As the great Homer Simpson once said, “Here’s to alcohol: the cause of, and solution to, all of life’s problems.” All jokes aside, I know I normally talk about oil production and diesel imports, but if you’ll indulge me, let’s take a wider angle on economic drivers south of the border and talk about President Lopez Obrador and his newest issues regarding agreements inked under previous administrations. Here’s more reason for apprehension for anyone trying to do business in Mexico.
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Constellation Brands In The Crosshairs
This past week, President Lopez Obrador raised concern over the location of an under-construction Constellation Brands brewery located in Mexicali, on the northern border of Mexico, 100 miles east of San Diego, California. You might recognize Constellation as the United States company that produces both the Corona and Modelo brands of beers. The permits for the facility were granted in 2016 under the previous administration. The partly completed project was originally slated to take 4-5 years to complete and come at a price tag of $1.5 billion.
AMLO contends that the chosen site and permits were ill conceived due to the scarcity of water in the region and the need to protect the environment. In his message, he suggested that the facility would have been better suited for southeastern Mexico where water is in greater supply, but Constellation Brands has adamantly denied the brewery would threaten water supplies in the region for the current site.
So, large new construction projects should be based in southeastern Mexico? Well, the Tabasco region would be a great site. This sounds familiar… It’s the chosen location for the new proposed $8 billion Dos Bocas refinery, the highly controversial pet project of AMLO. Why not add a $1.5 billion brewery to the region, too? As Lopez Obrador said, the region does have a much better water supply like the Papaloapan, Grijalva, and Usumacinta Rivers. Those names don’t have quite the marketing appeal of brewed in Golden, Colorado, though, or “Tap the Rockies” but whatever.
Southeastern Mexico, and in particular Tabasco, is AMLO’s home territory. So, we have a politician favoring his home state for massive infrastructure projects bringing hundreds of jobs and literally billions of dollars. Hmm, nothing unusual there.
Who Agreed to That?
At the heart of controversial projects, like the brewery, is the increasing scope of the current President challenging and threatening any deal approved under previous administrations. When combined with the reversal on the Mexico City airport deal and the ongoing review and re-trades on natural gas pipelines and other energy projects, it’s a bad message to send to investors across all industries. AMLO is willing to overturn anything from prior administrations under the guise of prior regime corruption and political influence.
We take it for granted here in the U.S. that when we pull into a corner store there will be gasoline, that the quality of gas is standardized, that we’re going to get the full gallon that we pay for and that when we run inside we can pick up a six pack of our favorite adult beverage. People want their gasoline and their beer. Actions like threatening breweries, hindering the profitability of energy projects and creating an environment of unknown risks will deter future investors from even considering Mexico.
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Senior Vice President of Terminal Services