Introducing the Real Mexico

Mexico is more than revolutions, drug smugglers, and undocumented immigrants. The country's probable new president, Andres Manuel Lopez Obrador, founded the political party, Movement for National Regeneration (Morena), that expects to bring him to power in tomorrow's election on July 1, 2018. Victory over the earlier ruling Institutional Revolutionary Party (PRD) and the National Action Party (PAN) would be much different from the bloody revolutios that once brought, for example, a Victoriano Huerta to his provisional presidency.

     Northern Mexico reaps prosperity from the North American Free Trade Agreement (NAFTA). Unskilled, cheap labor initially attracted US. factories south of the border, but these opportunities in Mexico helped create a new, educated cadre with up-to-date experience. Sister city mayors of Tijuana, Mexico, and San Diego, California, think in terms of a single urban region. A privately financed bridge enables travelers to walk back and forth between San Diego and the Tijuana Airport.

     As a presidential candidate, Lopez Obrador tapped into the feelings of southern Mexicans watching norther Mexicans thrive. He promised to pave roads through the south's mountainous Oaxaca state and to add oil refineries in the southern states of Tabasco and Campeche. In an effort to eliminate food imports, he proposes price guarantees for crops grown by southern farmers. Rising oil prices also expect to help Mexico recover from export revenue losses when prices collapsed in 2014. Yet, to gain electoral support, Mr. Lopez Obrador made a variety of expensive proposals, including a pension for the elderly and disabled, scholarships, and water system improvements. In one instance, Mr. Lopez Obrador is known for an extreme measure.  Residents in Tabasco, at his suggestion, did not pay their electric bills for two decades, thereby costing the company money and causing power to be disconnected periodically.

     From China, the new president is likely to accept an offer of loans to build a railway north of Guatemala to connect the states of Quintana Roo and Chiapas and to builld another road/rail connection through Tehuantepec to the Oaxaca and Veracruz states west of Mexico's southern isthmus. By working with China, Mexico would demonstrate how different international relationships are from 1823, when the Monroe Doctrine told Europe the United States considered any attempt to extend its influence in the Western Hemisphere a threat to its "peace and safety."

     Mexico's new leadership will have only one term to deal with two traditional problems. Drug gangs and the associated increase in murders and violence provide President Trump with justification to build a border wall. Yet, the US demand for cocaine and other illegal substances perpetuates the drug trade. Related turf wars among dealers cause violence and murders in the US and foreign countries, and the arrests of drug dealing criminals fill US prisons. In 2018, Mexico is on track to break the record for murders it set in 2017. With 22 homicides per 100,000 people, Mexico has one of the world's highest rates. The Tijuana arts council building on the site of a concrete-encased structure reminds those on the roof viewing California and those escaping across the border that the art gallery below them is in a tunnel that once carried drugs into the United States.

     Besides inheriting a traditional drug transit destination, Mr. Lopez Obrador also would inherit Mexico's reputation for corruption. Implementation of a National Anticorruption System (NAS) has been on hold pending the results of the presidential election. NAS requires:

• An independent national anticorruption prosecutor devoted to investigating and trying criminal cases,
• An autonomous Federal Administrative Court specializing in serious cases of bribery, vanishing public funds, benefits from campaign contributions, and other acts of corruption by administrative officials,
• Adoption of local anticorruption systems in each Mexican state, and
• A national computerized data platform capable of supporting NAS's objectives.

Facing an increased crackdown on corruption, companies doing business in Mexico are wise to finance serious compliance programs, and Mr. Lopez Obrador would be wise to make good on his presidential campaign promises to eliminate corruption and to abide by Mexico's rule of law.


     

China is Everywhere in Africa

"The Chinese are everywhere," writes a friend who is a missionary in Tanzania. News of China building sports stadiums, roads, railroads, pipelines, ports, bridges, hospitals, schools, and office buildings throughout the continent confirms her observation. China enjoys a reputation of making the lowest bid, not requiring local reforms, and bringing projects in on time.

     A consortium of companies led by the China Communications Construction Company broke ground this year on its $478.9 million contract to build the first three berths on phase one of a $5 billion infrastructure project on Kenya's coast at Manda Bay. To the Chinese, the islands of Lamu, Manda, and Pate that lay just off Africa's Indian Ocean coast may have resembled the Hong Kong and Macau areas of China.

     When completed in 2030, the Lamu area will be a deep-sea port hub with 32-berths, a pipeline to oil fields in Kenya (10 billion barrel reserve) and Uganda (2 billion barrels), a natural gas power plant, and a railroad that runs south to the Mombasa-Nairobi line and north to link landlocked Ethiopia and South Sudan to the Lamu port. The latter link would help free South Sudan's oil shipments from depending on Sudan's northern pipeline to Port Sudan on the Red Sea.

     Security at the Lamu project is a major concern. Islamic extremists, the Shabab from Somalia, killed in Lamu county in 2014 and at a Nairobi shopping mall in 2013. Earlier, violence left 1000 people dead and another 600,000 displaced during the 2007 election of Kenya's president, Uhuru Kenyatta. Poaching of elephant tusks and rhinoceros horns for art objects and folk medicine in China, Vietnam, and Thailand continues to reduce Africa's wildlife population. One Chinese woman was jailed in Kenya for two and a half years for trying to smuggle 15 pounds of ivory pieces onto a Kenya Airways flight by claiming they were macadamia nuts.

     Originally, China's interest in Africa resembled that of the Europeans who carved up the continent in the 19th century. They were intent on extracting raw materials. While it is true that China still builds roads in Ghana to mine gold and into Mozambique to cut timber, the forecast of three billion people added to the continent's population between 2000 and 2100, now also motivates China to open manufacturing plants in Africa and to develop a market for its exports. Some African manufacturers suffer by not being able to compete with China, but resellers benefit from higher profits on, for example, Chinese shoes, motorbikes, smartphones, and counterfeit goods. In return, China is a market for Africa's tea, cut flowers, and, of course, chemicals, minerals, and lumber. But China's infrastructure improvements will not benefit China alone. They will be open to all marketers who see an opportunity to get more goods in and out of Africa.

   

   
   

 

All Aboard for China's African Railroads

A new Chinese built railroad scheduled for next month's trial run from Kenya's busy Mombasa port to the Kenyan capital of Nairobi offers students a good opportunity to study the map of East Africa. At the same time, this infrastructure improvement will benefit, not only the Chinese, but all future marketers who want to get their commodities and products in and out of Africa.

China has seen Africa's need for railroads as a promising use for its excess steel production and a way to avoid charges of dumping, i.e. exporting overcapacity at below fair market prices. Since Africa's population is expected to boom from one to four billion between 2000 and 2100, China also is looking ahead to the need for ports and transportation links capable of handling a growing market for Chinese goods (and Africa's own growing economies).

China has experience building railroads that connect African ports, known to handle 90% of the continent's exports and imports, with the interior. In the 1970s, China financed and built the TAZARA Railway from Zambia's Copperbelt to the port at Dar es Salaam in Tanzania. Other Chinese railroads connect Nigeria's capital at Abuja to Kaduna, and an electrified railway that opened this year gives landlocked Addis Ababa in Ethiopia access to the Gulf of Aden/Red Sea in Djibouti.

By the time the Mombasa-Nairobi line is ready to handle passengers and freight in January, 2018, it will have taken seven years for a process that required: Kenya and the China Road and Bridge to sign a memorandum of understanding, to finalize $3.6 billion in financing from China's Exim Bank and Kenya's government, to lay tracks, to build and deliver locomotives and cars, and to complete trial runs. Kenya's attitude toward the Chinese-built Mombasa to Nairobi railway turned negative as ballooning costs turned four times the original estimate and raised suspicions of corruption.

  Plans call for extending the Mombasa-Nairobi line farther west around the northern coast of Lake Victoria, up to the Uganda border by 2021, and then on to Uganda's capital in Kampala and Kigali, Rwanda, with a branch line to Juba, South Sudan. Extending the Mombasa-Nairobi line into Uganda would facilitate oil shipments from new fields in and around Lake Albert and copper, cadmium, and other mineral shipments from the Democratic Republic of the Congo. It also would improve the supply route to the Dominican nuns mentioned in the earlier post, "Celebrate Uplifting Efforts to Promote Self Reliance in Africa."

Although the Mombasa-Nairobi route is only about 300 miles long, terrain required 98 bridges, embankments, cuttings, and an elevated section through Tsavo National Park that provides six openings for wildlife to pass underneath. Annually, freight trains are expected to carry 22 million tons over the line, 40% of all cargo entering Mombasa. Trips from the freight terminal at Mombasa to container depots at Embakasi/Nairobi are expected to take less than eight hours. New standard gauge trains traveling at 75 mph could reduce a passenger's trip from Mombasa to Nairobi to four hours compared to the current all day trip on the deteriorated, leftover meter gauge railway built before Kenya's independence. The trip will take longer when any stops are made for passengers at the 40 stations expected to be completed along the route.

Africa's Chinese railroads are a work in progress. Funding and loan repayment, as well as stolen materials, have plagued these projects. In some cases, the China Communications Construction Company will operate Africa's railways while local employees are being trained. Over Easter, Nigerians complained about changed schedules and poor communication. The same poor maintenance that left colonial railroads in disrepair after African countries gained independence could be a problem in the future.