Business is Business.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
True to his word, President Donald Trump has launched his plan to build a “big, beautiful, powerful” wall to separate the U.S. from its third biggest trading partner, Mexico. And he has determined that it will be Mexico that will end up paying the lion’s share of the construction costs, which could range from $12 billion (Trump’s latest estimate) to $31 billion (industry estimates).
Naturally, Mexico has other ideas. The problem for President Enrique Peña Nieto is that his scandal-tarnished administration currently enjoys a public approval rating of just 9%. The more he dithers and procrastinates in his standoff with Trump, the faster it plummets.
But on Thursday, Trump gave him a rare helping hand. By insisting that next week’s scheduled meeting on NAFTA renegotiation should only go ahead if Peña Nieto agrees beforehand to stump up cash for the wall, Trump gifted him the perfect justification for withdrawing from the meeting, as Mexican politicians and pundits have been urging him to for days, without losing too much face.
Bilateral relations between the U.S. and Mexico have curdled to their worst point in decades. With Canada siding with the U.S. in defense of its own national interests, Mexico is all of a sudden out on a limb. NAFTA, which helped transform Mexico into a liberalized, low-cost industrial powerhouse while shackling its economic fate to its northern neighbors, is in tatters.
Now Mexico finds itself in an unenviable (but not quite impossible) negotiating position, since roughly 80% of its exports go to the US, (representing around 13% of US imports, or amounting to $295 billion in 2015).
And the new U.S. government seems determined to plow ahead with plans to transform the border into one of the longest man-made walls in history. Trump’s dream of an unbroken barrier — man made and natural — stretching from the Pacific to the Gulf Coast will probably emulate the design of Israel’s much smaller partition wall, which nonetheless took two years to build. For most companies and communities on either side of the US-Mexican border, it will inevitably mean lots of disruption and less business.
The Right Place at the Right Time
But not all Mexican companies are necessarily opposed. One of the biggest potential beneficiaries of the wall project is Mexico’s Cemex. The largest cement maker in the Americas and the world’s second-largest cement and building materials producer, Cemex would be strongly positioned to profit from such a large construction project, according to a report published before the elections by Sanford C. Bernstein & Co, which called the wall “a huge opportunity for those companies involved in its construction.”
“Despite arguments concerning which government will pay for construction, the large quantities of materials required may necessitate procurement from both sides of the border,” the report said.
In other words, the prospects for pork are likely to be outstanding.
Richard Steer, the chairman of global construction consultants Gleeds, warns that the wall would be one of the most difficult and expensive construction projects ever undertaken due to the difficulty of bringing so many heavy materials to remote regions. It will require roads to be built just to get access to areas in which the international boundary crosses desert or mountain terrain.
Cemex has cement operations on both sides of the border. And a lot of cement will be needed. According to Bloomberg, building the wall would require about 7 million cubic meters of concrete, which could cost more than $700 million at current prices. That’s based on the assumption that the structure would extend 1,000 miles, rise 40 feet and reach seven feet underground, and have a thickness of 10 inches.
Business Is Business
For Cemex, the U.S. is a big market, accounting for 20% of its revenues in the last quarter. Over the past 12 months the company has seen its shares rise 130%, dovetailing almost perfectly with the rise of candidate Trump. In the last week alone its stock has surged 17% on speculation, as yet unconfirmed, that it will participate in the construction of the wall.
Cemix is also expected to benefit handsomely from Trump’s plans to lavish up to half a trillion dollars on roads, bridges, tunnels and airports. It’s a dramatic turn of events for a company that came perilously close to bankruptcy in the wake of the global financial crisis.
Ironically, its fortunes may now rest with a U.S. administration that is determined to rebalance its relations with Mexico, to Mexico’s detriment. As such, agreeing to participate in Trump’s wall project is not without risks, especially given the strength of opposition to the project at home.
“It would be shameful for Mexican companies to participate,” says Manuel Bartlett, a senator with Mexico’s Worker’s Party. “They would be putting money before national interest.”
But business is business, and for multinational corporations with operations and investors spanning the globe, self-interest invariably trumps national loyalty — unless, of course, they’re given little choice in the matter. By Don Quijones, Raging Bull-Shit.
It’s not all NAFTA’s fault, however. Read… Mauled by Peso Crash & Inflation, Mexico to Cut its Dependence on US Food Producers