes until Panama.

The cost, if you are going to have a big company, you are going to pay seven or five or four cents per kilowatt per hour. It depends on how much you consume. You can sign a big contract for many years. For example, if you are going to have industrial production and need water, there is a lot of water everywhere. When considering foreign investment in Guatemala, you can be very competitive in all the costs necessary to produce your product or service. For example, in the services industry, we have significant, huge investments from TELUS, a company from Canada. They have facilities here with 8,000 people answering the phone, and they provide customer service. Transactel, for example, is from India and is another company that has chosen to make a foreign investment in Guatemala. We have investments from different countries; I am entirely sure that they are also considering the cost of moving to Guatemala.

LATAM FDI: Regarding Guatemala’s transportation infrastructure, What connectivity does the country offer to global markets, particularly concerning ports, airports, and road networks?

Luis Velasquez: We have excellent connectivity by plane. Every day here, we have flights from Guatemala to 10 different cities in the United States. Also, we have connections with Europe, Panama, Mexico, and South America. We have an excellent connection in terms of airports. We are also developing a network of regional airports in the different departments of Guatemala. Another airport will be for cargo in the Pacific Ocean, which will give more competitiveness to companies engaged in foreign investment in Guatemala. We have around 35 other airlines that are coming to Guatemala. Regarding business travel, Guatemala has the highest number of people in Central America and the Caribbean. Also, in terms of ports, we have ports in the Pacific and Atlantic Oceans. We are ready to expand those ports in the Pacific and the Atlantic Ocean to be more competitive, grow the economy, and be part of the global markets. There is a project to recover the railroads we have had since the 18th century from the south border of Mexico through Guatemala. Then, we are recovering rail service from Guatemala to El Salvador to Honduras, the Pacific Ocean, and the Atlantic Ocean.

Regarding the trucks on the roads, we are using an APP system, and we expect this new government to develop more roads because it’s essential for competitiveness and attracting more foreign investment in Guatemala.

LATAM FDI: What are the dynamics of the country’s labor market in Guatemala? Talk about unemployment rates, the presence and influence of labor unions, and the overall market conditions for manufacturing industries in Guatemala if you could.

Luis Velasquez: We have less than a 5% unemployment official rate, but we have close to 70%, 75% of the people that are in informal production, which means that they have their own business. The relationship with the labor unions is excellent. Guatemala respects all the rights of the workers. There is no problem. Also, companies and business people always try to take care of their teams. They have good policies to invest in the people, not only talking about money but also about training, career development, and a good work climate at the companies. We have excellent relationships with the labor people. With the unions, we are fine. Of course, we are not perfect. You know, some people are pushing sometimes. But talking about it in general, the companies don’t have big problems with the workers, and they don’t have big problems with the unions. The excellent issue for foreign investment in Guatemala is that the people here like to work a lot. Of course, they want money. They want to be better, but we don’t see any problem with the unions.

LATAM FDI: Well, how does Guatemala fare in terms of proximity to suppliers, especially concerning access to raw materials, components, and intermediate goods? Additionally, what is the quality of the suppliers found in the country?

Luis Velasquez: The suppliers in Guatemala understand that they are competing in the global market, so they have excellent quality. They are very committed to the contracts that they sign. Of course, the prices are a significant factor. The suppliers in Guatemala don’t think only of the Guatemalan market. They supply some goods to the United States and Latin American countries. We call these companies Multilatinas, which means that they are not only companies for Guatemala but are not only for Central America. They think they must compete, at least in the American continent. Also, we have excellent access to raw materials from the United States, Colombia, Brazil, and Chile, as well as from different countries. For every dollar we import all over the world, 38 cents we import from the United States, which means outstanding quality and reasonable prices. We import 16% from China, and almost 50% comes from Germany, Spain, France, South Korea, and Japan. In terms of the companies that are working here, they have an excellent relationship with the suppliers worldwide.

Honestly, I don’t remember having a problem because of the quality or because the suppliers needed to give the products at the right time. Even when we experienced the coronavirus, it was challenging worldwide. But thanks to God, we have a stable relationship with the suppliers, the local suppliers, and the international suppliers. The excellent issue is that all the companies, nationally and internationally, use the system of the banking system in Guatemala and all over the world. At present, we don’t have claims, we don’t have problems, we don’t have lawsuits. I cannot say everything is perfect, but the average situation with Guatemala’s suppliers and foreign investment is generally good.

LATAM FDI: Regarding political stability, what certainty can foreign investors expect? Are there any incentives the Guatemalan government offers to attract foreign direct investment?

Luis Velasquez: Okay. Guatemala has different systems for the free zones, which we call Zonas de Desarrollo Económico Especial Público Privada. These offer ten years of tax exemption for all the machines and all the equipment you bring to your factory. You do not have to pay any taxes for ten years if you are going to export everything. Can you imagine what that means? That’s an excellent incentive. If you sell to the Guatemala market, of course, you have to pay the sales tax, which is 12%. You will have to pay the income tax for the revenues, which could be 7% of the total gross that you are going to manufacture, or there is another option: you will pay only 25% of the net income. Knowing about those different regimes is essential when considering foreign investments in Guatemala. Also, we recommend that companies investing here in Guatemala take advantage of the CEDEP’s regime to have tax exemptions for ten years. But the most important is that they are going to use all the benefits that we have with the United States because we have the CAFTA-DR, Central American Free Trade Agreement, which means all Central American countries with the United States have a free trade agreement with Mexico also, with Colombia, Chile, Peru, Ecuador.

We are the only CAFTA member with a free trade agreement with Europe. That’s the great news. No other country has this excellent opportunity in Latin America. If you are making a foreign investment in Guatemala, you should have the vision to export to the American continent and Europe. It depends on the product you can export also to Japan or India. For example, one of the biggest companies worldwide that manufactures industrial gloves is based in Guatemala, the American continent. It’s a company with capital from Japan, and they chose Guatemala. They are inside one of the Zonas de Desarrollo Economico, Especial Publico Privada, and they are taking advantage of the fact that we are one of the biggest exporters of rubber and latex in the American continent. They use that as raw material and export it all over the world.

LATAM FDI: I know that you’re involved in a new development in one of the free zones, and it’s called Zona Franca Quetzal, or the Quetzal Free Zone. Can you tell us about that and what it offers to investors?

Luis Velasquez: Well, Free Zone Quetzal, or Zona Libre Quetzal, has an excellent location in the Pacific Ocean. We are only 5 kilometers from Puerto Quetzal in the Pacific Ocean, 5 km from the international airport for cargo, and 2 kilometers from the main highway. Also, the government is rescuing a railroad almost three kilometers from the free zone. Also, there is a lot of infrastructure for a new highway between the south of Mexico and El Salvador, located only 100 kilometers from Guatemala City. That gives us a great opportunity. It’s an excellent location to bring industrial and service company investors. The industrial zone is over 1 million square meters. That’s the first phase, and it can grow. The plans are to develop more Zonas de Desarrollo Economico-Especial, Público-Privado; you can call them free zones. We plan to develop in the Pacific Ocean, the Atlantic Ocean, and other sections of the country. This is still significant because we want to cooperate with people looking for the best job opportunities for foreign investment in Guatemala. There will not be more migration to the United States because we offer excellent facilities for companies investing in Guatemala.

We have been receiving calls from India, Taiwan, Korea, Japan, China, 12 or 11 different countries in the European Union, of course, the United States, Canada, Mexico, and other countries in South America. That is good news, and it is very well-located. We are very well-located, and we have the vision to develop Zona Libre Quetzal and to have, let’s say, 100 customers. We expect to create more than 50,000 jobs in that location only. Still, there are more free zones in Guatemala because companies are looking to our country, and we want to take the opportunity for relocation for nearshoring. We understand very well what this means for companies in the United States and Canada and what this means for companies in Asia that want to sell on the American continent.

LATAM FDI: We’ve covered some ground over the last few minutes. If somebody wants to contact you to ask a question related to foreign investment in Guatemala, can anybody who’s a listener with a question get in contact with you?

Luis Velasquez: Yes, Steve. I can give you my email address, which is luis.velasquez@consuinter.com. I will gladly answer all the questions, and we expect to still receive many questions. Thank you for your interview today.

LATAM FDI: Also, if you don’t mind, at the top of the transcript section of the podcast, would you allow us to put a link built into your name on your LinkedIn page? That way, it would be another direct conduit for people to communicate with you. Would that be okay?

Luis Velasquez: Yes, Steve. I appreciate all your help. Remember that we should work as a team. We love to work as a team, especially with you and many people from your company and, of course, more companies worldwide. Now, we should understand that we need each other and that for Guatemala, in this case, each new job means a new opportunity. The people need more opportunities.

LATAM FDI: That’s correct, and we can all agree. I wish you good luck, and thank you for participating. I look forward to communicating with you and hearing how your development at Zona Franca Quetzal is progressing.

Luis Velasquez: Thank you, Steve. We will keep in touch with you. Remember, anytime you are welcome to come to Guatemala to visit Zona Libre Quetzal, if you want to bring your clients and different companies worldwide, we will take care of you and your associates. We will be glad to give you a special tour. This is your country. The eternal spring of Guatemala is open to do business with you and your colleagues.

LATAM FDI: Thank you very much, and have a great day

Mauricio Claver-Carone
Manager and General Partner
LARA Fund
Miami, Florida
mauricio@larafund.com

LATAM FDI: Welcome to this episode of the LATAM FDI podcast. Today, we have Mauricio Claver-Carone with us. Mauricio has a very interesting background, but at present, he is the manager and general partner of the Latin American Real Assets Opportunities Fund called Lara Fund by its acronym. I want to welcome you, Mauricio. Since you’ve got a very interesting resume, perhaps you could tell us a little about your experience related to investment in Latin America.

Mauricio Claver-Carone: Well, thank you. First and foremost, thank you so much, Steve, for the invitation. Thank you for what you do. This podcast is great. The work you do regarding Latin American FDI is fantastic. I follow everything you put out, and I think it’s a great resource for all investors looking at investment in Latin America. Frankly, it should also be in my past life to the policymakers, looking at how to have good policies that help US investors in Latin America and the Caribbean, which should be a priority, hopefully, for all investors here. Unfortunately, we’re going to go a little bit into that. Look, I’ve had a colorful career. I began my life as an attorney. By training, I began my career in the Treasury at the OCC, controlling the currency, securitizing, and banking law. There, I did Basel II, et cetera. In various situations,  I went to Treasury to be a senior advisor in 2016 with Secretary Mnuchin and Undersecretary Malpass, who became President of the World Bank. From there on, I had the privilege of serving as the US Representative at the International Monetary Fund, where I had a full plate.

In the time I was there (I was there for eight months), and that’s where the big Argentina program came in 2018, so that kept my hands full. But we also were able to do many great things with Ecuador at the time,  as well as with Barbados and Suriname. So that was a great opportunity there. Until I was called by President Trump to serve as a senior director for the Western Hemisphere. So basically, the President’s Senior Advisor for the Western Hemisphere at the National Security Council in the White House. That was a great privilege, which I got to do for two years, from 2018 to the end of the Trump administration in 2020, when I was elected as the first American President of the Inter-American Development Bank, where I served for two years until 2022. Now, I’m in the private sector and focusing a lot of the experiences we learned on what worked or what didn’t work regarding investment in Latin America and the Caribbean and what we preached regarding the private sector investment. I always prided myself on being someone who practices what they preach and walks to walk, not just talks to talk.

Now I’m a private equity investor, and we’ve created this Latin America Real Assets Opportunities Fund, which we know as the LARA Fund, in partnership with Hudson Sustainable Group, which was the pioneer of sustainable investment created back in 2007 by a former partner of Goldman Sachs, Neil Arbach. We’ve been off to the races. It’s been a fascinating experience seeing the opportunities that abound in investment in Latin America and the Caribbean, particularly the undercapitalized countries that pose less risk and are often overlooked, which are some of the smaller countries in the region. But I know we’ll get into that.

LATAM FDI: Yes, we’ll get into that. Today, we will discuss foreign direct investment in large countries in Latin America versus small countries. With that in mind, Mauricio, can you first tell us how the market scale influences the decision-making process for foreign direct investment in large versus small countries in Latin America?

Mauricio Claver-Carone Yes. Look, that’s been the conventional wisdom of the past, and I think that’s been a big obstacle. People have always said, Oh, the market scale is not there in the smaller countries. I frankly disagree with that. I think that’s an old way of looking at things. As a policymaker, I always used to say small countries represent big opportunities for investment in Latin America. Unfortunately, policymakers have always, regarding the Western hemisphere, overly focused on Mexico, Brazil, and Argentina. It’s almost like you focus on those three; everything else comes after. I think that’s been a mistake. I think if you look at it per se, all three of those countries are G20 countries. There are geopolitical realities. Sure, we understand all of those. But at the end of the day, as investors, particularly nowadays, we’ve overlooked and missed the biggest opportunities and, frankly, as US investors, the most pro-American countries in the region. Today, the top five growing countries in Latin America and the Caribbean are smaller countries. The highest growth economy in the world today is Guyana, based on its energy findings and the evolution of that industry there.

But followed by that, you have Panama, Costa Rica, Paraguay, and the Dominican Republic, all of which are small countries doing all the right things from the perspective of investment in Latin America to attract these investors. Now, going to your question regarding the market. Before, the excuse was like, well, you had to be in Mexico, Brazil, and Argentina, though that’s complicated by currency issues, etc. But at the end of the day, you had to be in those three countries because they’re the only ones with big enough markets. And that’s very narrow, closed-minded thinking, frankly, to save unless you were looking to sell as a distributor of some consumer good. But what do we do at LARA? We are involved in investment in Latin America. We invest in energy and infrastructure. You can see how these things have translated and have transformed over the years. The biggest infrastructure finance gap in the entire world is in Latin America and the Caribbean. At the end of the day, it doesn’t matter about the size of the market or the scale of a country. Let’s say, for example, when we invest in a renewable project, this whole fund came about initially with a big solar investment in Uruguay, which we can talk about later.

However, a 10100-megawatt solar facility in Uruguay is the same as a 10100-megawatt solar facility in Brazil. It’s a 100-megawatt facility. At the end of the day, even though the Brazilian market is so much bigger than Uruguay’s, at the end of the day, when it comes to infrastructure and energy, the market doesn’t matter. It’s the opportunity and the ability to bring a project to fruition. That’s where the big opportunity for investment in Latin America lies and where the risk factors play favorably. The reality is, and we’ve done this in our fund, the relative risk analysis of the smaller countries, including those five fastest-growing economies in the region that I just mentioned. But in addition to a lot of other smaller ones, including Uruguay, Ecuador, El Salvador, the Bahamas, Barbados, et cetera, these are countries where at the end of every day, the opportunity to come in, the investment opportunities, per se, tend to be often overlooked and tend to be a lot easier. Frankly, the biggest challenge has always been, from an investor perspective, the scale of those projects. A lot of the big investment funds, for example, haven’t been in these countries because the ticket sizes haven’t been big enough.

That’s been the problem. Now, that’s something that we’ve tailored ourselves to be first movers here in these countries for investment in Latin America because our ticket sizes are 50 to 100 million. So, they favor those countries, particularly if you’re a big fund only looking for billion-dollar tickets, then these countries may be smaller. But it doesn’t change. The market size doesn’t change the opportunity any which way, shape, or frankly, that’s been an excuse. And it’s been an excuse also that’s done a lot of damage to a lot of the countries in the region, if I may, because in the way that in the past, we looked at trade agreements, it’s bunched these countries up. For me, the biggest example is always the CAFTA-DR. At the end of the day, look at CAFTA-DR and lose its pigeon-held these countries in through literally and have ignored their comparative advantages. The funny part is that for all the talk of the CAFTA-DR in regards to manufacturing and apparel and all this stuff back in the day, the reality is CAFTA didn’t stop US apparel makers, global apparel makers, etc., from literally taking off to China and Vietnam. On the contrary, the limitations of CAFTA and pigeonholing these countries as a big group rather than looking at the individual comparative advantage of Guatemala, El Salvador, Honduras, Costa Rica, Dominican Republic, has actually held these countries back from investment in Latin America and has really withheld the opportunity to find the best opportunities for each individually tailored country instead of bunching them up.

Why? Because it goes back to your question. Because the myth was you had to create a bigger market. Because it had to be a bigger market because if not, they didn’t matter because they weren’t Mexico. I think that’s a huge mistake, one that I think hopefully policymakers will try to fix. In my policy-making days, we had created an initiative called America Crece, Growth in the Americas. The whole notion of the program was to create energy and infrastructure frameworks with countries in the region. By the end of the previous administration, we actually had half of the countries in the region involved. So, 16 countries in the region had signed on to these investment frameworks, and we were actually creating a pipeline of actual deals where they were most successful in Panama and Ecuador, and we can go into that. But the whole point was that that’s where the big opportunities were. They were just glaring at us in the face. But we were always so focused on Mexico, Brazil, and Argentina. And in the case of Mexico and Brazil, these are countries that, frankly, should have developed their upper middle-income status and should have developed deeper markets.

They’re G20 countries. There are plenty of investors there. There are great opportunities there. They don’t need us to have that ultimate focus. And by the way, just one last thing that people overlook with smaller countries, if you ask any big investor, and I’ve literally been all over the world, and I’ve talked to institutional investors everywhere. When you ask them, what are they doing regarding investment in Latin America and the Caribbean? They say, Mexico, Brazil. And then That’s it. And then you say, Okay, well, and then what are you doing now? Like, well, Mexico and Brazil, but we’ve lost money. They always had some deal that went really bad. So, they’re not even that bullish about it. And you say, Well, what happened? It’s always a currency issue. So, there’s been a currency issue. The other thing that’s overlooked where we focus on the LARA Fund is that the countries that we seek that are part of our thesis are also countries that pose very little to no currency risk at all. They’re dollarized countries like El Salvador, Ecuador, and Panama. There are pegged countries like Bthe Bahamas, Bermuda, and Band Elize that are pegged. And they’re countries that have very stable currencies and that the deals are in dollars, whether it’s Costa Rica, Uruguay, etc. Or that are based on energy and energy development like Guyana, Suriname, etc. It’s really about not being lazy. It’s about digging a little deeper and not finding excuses. I’m sorry for the long answer to your question. The bottom line is that whole market thinking has been an excuse. It’s been lazy thinking by policymakers and investors who were looking for the easy way to get either a political win by bunching a bunch of small countries up together or by literally just trying to get a big ticket on one and not really digging a little deeper to mark further investment in Latin America.

LATAM FDI: It’s a good idea to turn over a few stones to find opportunities that exist. Correct?

Mauricio Claver-Carone: You got to do the work. You got to pull up the sleeves, and you got to do the work, and you got to find them. But like I said, it’s unfortunate that the entire investing world has become a little bit lazy. You have hundreds of billions of dollars in capital that are being popped up to these big, huge institutions that are now sitting on tens of billions of dollars. They’re complaining that there are not enough deals because they need more deals. But the thing is that they only want to write. They’re sitting on so much capital that they only want to write multibillion-dollar tickets because they want to just get out that money fast enough. You literally need to roll up your sleeves and and those opportunities. In these small countries, which, Hey, look, that’s what we’re here for, Lara Fund. We’ll do the work for them. We’re looking to find those opportunistic deals for investment in Latin America that have smaller ticket sizes. But at the end of the day, they’re very good energy infrastructure deals that consider market size e,t cetera. Like I said, 100 megawatts in small countries is the same as 100 megawatts in a big country.

LATAM FDI: Exactly. Well, what are the regulatory differences between large and small countries in Latin America regarding FDI? And how do they impact the investment strategies that you implement?

Mauricio Claver-Carone: That’s another point in favor of investment in Latin America in smaller countries. If you look at the regulatory environment in a lot of the smaller countries, they are some of the most open to having the greatest fiscal investment policies and regulations, definitely compared to a lot of the bigger countries in that sense. I think of, for example, a country nobody thinks about, unfortunately, Paraguay. You would be hard-pressed to find a single country anywhere in the world with a better fiscal and regulatory framework for foreign direct investment than Paraguay. Yet people aren’t as focused on it, except obviously, if you’re in that area. The funny story is not funny because it’s tragic, but good for Paraguay. But the story you’ve seen over the last decade has been about genuine businesspeople and investors, taking their products and setting up shop in Uruguay and investing those earnings and revenue into Paraguay. And then you get to Asunción today and it looks like a skyline of Miami because literally it’s like a whole Argentine money building out the real estate there, et cetera. It’s a wonderful place to invest with wonderful regulatory and fiscal incentives and things of the sort, but people don’t think about it when they think of investment in Latin America.

You have got to dig a little deeper. Frankly, look, when you think always about Panama, Costa Rica, the Dominican Republic, et cetera, the conversation has so long been focused on these free zones and free trade zones, et cetera. At the end of the day, for me, it’s just like, these countries, at the end of the day, need to stop thinking about designated zones and making their entire country free trade zones. At the end of the day, that’s the easy path. A free zone or a concession in that sense is great, but at the end of the day, fruit functions within that sphere. Now, are they perfect? No. Are there challenges? Yes, 100%. But compared to the big countries, compared to Mexico, compared to Brazil, no. It’s like at the end of the day, it’s actually a lot easier to do business in these small countries. It’s a lot clearer, and sometimes the incentives are a lot bigger. By the way, in differentiating big and small countries, I didn’t mention the middle tier; I consider them smaller. Colombia, Peru, and Chile, that’s the middle of the road. They’re not big and they’re not small. They’re medium-sized countries in terms of investment in Latin America.

I think they’re a little bit different. I think they’re as well, and that’s why in LARA Fund, we’re also focused on those three countries. There are great opportunities. Those countries have a bit higher risk levels than the smaller countries that don’t have currency risk or have very little institutional risk. I think the risk level there is a little bit higher on the currency side, but the timing right now is really good. In those countries, you see a ton of, for whatever reason, because of the political cycles, because of other events, et cetera, you see a ton of assets that are in dire need of capital, I dare to say, distressed, all the worst you’ve got throughout the region. And great opportunities to come in. The currencies have been fairly stable, whatever has bottomed out, et cetera. When you look at a country like Colombia, yes, sure, the national government is complicated, is complex, to put it diplomatically. But business in Colombia is done very much at the city and regional level. At the end of the day, when you look at those governors and those mayors in the business pockets in Colombia, they’re all very business-friendly, et cetera.

In Chile, you’re seeing that transition as well as it relates to investment in Latin America. At the end of the day, Chile is a very strong institutional country with a very strong business community. It went through discovering itself politically, again, to put it diplomatically. But you’re seeing, again, that transition away, and what you’re going to see is a very strong pro-business wave that’s going to come into that country, also presenting good opportunities. Peru is a fascinating country. It’s just like an enigma, right? Even though it’s very difficult to remain a sitting president in Peru, it’s just very challenging, and it’s gone through all of that. The business community has, obviously, because of good leadership at the Central Bank, the currency has been very stable. The opportunities in its placing in the logistic chains are very strong, and it’s remained just a great place to be able to invest and to do business, which goes, by the way, into your previous question as well in regard to logistics. A lot of this has changed because of also regarding thinking about market size, et cetera, because nowadays the logistics chains are so complicated in that sense. People also have to think about, okay, what are the countries with the best infrastructure for logistics, regardless of their market size.

I don’t hear today ironically, I don’t hear investors today talk about Mexico as, Hey, Mexico, the federal government, it’s not easy. They don’t seem to be great with foreign investors seeking to make an investment in Latin America, but we’re still investing there because the infrastructure is developed, thanks to NAFTA, now USMCA, and the infrastructure exists there. So now, the excuse is not market size. The excuse is, Okay, yes, we like Costa Rica, but does it have the infrastructure to supply our logistics needs or our logistics, transportation, supply chains, et cetera? That’s the question now. Now we’ve gone from, do the markets, ?sIshere a market size, toando they have the infrastructure necessary to develop? Unfortunately, not, because they’ve gotten for so long, for decades now, pigeonholed into these thread lines and into thinking about… And it’s this whole notion of integration. Integration is fascinating to me because it’s become the political talk for decades. The region has to integrate, yet it’s the least integrated region globally. The different trade agreements between the different countries make them lose billions of dollars a year because they’re super complicated, et cetera. I always tell leaders of these countries to focus on your country and where it is positioned concerning investment in Latin America.

Costa Rica will be great and can be great, not because it has a free trade agreement with five other countries in the region, but because your domestic fiscal, and regulatory policies are attractive, are the best, and are where the opportunity lies. That’s what investors look at. Investors don’t care that Costa Rica has a free trade agreement with Peru, Chile, or El Salvador. They don’t care. What they care about is what our domestic framework looks like. Forget the integration talk and focus on what your country looks like, your comparative advantages, and how you can stand apart from the bunch in that sense to attract investment in Latin America.

LATAM FDI: Looking at a softer variable, I guess, would be one way to put it. How do cultural and linguistic factors play a role in approaches that you make in investing in large and small countries in Latin America?

Mauricio Claver-Carone: For the LARA Fund, the region in itself has a cultural and linguistic comparative advantage for US investors. At the end of the day, because of proximity, because we all live in the same neighborhood,  and because we have Hispanic populations. I am of Hispanic descent. Because we have the cultural links, et cetera. So, it should be a friendlier place. And by the way, tourism is fascinating. At the end of the day, and particularly post-COVID, this is going to be a great area of continued growth in the region. People want to go closer to their homes. They don’t want to go as far away as they used to in many regards. These are great opportunities. So, they know these countries, et cetera. I think that in that regard, it plays an advantage. I think the challenge is thinking that these are all, and this again goes to the laziness of policymakers and, frankly, investors in the past, thinking that these countries are all the same. They’re like, Oh, yeah, yeah, yeah. Hey, we’re investing in Costa Rica. We’re doing this, or in the Dominican Republic, we’re doing this. They’re like, Oh, yeah, I’ve been to Mexico, so I know what that’s like.

No. At the end of the day, What has to be appreciated, when I was in government, I banned the use of the term Northern Triangle. I said, No one in any document, anywhere, uses the term Northern Triangle in any which way, shape, or form. What it ignores is that even in that case, El Salvador, Honduras, and Guatemala, those three countries are so different. The people are different, they look different, they eat different food, they speak with different accents. Their economies are different. Their governments are so different. What we continue to miss when we bunch these countries up is we continue to miss the particular opportunities in those countries. I’m repetitive now, but the comparative advantages that exist in those countries are important. While there’s generally a comparative advantage for us, and obviously because this is part of our neighborhood, and now, particularly post-COVID, it’s just a great opportunity. Look, here’s what’s so frustrating to me. When COVID took place, there was a unique opportunity, and we really, really banked upon it. I took this on later when I was president of the bank. We were banking on this whole notion of nearshoring and reshoring. Reshoring was real, and it is real.

It is real. Has it met its potential? No. No statistic frustrates me more than when you look at the countries that have benefited the most. If I ask you what the three countries have benefited the most from the decoupling that has taken place between US companies and China if you look at the top five countries, none of them are Latin American or Caribbean. It’s been India, Thailand, Vietnam, and Korea, all in Southeast Asia. That’s extraordinarily frustrating because the natural notion should be reshoring and nearshoring. We bring back the industry here to the US and to the region, and there you have mutual growth through investment in Latin America. For me, the concept of mutual growth is just so common sense-wise in that regard. It makes a lot of sense to us… It’s where we should be focused. But we went into then, unfortunately, the current administration there’s this whole notion of global friendshoring. And so, all of a sudden, Asia is the biggest beneficiary. When the natural affinity, like these countries, we talk about our understanding of these countries, but these countries also understand us.

The big talk is about of Chinese investment in the region and how they’re all over the place involved in investment in Latin America. I don’t know a single country, and definitely not of the smaller countries, where if you sit a Chinese investor and a US investor next to each other they say, hey, I want the Chinese investor. They want a US investor. They want this because that’s what they feel the most comfortable with. They’ve been educated in the US. They have links to the US. It’s our natural trading partners, our natural investment partners, et cetera. But it’s literally about showing up. It’s about finding the opportunities. From the country’s perspective, it’s about facilitating the opportunities by creating an environment that they can then take advantage of and not fall into the same political jargon or excuses we’re not big enough. And then you get these complexes, these are these silly complexes, oh, we’re not big enough. Oh, we can’t compete with Asia. Or we’re not, whatever. No, let’s roll up our sleeves. Find one deal at a time to promote investment in Latin America. One deal at a time, we can make this happen. We can find these opportunities. That’s what we’re now set up for in the LARA Fund.

That’s what we do. We’re finding these opportunities one at a time, and it’s amazing how much is out there and what can be accomplished.

LATAM FDI: Well, talking about going through the whole process of assessing investments of the type you seek out in Latin America, what are the profile risks associated when examining small versus large countries? How do you navigate those differences?

Mauricio Claver-Carone: That’s a great question. Look, there are three types of risk, generally speaking. There’s political risk, there’s currency risk, and there’s operational risk. From the political risk perspective, our risk analysis that we’ve done, our proprietary risk analysis of LARA Fund, we’ll show it to our investors. We believe the smaller countries provide less risk. They have strong institutions, have great opportunities, and, from a political risk perspective, have an advantage over the larger countries. From a currency risk perspective, we have already talked about this. If you look at what we call the LARA 12, which are our tier countries, a lot of the deals are in dollars, so there’s no currency risk per se. At the end of the day, these are countries that are either dollarized, pegged, et cetera, or energy deals that are dollar-based, et cetera, which minimizes that completely. At the end of the day, ultimately, in what is political risk and currency risk, and I told you what institutional investors think about, they’re interested in Mexico and Brazil because of the big tickets, but they’ve lost money at some point over the last 20 years because of currency risk. That puts political risk and currency risk in the win column for the smaller countries versus the bigger countries when considering where to site investment in Latin America.

The third part is operational risk. That’s where at the end of the day, it’s really about to sponsor the operator, and then that’s where investors like us come in. Our job for investors is to ensure and de-risk and to make sure that the operational side goes as smoothly as possible. That’s where our asset management side makes an important difference. My partnership with LARA’s partners, Hudson Sustainable Group, was all born off of the biggest solar portfolio in Uruguay. It was one of those interesting deals whereby there was a lender. It was a Chinese borrower, ironically, that defaulted because, lesson learned in the private sector, the Chinese do default, and they do it a lot because they like to distress assets in the region. There was a Chinese borrower who defaulted. There was a multilateral that had this huge long-term loan on there that we needed to get out of the way because, yes, the Chinese default, but yes, the multilateral distress because they have these big, huge long-term loans with a ton of contingencies, and so they’re not conducive to having projects operate well and go through to fruition.

Got all those out. Here comes this US investor, Hudson, who came to this project two and a half years ago, suddenly with good asset management. Basically, the project that I saw was producing 40% more energy. Some things were no-brainers. How about I put a security fence around it so people can’t cut the copper? But also just efficient management. With efficient management, it was producing 30 or 40% more energy. In two and a half years, it was sold to a Canadian fund with almost a 24% net IRR. Wow. Imagine that. By the way, when people talk about exits in the private equity world, et cetera, today, there are people, investor funds are looking for functioning assets that work, and they’ll come in, and they’ll buy them There’s no doubt about that. So, that opportunity exists. Really, where the operational risk, where funds like ours come in as LARA, is that we make sure and wde-riskon the operational side. That’s our job. Now, here’s something interesting that I’ve learned. It’s funny how you go from a treasury banking lawyer to a policymaker to an international financial institution head, and then as a private equity investor, there is. It helps explain a lot of the challenges we had before, whether it’s in the multilateral space or the government, there’s not well-developed private equity culture in Latin America and the Caribbean.

It’s mostly a debt culture, with the exception somewhat of Brazil and Mexico to a degree, where private equity funds are in that space to make assets, et cetera, more efficient. But in the smaller countries where there is investment in Latin America, in the medium countries in particular, there’s really not a private equity culture. I think that’s a great opportunity because our goal and coming in as partners, we’re looking to be in these projects to help make them more efficient, to help them create value, to add value, to create value, to grow, and then welcome in other investors in that regard. It’s like a value chain multiple that’s created there. It’s a great opportunity. It’s been, I think, a challenge in the past, but it’s a great opportunity. But it’s also a lot of education. We’ve realized there’s been an educational perspective of explaining to people why It doesn’t take a lot of effort because they get the notion of like, Wow, it’s great to have a US investor here that is going to help get this asset running and make it work and make it work more efficiently with their resources and with their strategic partnerships and with their know-how, et cetera.

It’s a win-win for everyone. It’s a win for the domestic operators. It’s a win for the US investors. It’s a win for everyone. It’s what a true partnership looks like.

LATAM FDI: One thing that we’re pleased with at LATIM FDI is that our listenership seems to be growing steadily. And because that is the situation, we like to ask people we interview if they would be willing to take questions from listeners. And if they are willing to take questions, how would the listeners contact someone like yourself with your expertise to be able to ask what they have on their minds?

Yeah, I would love that. I welcome that. I’m on LinkedIn. Mauricio Claver-Carone. I’m easy to find. Whether through you and your side or mine, I am happy to connect and happy to answer questions and explore opportunities.

LATAM FDI: Okay. Then, we’ll do what we do with all of our other interviewees at the top of the section on the page where the transcript begins. We’ll have your name and your LinkedIn link attached to that. We’ll have the name of the Lara Fund. We’ll have your website, and we’ll include your email so that anybody who has any questions or has any potential leads for you in terms of good investment opportunities will be able to get in contact with you.

Mauricio Claver-Carone: I look forward to it.

LATAM FDI: Well, thanks a lot for speaking with me today. It was very interesting, and good luck.

Mauricio Claver-Carone: Thank you, Steven. Thank you for all your work.

Porfirio Waters
CEO
The Trade Flex Group
McCallen, Texas
pilo@trade-flex.com

LATAM FDI: Today, we have Porfirio Waters with us. Porfirio is the CEO of a company based in McAllen, Texas. It’s called Trade Flex Shelter Services. Today, we will have a conversation about the IMMEX program in Mexico. Welcome, Porfirio. Please tell us about yourself and your company.

Porfirio Waters: Hi, Steven. Thank you for the introduction. My name is Pilo Waters, and I’m the CEO of Trade Flex Shelter Services, or better, the Trade-Flex Group. We specialize in business model analysis, manufacturing management strategies, duty tariff optimization, compliance management, and any regulatory consultation for businesses trying to do a soft landing in Mexico. That’s what our core competency is. We ensure that companies that utilize the IMMEX program in Mexico can succeed. Customer success is critical to us. We also make sure that their cross-border operations are efficient, compliant, and cost-effective,

LATAM FDI: Well, today, we’re going to concentrate on a particular issue, the IMMEX program in Mexico; it is particular to Mexico and its Maquiladora Industry. Porfirio, can you tell us what the IMMEX program in Mexico is? How does it function to promote foreign investment and export-oriented manufacturing?

Porfirio Waters: Well, thank you. The IMMEX program in Mexico is an acronym. It stands for the Manufacturing Industry, Maquiladora, and Export Service. The IMMEX program in Mexico was initially started as the maquiladoras in the old days. Everybody is familiar with the term maquiladora, which was initially established in 1964. Back then, it was called the Fomento a la Industria Maquiladora. It was changed to the IMMEX program in Mexico in 2006. They changed the scheme, making it more modern and more involved with the fiscal aspects of companies to make them more of a bonafide Mexican legal entity. The Maquiladoras, before 1964, were created because the Bracero program ended, and the Mexican government had to produce a way to attract foreign investment.

The primary purpose of the IMMEX Program in Mexico is to allow foreign-based manufacturers to import raw material components into Mexico and process them into manufactured goods for export. Under IMMEX, the benefit is that you can do this without paying any import duties and some of the taxes involved in Mexico. The IMMEX Program in Mexico helps companies with taxes, duties, and things like that, especially countervailing duties and value-added tax.

Mexico does have a value-added tax system, so you get the benefit of avoiding it.

LATAM FDI: As an expert in the IMMEX program in Mexico and dealing with companies that invest in the country to do export-oriented manufacturing, your business plays an active role in guiding companies through the process of getting the IMMEX designation. Is that correct?

Porfirio Waters: Yes, that is correct. We’re involved at the beginning with companies when they are engaged in doing their business planning, their cost models, and things like that. We also help them go through all the steps involved, which can become pretty complicated. They are dealing with a foreign country, so they must understand Mexican tax and business laws and how to structure the entity. We help clients from the very beginning to structure the entity, comply with all the regulatory requirements, and analyze their business model to ensure success. Not all projects are made for the IMMEX program in Mexico. We want to ensure that all clients are successful, and because of this, we want to participate in the due diligence process. Also, as a licensed federal customs broker, I can look at duty strategies, especially in a multinational environment, because many components come from Asia or other countries. We look at the business model to ensure that the goods companies make in Mexico meet substantial transformation requirements. With what’s going on with China in particular, this is very important.

So, we help customers analyze that. We file customers’ rulings on their behalf just so that when they begin operations under the IMMEX program in Mexico, they’re very secure in the decisions that they’ve made. This is because some of these decisions are very expensive and long-term decisions. We help them with all of that.

LATAM FDI: You made a distinction, and you mentioned that you look at a company that you look at, a company, and the IMMEX program makes sense for them and not for others. Can you tell which types of companies it makes sense for and which companies it doesn’t make sense for?

Porfirio Waters: Well, most importantly, the companies that it makes sense for are the ones that can benefit from the labor costs because the majority of savings in Mexico comes from labor. Most expenses are greater in Mexico than in the US. The actual savings is in labor. We see a lot of companies that may come to Mexico with only a 13-employee operation or 15-employee operation. They may already need help in the US to be profitable. They think that by coming into Mexico, they’re going to be profitable all of a sudden. They do not have the labor content required to benefit from being in Mexico. For example, the electricity, utilities, and rent might be more expensive than they’re used to paying in the US. They sometimes discover this after they’ve already launched their project. Then, once they decide to go to Mexico, it’s different from the US, where you can furlough and lay off people. Mexico has stringent laws that protect the workers, where companies have to indemnify them and liquidate them entirely off your payroll before they can let them go. Those are some of the factors that are involved.

Another common issue is that some customers may think they will bring a semi-knock-down product into Mexico, assemble it, or do the finishing operation in Mexico and then with Chinese components. For example, they intend to get it into the US but must pay duties because it is not considered a Mexican-made product.

We see a lot of companies that come in under the IMMEX program in Mexico that need to do their due diligence for the substantial transformation correctly. They come in, make the investment, and import all the components and raw materials. Then, when they export their product, they find out that, Oh, my gosh, I still have to pay the Chinese tariffs, or I have to pay extra duties or dumping duties. Those are the two main things that I see.

LATAM FDI: Are there any specific requirements or criteria for companies to qualify for the IMMEX program in Mexico?

Porfirio Waters: Yes, there are. The most important thing to cover is that to become certified as IMMEX or get approval for the IMMEX program in Mexico, you have to meet a lot of the tax requirements. The first requirement is to have a minimum of $500,000 of finished goods annually. That’s the first requirement. The second requirement to participate in the program is that you must comply with all the fiscal responsibilities that the government requires. Those could be very demanding. There’s a lot of them. Companies have to register with the IRS. They have to register their tax ID number. Also, they must register to import into the United States.

Additionally, they must incorporate their companies. Companies must have their incorporation issued by a notary public. They must also have a very specific contract about how they will operate, their customer, and the entities involved in the transaction. Then, of course, since under the IMMEX program in Mexico, companies are only allowed to import the goods temporarily, and they have to be returned, they have strict inventory guidelines that must be followed.

Everything that’s imported has to be returned within a certain period. It’s 18 months. Some operations, like textiles or sensitive goods, might take six months. Then, the government established a company as an authorized economic operator (OEA), so that’s important. You have to get an additional certification under the OEA to get some of these benefits.

LATAM FDI: What was that term you just mentioned, OEA? Tell us a bit about it.

Porfirio Waters: OEA is Mexico’s security program, which is similar to the Customs, Trade, and Partnership Program (C-TPAT) that we have in the United States. Companies have to comply with some security guidelines and criteria. They have to prepare their procedures manuals, et cetera, and submit them to the government, and then the government gives authorization and makes sure that they comply with it. It takes about a year to get it. Once you comply, you will receive a gold card that you can use for many other benefits that are available under the IMMEX Program in Mexico.

LATAM FDI: Can you elaborate on any incentives provided to companies under IMMEX to encourage them to participate? You just mentioned the… What is it again? OEA?

Porfirio Waters: Companies have fewer customs inspections under the Authorized Economic Operator program (known in Mexico as OEA). The Mexican government treats OEA companies better than those that are not OEA. OEA companies can keep goods in the country longer than ]]those organizations that are not OEA-certified. Also, regarding the IVA or VAT tax, if a company files for refunds or wishes to avoid payment, it facilitates the administration of your value-added tax, which is 16% in Mexico. Those are the main benefits of being an Authorized Economic Operator.

LATAM FDI: What evidence of data exists regarding the effectiveness of the IMMEX program in Mexico in attracting foreign direct investment to Mexico and promoting economic growth? Has IMMEX been a catalyst for a lot of foreign direct investment?

Porfirio Waters: Well, if you look at the numbers, they speak for themselves. From the program’s first inception in 1964, there were only twelve maquiladoras. Today, there are over six thousand. Employment is getting close to reaching three million employees. Those are huge results of the success of the program. The main success of it is that once you’re an IMMEX company, you’re given a lot of liberties that a typical Mexican company would not have from a tax point of view and also mainly from a customs duty point of view. The Mexican duty rates, on average, can be 15 %. They were lowered when Mexico participated in the GATT program. Last year, they increased their 15 % to 25%, and then just recently, they increased from 25 % to 55 % on some aluminum products. Some duties are higher than you are accustomed to in the US or other countries. The IMMEX program in Mexico helps manufacturers avoid all that. You can avoid the duties, you can avoid the IVA, and then you can avoid some of the other requirements that a Mexican national company may have regarding fiscal responsibilities.

Now, with the IMMEX in Mexico, the structure or the scheme was implemented in 2006. From 1965 to 2006, we worked under the strictly maquiladora regime. Then 2006, when it was changed to the IMMEX program in Mexico, they added many more fiscal responsibilities. There’s just a tremendous amount of benefit to using the IMMEX program itself. However, companies must comply and meet the program’s requirements to keep it in force and stay compliant.

LATAM FDI: Have there been any recent developments or changes that have impacted the relevance of the program that you just mentioned?

Porfirio Waters: Well, the biggest one I’ve seen is the friend shoring. Another way to call it is nearshoring, but I like to call it friend-shoring. Through this, companies can bring their supply chain closer. Often, they move it out of an Asian country and into Mexico, which is a friendly neighbor. It’s very beneficial. It’s helpful. The trend is that many companies are trying to move their supply chain, which is the reverse of what they did in 2005. They are trying to bring production back from Asia back to North America. That’s been the most significant catalyst that we’ve seen. The other thing that added a little bit of fuel to the fire was in 2018 when the Trump tariffs were levied on China, and companies had to pay a 25% duty on top of the regular duty they were already paying. This made it hard to do business. They looked to Mexico as a potential solution to that issue. Again, it is a solution, and it works great. Companies must do the due diligence required on the substantial transformation study.

LATAM FDI: Beyond the IMMEX program in Mexico, what other trends should companies considering setting up operations in Mexico be aware of?

Porfirio Waters: Mexico has thirteen free trade agreements with fifty countries besides the duty liabilities that are diminished or eliminated. Mexico has grown tremendously. We’ve seen it in their Peso, how it’s appreciated. It’s been like a shooting star here this last year. Companies have a tremendous opportunity to use it to export back into the United States and to Europe, Central America, South America, and other countries. Even some Asian countries have trade agreements with Mexico now. There’s a tremendous opportunity in Mexico. I mentioned the substantial transformation issue. Some benefits can be derived from manufacturing your product in Mexico versus being made in China or Vietnam. There’s a similarity between languages. Mexico is closer to the US. It’s easy to access. Mexican laws may differ, but they’re much more common to Western law than other countries. Those are the most significant benefits. One of the different things we saw, particularly during the COVID period, was that many companies moved into Mexico, not just because of the Chinese issue with the tariffs but also due to a lack of labor availability in the United States.

During that period, hiring people and keeping the factories running in the United States was difficult. We saw many countries keenly interested in looking into Mexico as a solution. And a lot of companies were able to do that, and they benefited greatly. As we saw the COVID surge in sales, everybody benefited from it.

LATAM FDI: We’ve gone over a pretty good amount of information.

Porfirio Waters: Yes.

LATAM FDI: We typically find that for people who listen to these podcasts, the information they’ve consumed generates further questions. That being the case, how would someone listening to this podcast contact you for assistance setting up operations in Mexico?

Porfirio Waters: Well, we have our website. Our website is www.trade-flex.com. Then we have Lula. Lula is our host. She will greet you as soon as you come to our website. She’ll ask you some questions, and those questions and those answers come directly to me. That mechanism will collect some information, including your email and phone numbers. We can reach out to those making inquiries immediately. And we also have a presence on LinkedIn. We hope that people can follow us there on Trade-Flex Shelter Services. We post many informative articles about what’s happening and the critical issues of interest. We note if we see any disruptors on the horizon. We try to post information about that to keep people informed as much as possible. We stress essential things to consider, avoiding any pitfalls or effects of business disruptions. We can do a thorough business case study. Performing a rigorous business case study ahead of time is essential and invaluable. When you negotiate any of your nearshoring agreements, if you can use someone like Trade-Flex, it’s beneficial.

When you come to Mexico, especially for the first time, having a good CPA is very important because you must be in excellent standing once in the IMMEX program in Mexico. You’re required to file all your tax declarations on time. Failure to do so could suspend some of your privileges. So, it’s essential to get a hold of a good CPA. Another thing that I suggest is to map out your inventory process beforehand. Sometimes, some people come in to make a quick decision. They need to map out their inventory process, and then they’re overwhelmed with all the customs requirements. We help with those things. The border is an invisible line, and it can be that, provided you do all the planning and the preparation ahead of time.

LATAM FDI: Well, you can take people through the process. What we’ll do so that they can contact you with great ease is in the transcript section on the podcast page; we’re going to have a link to your LinkedIn profile so people can contact you directly. We’ll include your email address, and we’ll include your website. So anybody with any questions that have to do with your expertise can contact you.

Porfirio Waters: Thank you very much, Steven. It’s a pleasure to be here with you today.

LATAM FDI: Yes, likewise. And I hope you have a wonderful day.

Porfirio Waters: Thank you.

Latam FDI: I wish you enormous success.

Porfirio Waters: Thank you so much.

Rafael McCadden
Executive Director for Industrial and Logistics
Colliers International
Mexico City, D.F. Mexico
rafael.mccadden@colliers.com

LATAM FDI: Today, we have Rafael McCaden with us. Rafael is the Executive Director for Industrial and Logistics with Colliers in Mexico. Good morning, Raphael. How are you today? Could you tell us about yourself and your company?

Rafael McCadden: Hi, Steve. Good morning. Thanks for this podcast. Of course, I’ve been in real estate most of my life, but industrial now, I would say, for almost 30 years. I started as the Executive Director of the Mexican NAIOP, which is called AMPIP, and then with Colliers for almost 20 years now.

LATAM FDI: Wow. For those who don’t know, AMPIP is the Mexican Maquiladora Association. Is that correct

Rafael McCadden: No. AMPIP is the Developers Association.

LATAM FDI: Okay.

Rafael McCadden: Yes. So, it’s more like NAIOP. Right.

LATAM FDI: Well, some key factors drive demand for industrial real estate in Mexico, given the country’s current landscape. What are those key drivers, Rafael?

Rafael McCadden: Yes. Well, I would say one of the key drivers right now is nearshoring, which is unshoring or friend shoring. It has so many different names now, but it’s the same thing. I would say that the global manufacturing supply chain has changed its course, and now it’s not as global as it used to be for many reasons. Regionalization is the new game. Of course, Mexico, being part of North America, plays a huge role in this, I would say, in many sectors. We’re busier than ever

LATAM FDI: Given this economic landscape, how does the availability of skilled labor influence the location decisions of companies that look to occupy industrial real estate in Mexico for manufacturing purposes?

Rafael McCadden: Great question. Well, you see, there are, I would say, important differences between the workforce in the US and Mexico. For one, if you start looking closely into the average age of engineers or the average age of the population, in the United States, baby boomers are in their late ’60s. The baby boomer generation in Mexico is in its late ’20s. That’s a huge difference. I say it because even though Mexico has pyramids, it’s a young country. The average age is 29 years. That’s a huge advantage. This has resulted in many US and European companies switching to Mexico. This, of course, has positive implications for industrial real estate in Mexico.  Also, design and technical centers are becoming more prevalent. Believe it or not, Mexico graduates the same number of engineers with a population of 130 million as the US with a population of over 350 million. So That tells you how many graduates and how many young students are looking to get a job in Mexico

LATAM FDI: Yes. That seems to be something that many people I speak with comment upon: the availability of good, skilled labor in Mexico. But beyond that, what role do government policies and regulations relations play in shaping the growth and development of the market for industrial real estate in Mexic

Rafael McCadden: The government doesn’t always help the business develop. I can put it that way. But I would say that the trends surpass that big time. Some governments have a more active role, especially state governments. I would say the federal government took a different path by shutting down Promexico, which was a government investment agency. But regardless of that, the trends are helping Mexico. Let me stop here a minute and tell you something that I’ve been, I would say, analyzing, and that is what we started talking about regionalization. Supply chain disruptions are playing a huge role in Mexico’s success. Supply chain disruption, as an example, we can mention the tsunami in 2011 in Fukushima, Japan. So, some people say, What does that have to do with Mexico? And I said, More than you think, Because the auto industry, especially tier one and tier two assembly plants, had to shut down because of the suppliers being affected by the tsunami. And so, some of the largest OEMs, Japanese OEMs, said, This will not happen again. I can’t keep having all the eggs in one basket. So, they started expanding their operations to occupy industrial real estate in Mexico.

LATAM FDI: So, after 2011, more than 300 Japanese auto industry companies, including OEMs like Mazda, Honda, and Nissan, moved to occupy industrial real estate in Mexico in the Bahia region. That played a huge role in that area’s industrial development. Then, as we all know, COVID-19 was a huge game changer in terms of supply chain disruptions. Now, newer supply chain disruptions like the Red Sea, the Panama Canal, and the Baltimore Bridge were torn down. These supply chain disruptions are helping Mexico, which has a 2,000-mile border with the US with 55 border crossings.

LATAM FDI: Concerning border crossing and other investments in Mexico, specifically infrastructure, including transportation and utilities, how does Mexico’s state of development in this area contribute to the attractiveness of locations for industrial real estate in Mexic

Rafael McCadden: Well, being very honest, this tsunami that hit Mexico, which is nearshoring, has challenged our utilities, infrastructure, and transportation. I would also say the developers are trying to play catch-up because we were hit by an unexpected demand for industrial real estate in Mexico. Let me give you an example: Never before has Monterey had over 30 buildings for industrial real estate in Mexico under construction, which they do have today. That tells you the roles that the developers are playing. Developers who weren’t even in the sector, those who were in office development or shopping centers, are moving and putting a lot of interest into the industrial market. They can see that industrial real estate development in Mexico will continue with this trend for a few years. So yes, it’s really interesting to see how also US developers that didn’t care much about Mexico, like Panettoni, for example, they were mainly concentrated on Eastern Europe and other places in the world now are saying, Hey, I’m more interested about Mexico than I was three years or five years ago

LATAM FDI: Getting a view and handle on the physical types of construction you just mentioned, are there any emerging trends in the design and construction of industrial real estate in Mexico

Rafael McCadden: I would say yes. For one thing, industrial buildings are much more environmentally friendly in many ways. So ESG… To give one example. The structures were not typically designed to hold solar panels. Developers didn’t design buildings that could hold them. Now, most developers are designing better structures that can hold solar panels, sprinklers, and HVAC units. That’s one thing. Then power is a huge issue, and that’s one of the reasons why they’re putting in solar panels. And, of course, clear height, that’s another thing. The distribution centers are being more automated than before. So, the requirement for power keeps growing and growing. Because everything that’s being brought into the buildings requires more power. And so, it’s not only on manufacturing, it’s also on distribution centers. Plus, truck fleets now also require charging stations. Those are the trends we can see in the evolution of industrial real estate in Mexico.

LATAM FDI: Can you provide some answers and insight into the competitive landscape of industrial real estate in Mexico? Maybe give us the names of major developers and operators in Mexico, including key players in market dynamics.

Rafael McCadden:  Sure, of course. Well, Prologis, besides being a major global industrial park developer and owner in the US and the world, is also a major player in Mexico. It’s interesting because even though they’re number one, they are focused mainly on six cities. They are concentrated in three border cities: Guadalajara, Monterey, and Mexico City. There are other developers, such as CPA, Amistad, Finsa, and Macquarrie. REITs in Mexico are only 10 years old. So, we didn’t have reeds in the past. Most of the industrial portfolios were owned by the developers. Once REITs were authorized and they had some tax advantages for investors, many insurance companies and retirement funds started investing in industrial real estate in Mexico. The portfolio has changed hands and is now mainly controlled by investment funds, which we call Fibras in Mexico, but it’s the same thing as in the US.

LATAM FDI: Well, Raphael, you’ve provided great information for our listeners. We intend to do this with each discussion with experts like yourself. We want to provide your contact information so that anybody with questions about what they’ve heard can reach you. How would somebody contact you with further questions?

Thank you. Sure. Well, my email is rafael.mccadden@colliers.com. Of course, they could also reach out through LinkedIn. That would be a good way to contact me, and I would say it would be the easiest way to reach out.

LATAM FDI: Thank you for joining me today to discuss industrial real estate in Mexico. This has been very interesting. We’ll put a link to your LinkedIn profile in the transcript section of the page on which the blog post is posted, and we’ll include your email and Collier’s URL for its website. How’s that

Rafael McCadden: Great. I like it. Thank you. Have a great day. It’s not just me, it’s a team. We work throughout Mexico, from Tijuana down to Cancun. We’re constantly traveling and helping companies do soft landings in industrial real estate in Mexico.

LATAM FDI: Well, that’s great. Hopefully, listeners will call you, and you’ll be able to get some new business.

Rafael McCadden:  I appreciate it, Steve. Thank you so very much.

Monica Umaña
General Manager – Foreign Investment
The Costa Rican Foreign Trade Promoter (PROCOMER)
San Jose, Costa Rica
mumanad@procomer.com

The Foreign Direct Investment Costa Rica Summit 2024

LATAM FDI: Hello. We’re fortunate to have a very interesting person to talk with today. Her name is Monica Umaña. She’s the general manager of foreign investment of an organization called Procomer, which is Costa Rica’s Foreign Direct Investment Promotion Agency. Monica, I’ll let you introduce yourself and tell us a little bit about your organization.

Monica Umaña: Thank you, Steve. It is very nice to see you again, especially because of the topics we will talk about today, the Foreign Direct Investment Costa Rica Summit 2024.

As you said, my name is Monica Umaña. I have been working for the past year as the Foreign Direct Investment Division manager at Procomer. Procomer, as you said, is the National Agency for Investment and Export Promotion in Costa Rica. Still, I have been attending and receiving investors in Costa Rica for the past 11 years. So very nice to see you again and talk to you today.

LATAM FDI: Well, thanks. Today, we’re going to talk about something that’s very important. It’s a little bit exciting. We all know that Costa Rica has been very successful, especially because of the size of the country,  in attracting foreign direct investment for the last 30 years. Today, we’re going to talk a little bit about the Foreign Direct Investment Costa Rica Summit 2024 that you have coming up that you can give more information on. But the first question I want to ask you is specifically related to that. You assumed the general manager role at the National Agency for Attracting Foreign Investment (Procomer) a year ago. Now, you’re preparing an event you will tell us about to showcase the benefits of investing in Costa Rica. What’s this all about?

Monica Umaña: Costa Rica has been a reference for foreign direct investment. With our responsibility as the Costa Rican Investment and Export Promotion Agency, we decided to have the Foreign Direct Investment Costa Rica Summit 2024 to showcase why we host more than four hundred multinational companies. As you said, this will be the first edition of the FDI Summit. This represents a unique opportunity to keep positioning Costa Rica as a highly attractive destination for international investors. Costa Rica is well known as a country with highly skilled human talent, but also because it offers attractive fiscal incentives under the free trade zone regime. That is one of the main reasons many companies analyze and choose Costa Rica to have a manufacturing or services facility here in the country. We offer an excellent business climate, legal security, and, of course, sustainability. We have a record of stability and peace. We want to show this during the Foreign Direct Investment Costa Rica Summit 2024. We’re inviting new investors from key sectors. Costa Rica is interested in specific and strategic sectors such as the agro-industry and food industry, manufacturing, light and advanced manufacturing, life sciences, and the main export products from Costa Rica right now. We are also highly interested in targeting corporate services, digital technologies, and semiconductors. This is one of the most recent sectors of interest since we launched the roadmap for the semiconductor sector recently with the Ministry of Foreign Trade. Additionally, tourism investment is another sector that we want to attract to Costa. The Foreign Direct Investment Costa Rica Summit 2024 will take place on June 11th and 12th at the Costa Rican Convention Center, which is very close to the international airport in Alajuela.

LATAM FDI: Well, can you give us a little bit of a preview of what agenda is being planned?

Monica Umaña: Absolutely. Actually, the FDA Summit offers a comprehensive experience in two days. This is going to be an in-person format. On the first day, we will have a keynote speaker. He’s going to highlight the global landscape for foreign direct investment. We want to start with an overview of what’s happening worldwide. Our general manager, Laura López, will also share some updates regarding Costa Rica’s landscape and especially our opportunities in terms of strategic sectors inside and outside the Greater Metropolitan Area of Costa Rica. Since launching our strategy a year ago, we have highlighted the importance of capturing investments outside the Greater Metropolitan Area. Diversification of sectors is really important for us, as well as diversification of countries of investment origin. We will have dedicated sessions for specific topics during the first day of the Foreign Direct Investment Costa Rica Summit 2024. For example, we’re going to examine digital technologies and global interconnectivity. I mean, this is a new level of complexity for companies, so we will talk about it. We discussed this earlier year, Steve, 2024 is the biggest election year ever. We have general elections in more than seventy countries around the world. This is something that will definitely shape decisions this year in terms of foreign direct investment.

Supply chain resilience is something that is still catching the attention of every single investor. When we receive new companies in Costa Rica, we must discuss this. Artificial intelligence will be present as one of the main topics, as will sustainability, Steve. Sustainability is a pillar of our Costa Rica value proposition for investors, and we will discuss this. But going back to the second day of the summit, we’re talking with each company about having a tailor-made agenda according to the sector and according to the needs of the company. We will be visiting industrial parks and academia. We will have benchmark meetings with companies already established in Costa Rica, and we’re organizing visits to the regions outside the Greater Metropolitan Area to ensure we present all the benefits we offer as a country and offer a comprehensive view of investment opportunities in Costa Rica.

LATAM FDI: Can you give us a little bit of a preview concerning some of the speakers that will be present at the Foreign Direct Investment Costa Rica Summit 2024?

Monica Umaña: Yes, sure. Actually, we’re about to send an updated version of the agenda and the speakers since we have confirmed participation. For example, FDI intelligence will be present. You know this platform is important for every person making investment decisions. Of course, we, as an investment promotion agency, want to have FDI Intelligence as one of our keynote speakers. Deloitte and other big names in terms of consultant firms outside Costa Rica will also be at the event. We want to highlight the success stories of multinational companies. With operations in Costa Rica. They will be part of these conversations because it’s important not only to mention benefits and what we offer but to let the companies talk about what they have been experiencing in Costa Rica in the past year. We will consider why Costa Rica is a natural hub for new investment. I hope to share the complete agenda of the Foreign Direct Investment Costa Rica Summit 2024 with you and the audience soon.

LATAM FDI: Okay, that’ll be great. I’m sure it’ll be very informative, and you’ll have some good speakers. Before we started the interview offline, we were talking about how things are going right now concerning foreign direct investment in Costa Rica. Could you share some information about that?

Monica Umaña: Sure, Steve. Costa Rica reached a historic milestone in 2023 by closing the year with record figures in foreign direct investment. The country reached a 24 % increase compared to December, surpassing the estimated goal for that year by 131%. As part of the investment, 61% of this investment is under the free trade zone regime, followed by 19% in the definitive regime, 7% in tourism, 7% in real estate, and 6% in various other sectors. In terms of the activities, manufacturing leads with 55 % of the total, followed by the services sector with 25%. When we discuss the country of origin of each project we discussed earlier, we’re working to diversify our investment origins. The United States remained the main source of foreign direct investment in Costa Rica, the source of 71 % of the total. Belgium follows the US with 11 %, Switzerland and Panama with 4 % each. Last year, Procomer announced fifty-nine new investment projects. This is the highest number in recent years. It represents 64% growth compared to the thirty-six projects announced in 2022. Out of these fifty-nine new projects, thirteen were installed outside the country’s Great Metropolitan Area.

So, this is such a considerable number for us since then. This represents one of the pillars of our strategy to bring new investment outside the Great Metropolitan area. We confirm the ones in Orotina, San Carlos, the northern region of Costa Rica, the south region, Puntarenas, Cartago, Grecia, and Liberia in the northern Pacific. So additionally, out of these fifty-nine new projects, seventeen come from origins other than the United States, such as Italy, Japan, Peru, and France, to mention a few sources of investment.

LATAM FDI: It sounds like you’ve been pretty busy.

Monica Umaña: Yes. It has been busy and happy. Really exciting times.

LATAM FDI: That’s a good thing. Well, returning to the Foreign Direct Investment Costa Rica Summit 2024 again. If you could repeat the dates, I think that would be good.

Monica Umaña: Yes. It’s June 11th and 12th. On the first day, we will be at the National Convention Center, and on the 12th, we will be outside having agendas and visiting specific areas.

LATAM FDI: If a company that’s listening to this wants to participate, what should they do?

Monica Umaña: Yes, definitely. I will share the link for the event so you can have all the details I haven’t mentioned before. Procomer is covering meals, local transportation, and lodging in terms of the hotels in Costa Rica. This is part of what we’re offering to the investors who would love to visit the country in June. But most importantly, we have offices all over the world. Interested parties can contact me, of course, here in San Jose and my colleagues overseas. We have offices in New York, Houston, Miami, Mexico, Canada, Central America, Latin America in general, Europe, and Asia. They can guide you through the process of signing up. Of course, the team here in Costa Rica is eager to receive investors and create new opportunities for the country. I’ll be sharing my email and the link for the event so you can read in detail what I mentioned before during the podcast. We’ll be more than happy, Steve, to have you. I hope you can visit us in June, and many investors, too.

LATAM FDI: Well, that’d be great. One of the things I know that you’d recommend is that I’ve never met anybody who doesn’t or didn’t like going to Costa Rica if they’ve been there. Would you recommend people build a few extra days to see the country?

Monica Umaña: Absolutely. Actually, we have enough time before and after the event. We need to extend the stay for  a couple of days, the agendas, and of course, tourism. This is part of the proposal.

LATAM FDI: It would be a shame to go there and be all occupied with business and not have a chance to see how beautiful your country is.

Monica Umaña: Thank you. Yes, definitely. We can provide support for that, too.

LATAM FDI: Well, I want to thank you. I wish you great success with the Foreign Direct Investment Costa Rica Summit 2024 and look forward to speaking to you on different topics in the future.

Monica Umaña: I hope so. I hope so. Thanks a lot, Steve.