Entrepreneurship in post-Election Mexico

Annie Austin
February 13, 2017

 

In March of 2016, I received an email inviting me to join the Endeavor México team as their 2016/2017 Princeton in Latin America Fellow.  I replied “Yes, I accept!!” within thirty seconds of reading the email, thrilled for the opportunity to work for an organization that promotes entrepreneurship in emerging economies. In August, I arrived to an overwhelmingly warm welcome, fortunate enough to work in a stimulating and fulfilling role.  Autumn of 2016 proved an interesting time to be in Mexico, however.  Everyone from my boss to my Uber drivers asked about the US elections: What did I think of Trump?  Who would I vote for? I tried to keep my answers optimistic and vague, not knowing how the election would turn out. Today is January 23rd, 2017, and we now know the outcome. Since the U.S. election, I have noticed various changes in crime, tourism, and economic opportunities in Mexico.

Before addressing those changes, some country-specific background.  The peso plunged in value the night of the election, falling to near record lows1, becoming the second most devalued currency in 2016 behind the Turkish lira2. A strong dollar and a weak peso greatly impact the Mexican economy, as 81.2% total Mexican exports go to the US3.  Such high rates of trade between the two nations are in large part due to NAFTA, the free trade agreement between the US, Canada, and Mexico.  Throughout his campaign, candidate Trump promised to renegotiate NAFTA, even considering implementing bilateral trade exclusively with Canada4.  The top three U.S. trading partners, in order, are Canada, China, and Mexico; thus any barriers to trade between the US and Mexico would greatly impact both countries4.  Just this morning, the president signed an executive order pulling out of the Trans Pacific Partnership, which would have included both the US and Mexico7.  Further, on January 1, 2017, the Mexican government implemented the initial phases of liberalizing the oil industry, under government control since 1918, which has resulted in an increase of gas prices by 20%2.  These prices are exacerbated both by the strength of the dollar, since Mexico imports 60% of its gas from the US, and also the rising gas prices worldwide due to OPEC countries cutting production2.  The peso devaluation, rising gas prices, and the uncertainty regarding free trade agreements have joined to cause a perfect economic storm in Mexico.

In addition to the resulting economic turbulence, I have noticed a seemingly parallel rise in crime in Mexico City.  Especially in the economically prosperous areas of Polanco and La Condesa, various friends have fallen victim to armed and violent robberies, as well as "express kidnappings," where the perpetrator takes the victim to various ATMs to max out their credit and debit cards before letting them go a few hours later.  It seems to me that increased crime has accompanied rising prices for gass and essential goods (e.g. avocados, a staple in Mexico, have risen 50% in price since 2014, due to inflation2), as well as overall economic uncertainty.

 

A few weeks after the election, I visited home for Christmas.  My mom lives in the residential area of Vail ski resort, an extremely popular travel destination for Mexicans in particular, who comprise 67% of the international tourism, representing 10% of Vail Resorts' overall economy5.  Usually the town center is bustling with Spanish speakers, but this year it was empty. My mom is a travel agent who specializes in ski travel, and mentioned that tourism for Christmas was unusually low, suggesting it was due to the election. My Mexican friends and coworkers agreed, attributing this drop in tourism in the US to two main factors: the astronomical rise in prices, and the fear of discrimination against Mexicans that was normalized during the campaign.  “Why would a Mexican want to be in the US right now?” one asked.  Unfortunately, he has a point—right now is not the ideal time to travel to the US as a Mexican.

However, trying economic times often inspire  important innovations.  For example, finding opportunity in the rising cost of gas, Mexican entrepreneurs Alejandro Morales and Eduardo Porta (who are Endeavor entrepreneurs) started E-Conduce, which a ride-sharing program for electric scooters around the city, an alternative to gas-powered vehicles6.  Another Endeavor entrepreneur Daniel Vogel founded Bitso, an online platform that allows individuals to make payments utilizing a sophisticated Bitcoin online platform.  If the new U.S. administration restricts international payments, Bitso may be the go-to company for fast, cheap, and transparent payments6.

The economics behind these changes in Mexico are diverse and complex. Still, I have perceived a shift since the U.S. election, and campaign rhetoric may have played a  role.  With threats to reassess free trade agreements and to build a physical wall, it seems that significant changes are in store for the two nations. Yet, faced with such uncertainty, we might try to identify new opportunities for Mexican entrepreneurs.  As Antonio Osio (managing partner at Capital Invent, and angel investor at Fabrice Grinda and José Marin Investments) recently joked: “Dear Optimist, Pessimist, and Realist. While you were busy arguing over the glass of water, I drank it. Sincerely, the Opportunist”6. 

 

 

  1. 1. (early November it was USD$1 = MXN$15; today around USD$1 = MXN$22) (Bloomberg)
  2. 2. http://www.elconfidencial.com/mundo/2017-01-18/mexico-gasolinazo-trump-poder-adquisitivo-inflacion_1317828/
  3. 3. http://www.worldstopexports.com/mexicos-top-import-partners/
  4. 4. https://www.bloomberg.com/politics/articles/2017-01-23/canada-signals-possible-u-s-trade-deal-that-excludes-mexico
  5. 5. http://www.summitdaily.com/news/local/vail-mayor-sees-alarming-mexico-rhetoric/
  6. 6. http://www.huffingtonpost.com.mx/antonio-osio/gasolinazo-corrupcion-y-depreciacion-del-peso-oportunidades-pa/?utm_hp_ref=mx-
  7. 7. https://www.nytimes.com/2017/01/23/us/politics/tpp-trump-trade-nafta.html