Nuevo Leon looking to support areas beyond manufacturing

Nuevo León is the capital of advanced industry in Mexico; however, the state economy is not wholly dependent on manufacturing. In addition to a prosperous industrial base, Nuevo León has a well-developed banking industry, a growing construction sector, a robust logistics and transport sector, and increasingly dynamic energy and agriculture sectors.

Strategic Clusters

In 2004 the state government introduced a cluster strategy that brings together the government, the private sector and local universities to look for ways to maximise the development of new industries and train workers with the requisite skills. As of 2018 Nuevo León had 13 strategic clusters, with the more advanced ones associated with automobiles, domestic appliances and agro-industry. The newest cluster, which was created in 2016, is the energy cluster, and it focuses mainly on natural gas and renewable energy.

Banking & Real Estate

Nuevo León is home to a number of Mexico’s most important banking institutions, including Banorte, Banregio, Banca Afirme, Banco Base and Banco Bancrea. Excluding Mexico City, Nuevo León has more banking entities than any other district in Mexico. The state’s strong banking sector has been a key driver of private investment in commercial and mixed-use real estate projects, as well as financing large infrastructure projects during a period when the federal government faces budget constraints. Two of the state’s flagship commercial real estate developments are the Fashion Drive and Metropolitan Centre malls, both of which are located in the San Pedro Garza García neighbourhood, a municipality that is leading the push towards taller, more dense developments in certain central, urbanised residential areas within the Monterrey Metropolitan Area (Area Metropolitana de la Ciudad de Monterrey, AMM).

Carlos Duarte, a senior project manager at Turner Construction, told OBG that the most notable trend he sees in Monterrey is “big vertical growth”. “There are 10 to 12 new towers being built over the next two years until 2020,” he added. “They want to do things the American way.”

The municipalities surrounding the AMM are continuing to attract new investment in more traditional, sprawling, horizontal developments, such as warehouses and big box manufacturing facilities. Two of the most significant developments are the $1.5bn steel sheet factory in Pesquería by Latin American’s steel group Ternium and Interpuerto Monterrey, the industrial park in Salinas Victoria.

Beyond the AMM, the state government is working to coordinate investment in new industrial developments in the towns of Linares, Montemorelos and Allende. While the AMM continues to be the major driver of economic activity in Nuevo León, the state government is putting its efforts towards boosting investment and coordinating development in other locations across the state.

Logistics & Transport

The government of Nuevo León has also worked to leverage the state’s strategic position on the US border to help create a thriving logistics and transport industry. It has built upon long-standing, cross-border transit routes, and is working on a MXN2.5bn ($135.1m) expansion of the Laredo-Colombia Solidarity International Bridge, as well as on an expansion of the Ferromex rail network, in addition to creating a new rail terminal in the AMM. These infrastructure upgrades are an attempt at easing congestion and improving traffic flow. In 2017 more than 776,000 vehicles crossed the Laredo-Colombia bridge, a year-on-year increase of 35%. In March 2018 Nuevo León inaugurated a new MXN14m ($756,560) logistical support facility at the Laredo-Colombia border crossing.

Manufacturing Might

While Nuevo León’s economy is supported by multiple industries, the most dynamic one continues to be manufacturing. In 2017 the manufacturing industry accounted for nearly a quarter of state GDP and over 60% of the state’s exports. That same year basic metals made up 27% of Nuevo León’s manufacturing exports, while home appliances represented 7% of industrial exports. During the first eight months of 2017, Nuevo León’s industrial manufacturing output increased by 4%. At the end of 2017 the state’s industrial manufacturing sector employed 559,486 people, around 23% of the state’s total work force.

Business & Competitiveness Rankings

Due to its robust and diverse industries, Nuevo León has been widely recognised as a top location within Mexico for starting a business. According to the World Bank’s latest “Doing Business in Mexico 2016” report, the state ranked first in Mexico for ease of starting a business, a notable increase from 10th position in 2014. The report also ranked Monterrey as the number-one city (out of 32) for starting a business in Mexico. Overall, Nuevo León was ranked the 13th-most competitive state in Mexico. The state has also shown improvement in the areas of ease of registering property, up from 17th rank to sixth, and in enforcing contracts, from 10th to ninth. In the area of ease of obtaining construction permits, however, Nuevo León remained in 27th position, which suggests this is an area for improvement.

Nuevo León also climbed in rank on the 2016 State Competitive Index by the Mexican Institute for Competitiveness (Instituto Mexicano para la Competitividad, IMCO), from fifth among other Mexican states in 2012 to place third. One particular area in which the state showed signs of progress is innovation; it climbed from sixth position in 2012 to fifth in 2016.

According to Máximo Vedoya, CEO of steel manufacturing company Ternium México, remaining competitive will be crucial to the success of industry-driven economies. Nuevo León, like other industrial centres in Mexico, “needs to maintain its competitive level. Today it is not enough just to have a cheap labour force,” he told OBG.

Economic Strengths

One of the major trends coursing throughout Nuevo León is the shift towards economic diversification, which is also one of its greatest strengths. In order to reduce vulnerability to external shocks during a time of political uncertainty, state officials are working to ensure that Nuevo León’s economy does not become overly dependent on any particular industry or export market. The principal sub-sectors of Nuevo León’s industrial economy are computing, electronic and transport equipment, food products, basic metallic industries, and oil derivatives and coal. While the automotive segment remains closely connected to the US economy – Nuevo León exports 80% of its auto parts to the US – the arrival of KIA Motors in 2016 enables Nuevo León to export finished vehicles to markets across the globe.

The industrial sector needs to adopt new technology and shift towards higher value-added processes. However, transforming the state’s industrial base is not enough. In order to maximise its potential and create more high-quality jobs, Nuevo León still needs to continue developing its energy sector. “As the energy sector opens up to international players, the number of job vacancies will rise, as will the need to invest in human capital,” Bernando Llaguno, director-general of metal producer RIISA, told OBG. Rodrigo León Segovia, director-general of real estate company Vidusa, also believes that human capital is key to state development, “and that more long-term investment in education is necessary to improve workforce numbers.”

Another one of Nuevo León’s most notable strengths is its successful track record in improving the solidity of public finances. In April 2018 Fitch Ratings raised Nuevo León’s classification from “BBB+” (mex) to “A-” (mex) .

Alberto Hernández, the associate director of international public finance at Fitch Ratings México, told OBG that the state’s “A-” (mex) rating and positive outlook stem from a number of factors, including strong levels of local tax collection; new programmes to restructure and refinance the state government’s debt and allow for more control of operating expenditure; and a solid network of physical infrastructure and high level of industrialisation that results in positive spillover effects for multiple economic sectors, such as real estate, transport and commerce. “Fitch Ratings considers the economy of Nuevo León to be strong with a stable outlook,” Hernández said. “The economy has a solid base for growth. The agglomeration of businesses and different, well-established clusters in the state generate chains of added-value and advantageous connections.”

While Nuevo León is all set to maintain its vanguard position within Mexico’s industrial sector, it will need to leverage its network of industry leaders, universities and state agencies in order to expand its robust industrial base and ensure future growth.

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The Report: Mexico 2018

Nuevo León chapter from The Report: Mexico 2018

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