Mexico’s state-owned development bank is forging alliances with Canadian financial institutions to boost the stunted levels of commercial lending in the country, especially in the newly reformed energy sector where increased investment is sorely required.
Banco Nacional de Comercio Exterior SNC (Bancomext) is ramping up efforts with domestic and foreign lenders – including Bank of Nova Scotia, Bank of Montreal, Canadian pension funds and Export Development Canada – to provide the capital needed to ensure the Mexican government’s wide-ranging reforms succeed in boosting growth and employment.
“This is a very significant relationship,” Bancomext chief executive officer Enrique de la Madrid said in an interview as he wrapped up a week-long visit to Canada.
“We have a very important neighbour but I think we should look beyond our common neighbour to build our own relationships, to continue to grow the business and continue to grow our mutual understanding which in some ways is not as close as we think it should be.”
The government of Mexican President Enrique Pena Nieto has succeeded in passing a series of laws that overhaul not only the energy sector, but banking, the telecommunications industry, the tax system and education.
It hopes to unleash a flood of investment that will increase productivity in the country and increase growth from 2.3 per cent per year over the last decade to closer to 5 per cent a year.
To do so, the Mexican government is looking to boost private-sector lending. Outstanding commercial credit amounts to 28 per cent of GDP in Mexico, versus an average of 44 per cent in Latin America and 75 per cent in Chile.
Recent legislation makes it easier for lenders to recover collateral when a loan goes sour, a move which should reduce risk for banks and lower costs for borrowers.
Scotiabank’s Mexican subsidiary already has 900 branches and 15,000 employees, and is eager to capitalize on the new opportunities, its chief executive Troy Wright said in a telephone interview.
“All of the reforms are extremely exciting and we’re optimistic they will bring substantial changes in Mexico,” Mr. Wright said.
He said the reforms should unleash levels of investment in the country’s energy sector that Canada is used to seeing in the Alberta oil sands, and that Scotiabank will target project financing as well as lending to small and medium enterprises that will supply the industry.
International attention has focused on Mexico’s oil sector, where production has declined to 2.3 million barrels a day from 3.5 million a decade ago. Reforms will allow state-owned Petroleos Mexicanos (Pemex) to partner with foreign firms on major projects and will reduce the state’s reliance on the oil company to fund government programs. As well, international companies will be able to develop their own oil and natural gas projects.
But the short-term priority is development of the country’s natural gas and electricity infrastructure on which manufacturers rely. Currently, gas and power prices are far higher in Mexico than in Canada or the United States and service can be unreliable.
“The electricity reform is as dramatic as the one involving oil but much less visible to the people,” Mr. de la Madrid said.
The country’s power producer is planning a major switch from fuel oil to natural gas, and is building a network of pipelines to deliver it, both from the U.S. and from internal sources. Calgary-based TransCanada Corp. is a key developer of natural-gas pipelines.
Despite fears that a resurgent oil industry would compete with Canadian producers for coveted U.S. markets, Mr. de la Madrid said the three North American partners should proceed in partnership rather than in competition.
“The challenge is to see the three of us – the three amigos – to see how we can work together for the production of goods and services and sell them to other regions of the world,” he said.