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CURRENT ISSUE

Which One Doesn’t Fit: Limes, Drug Cartels, Mexico, Investment
April 14, 2014 | Rodney Johnson

Rodney Johnson | Monday, April 14, 2014 >>

I’m currently in a fight with a Mexican drug cartel.

I’m not leading a double life as a Drug Enforcement agent, and I’m not a drug dealer having a spat with my supplier.

My problem with the Knights Templar Cartel is that they’re screwing up my cocktail hour.

One of the joys of living in sunny Florida is the ability to take in a beautiful sunset while sitting outside in shorts nearly year round. On weekends, the activity is enhanced by a gin and tonic, which you can’t make without limes.

And therein lies the problem…

The Knights Templar control the wholesale distribution of goods out of the Michoacán region of Mexico, where the bulk of limes sold in the U.S. originate.

The cartel’s extortion, along with a tough year for weather, has sent the price of limes through the roof, doubling it in just a few months.

This leads to cocktails ungarnished, or left to be enhanced by sugary, processed lime-juice substitutes. That’s no way to toast a sunset.

All of this brings up a bigger subject.

While I might be annoyed at the encroachment of a faraway drug cartel, I’d imagine the farmers, pickers, truckers, and others involved in agriculture in Mexico are not just annoyed, but fearful of being killed.

That’s no way to run an industry, and it’s clearly no way to run a country.

How is it that Mexico can be geographically attached to the richest, hungriest country on the planet, and still be run like Chicago in the 1880s?

It has often been considered the “next” investment darling of emerging countries, but never seems to break out to the up side. This leaves investors a bit poorer, and certainly frustrated.

It’s not like Mexico hasn’t been given a chance.

The North American Free Trade Agreement created a free flow of goods moving north, and a free flow of jobs and factories moving south.

Dotted along the south side of the U.S.-Mexican border are rows of factories that would be illegal just a few hundred yards north because they pollute too much and pay too little.

The benefactor of their output is the U.S. consumer, who gets to pay less for stuff made down south. But this comes with the other benefit of increased employment, trade, and tax revenue in Mexico.

And yet, here they are, with an armed insurrection in the Southwestern provinces, villagers having to take up arms to protect themselves, and drug cartels controlling mainstream businesses.

If that’s not bad enough, the state itself allows monopolies over telecom, energy production, and a host of other sectors, all of which makes a tiny group of industrialists exceptionally rich, while the typical Mexican is much closer to poor.

From 1980 to 2010, Mexican GDP per capita rose 22%, which lagged most Latin American countries (33%), and was way behind growth in the U.S. (66%).

The number of Mexicans living in poverty has barely dipped over the same 30 years, falling from 53% to 51%. For the 11th largest country in the world, by both population and GDP, this just seems odd.

Think about it this way: The median income in Mexico in 2010 was $4,400, whereas in Greece, it was $16,000, and in the U.S., it was $30,000.

Does it make sense that workers in the U.S.’s largest trading-partner, the same nation that has been our neighbor forever, make about 1/4th of what workers in Greece make?

All that being said, there are some recent signs of progress in Mexico.

The last president, Felipe Calderon, vowed to fight the cartels, and started what has become a small-scale civil war in the country.

The new administration has continued this approach, although with less fanfare. There is no way to overstate how awful it must be to live through that, and the success so far is questionable, but at least they’re trying.

Newly-elected President Enrique Nieto has pledged to privatize many industries, which in theory should lead to greater democratization of wealth and reduce cronyism in the country and encourage foreign investment.

When the cartels are marginalized and major industries return to private control, Mexico should be on a path to strong growth and decent investment returns.

I hope it happens soon, my ice is melting.

Until the signs of change and privatization are clearer, it’s probably best that you keep your pesos in your pocket, or at least out of Mexico. You wouldn’t want part of your investment dollars to end up in the hands of a cartel.


Rodney

 
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