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New opportunities for companies in Western Canada in Mexico

New opportunities for companies in Western Canada in Mexico

Posted by Ricardo Vázquez on September 09, 2014

The annual Canada Mexico Partnership meeting is being held for only the second time outside the Ottawa area — yet another sign of Calgary’s rise as an international centre.

But because Mexico is our “other” neighbour to the south, visiting Calgarians and Albertans may miss the significance of this week’s events.

Compared to more distant markets, the huge array of opportunities in the booming new Mexico are arguably the easiest for Western Canadian companies. That partially explains why the market is so easily overlooked.

Reforms in Mexico’s energy sector will help change this. No, Mexico is not going to abandon state control over the energy sector or dismantle PEMEX, its state-owned oil company. But then, neither is anyone else.

State owned-enterprises (SOEs) control approximately 90 per cent of the world’s oil reserves and 75 per cent of production. Outside of the U.S. and Canada, it is not a question of whether to deal with SOEs; it’s a question of whether you can live with, and profit from, a particular model of state control.

Mexico’s energy-sector reforms make the answer even more of a yes.

Canadian companies such as Precision Drilling Corp., CanElson Drilling Inc. and Calfrac Well Service Corp. have been succeeding in Mexico. Pending deregulation will only make things easier for them and for new entrants from Canada.

In some cases, these companies will also find that opportunities in Mexico are better than in Canada.

The Mexican government forecasts that over the next decade, oil production will rise by three million barrels of oil per day by 2018, and $100 billion in is needed over the next decade for shale gas development. And as opposed to Canada, Mexico will actually be building pipelines.

Clearly, the Mexico of today is not the Mexico of 20 years ago when NAFTA was signed. Then, most Mexicans lived in poverty. Today, the majority are middle class. Mexico is now the world’s 14th largest economy, nestled between Spain and Korea. By 2030, projects PricewaterhouseCoopers, it will be the world’s 8th largest, ahead of the U.K., France and Canada.

This brings new opportunities for companies in Western Canada.

Beyond NAFTA advantages, in Mexico there is geographic proximity (5-1/2 versus 12 hours to Asia) and a business culture and language that are North American. With more Mexicans in the U.S. than there are Canadians in Canada, if you’ve done business in the U.S. then doing business in Mexico is more of a large step than a huge leap. As for crime, the homicide rate in oil-producing states of Tabasco and Texas, are practically the same — 5.4 versus 5.0 homicides per 100,000 inhabitants.

But most significant is the interest the Mexican government is showing in this part of Canada. In June, the Mexican government made its first presentation on the country’s energy reforms. Not in Houston, but in Calgary. With full, not honorary, consulates in Calgary, Vancouver and soon in Winnipeg, Mexico will have as much representation in Western Canada as does the U.S.

As well, the Mexican National Hydrocarbons Commission has signed a co-operation agreement with the Alberta Energy Regulator. And the Mexican government is encouraging the University of Calgary to expand its ties to that country.

Mexico holds enormous opportunity for Western Canada and that country has been laying out the welcome mat. We in Western Canada need to respond. That would start with a warm reception this week and continue with higher-level reciprocal visits from provincial officials, ministers and premiers.

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