Kingdom Trade and Investment (UKTI) Enrique Cornejo, Head of Energy and Environment
The Head of the Energy and Environment Division of Britain’s primary mechanism for promoting overseas trade and commerce outlines why Mexico is now the investment destination of choice for many British energy sector companies with experience on North Sea mature and complex plays. He also introduces the newly established British Business Centre Mexico and how this new institution should facilitate the market entry of British enterprise into the Mexican oil and gas sector.
Mexico has been going through a period of Macroeconomic stability: 12 free trade agreements with 44 markets, a population of over 112 million, an average age of 26 and a growing middle class. How strategically important is this country to British industry?
Mexico is considered to be highly strategic in terms of trade and investment. The country has been identified as one of 10 emerging markets where the UK government has resolved to concentrate efforts at promoting British expertise and technology under an initiative called the ‘GREAT’ campaign. We believe that developing the British brand across emerging markets is going to be critical to boosting exports.
Meanwhile, some European markets are in economic difficulty with low growth prospects and this also increases the investor attractiveness to alternative areas such as Brazil and Mexico. Both countries had historical ties with Britain at the beginning of the 20th century. In the Mexican instance, a lot of the infrastructure was built by British firms or using British technology. Subsequently there followed a long period where Britain turned her attention to other countries. Then, in recent years, the UK has been seeking to re-engage Mexico again both as a trade partner and political ally.
Today Mexico and the UK hold very similar objectives and values in a number of areas. Climate change policy is a case in point with Mexico having become only the second country in the world to implement a climate change law that is legally binding and sets specific targets for carbon emissions reduction. Naturally the UK has been very supportive in terms of providing feedback and expertise on how to regulate emissions volumes. Deep water oil and gas exploration and production forms another area of potential collaboration and British industry’s longstanding reputation for successfully developing difficult plays on the UK continental shelf and elsewhere will be valuable.
Currently we are working hard to make UK companies more aware of the opportunities in the Mexican energy sector and simultaneously to inform the main Mexican contractors about the sorts of services British industry can supply.
In February, Deputy Prime Minister, Nick Clegg and Trade envoy Baroness Bonham-Carter along with a delegation of 40 British business leaders participated in what was branded by the press as a ‘catch up mission’ to boost bilateral trade. What were the main energy related themes to emerge from this event?
In most high profile trade delegations to Mexico, there is a significant energy-related component and Deputy PM Clegg’s February mission was no exception as it included no fewer than thirteen CEOs of companies from across the oil and gas value chain. Stakeholders participating ranged from the oil majors such as Shell and BP to engineering and procurement companies such as Amec to boutique energy consultancies such as Verco Advisory and industry associations such as the Energy Industries Council. A number of British universities and vocational training institutions were also present with a view to helping alleviate the chronic skills shortage throughout the sector.
One of the major outcomes of the February trade mission was the decision to establish a British Business Centre to assist British SMEs in penetrating Mexican markets. Can you please elaborate further on this initiative?
The British Business Centre (BBC) concept is the brainchild of former Minister for Trade and Investment, Lord Green, and the basic idea is to establish trade portals for British SMEs in economically strategic countries. Germany has been deploying a similar sort of model for a number of years and that has proved highly successful. During the Deputy PM’s visit in February, it was resolved that such an institution should be created in Mexico with the new BBC supported by both the UKTI and the British Chamber of Commerce (BritCham).
The intention is to combine the UKTI’s expertise in facilitating high-level trade engagement with the Business Centre’s day-to-day commercial advisory capabilities and to establish a first port of call for British SMEs aspiring to enter Mexican markets for the first time. Not only will we be able to link those SMEs up with appropriate, reputable local entities, but we will also help to create a soft landing, by providing them with short-term office space and facilities as they build up their customer base. New premises are already open in the Polanco district of Mexico City – they were unveiled in mid-May by the Lord Mayor of London.
In the oil and gas sector, the UK and Mexico face similar challenges: declining reserves, a need to maintain energy outputs and a need to protect the environment. What can Mexican companies learn from UK businesses?
On the commercial side, we are talking to companies that have developed technology operating in the rough North Sea conditions where security and safety is considered paramount. Mexico is in the process of absorbing international norms and standards on HSE and this is where British manufacturers of specific products that help firms meet health and safety requirements have a real opportunity to develop the Mexican energy sector. One instance where this is already happening is in the use of British devices to transfer personnel safely from vessels to platforms.
To what extent to you foresee British businesses readying themselves for entry into the newly liberalized Mexican energy market?
Over the last 3 to 4 years a number of British companies were contemplating diversifying their portfolios, but were cautious about the Mexican market. We are starting to see a change in behavior with companies now committing to build long-term relationships and investing heavily in making themselves visible throughout the market. Having spoken in-depth with the supply chain in Britain, it seems that a wide range of firms are interested in operations in Mexico. Some of those looking most actively include second tier operators and SMEs with niche products such as the manufacturers of ROVs to examine subsea installations.
We’ve talked about the opportunities for British industry in Mexico, but what about the risks? And how can UKTI help mitigate them?
One key risk constitutes not properly understanding the dynamics of the local market. UKTI has therefore been busy spreading the word about the current economic stability of Mexico and raising awareness about some of the particular factors of operating in the country.
Another risk is in the choice of local partner which is why UKTI has been approaching local companies that are keen to uplift their technology with a view to eventually compiling a database of reputable Mexican firms. A further concern relates to the current lack of clarity over contractual structures though this is expected to be resolved with the unveiling of the secondary legislation.
You’ve been head of the UKTI energy division for just over a year and a half. What have been your achievements thus far? And what are your personal priorities going forward?
Oil and gas is just one part of the energy division at UKTI. We also cover renewables and environmental issues so have been working closely with the Carbon Trust to provide financing to Mexican SMEs to improve energy efficiency in their daily operations. In oil and gas, our support to companies like Petrofac has been very important alongside our efforts to change the mindset of the UK supply chain by demonstrating that there is ample scope for them to come to Mexico, share their expertise and conduct good business.
Going forward, we want to see more competition all round. The changes we have been witnessing provide a new environment for all players concerned by making it easier for both local and international companies to come here, win contracts and develop the supply chain. We are also keen to bring an education component on board and are collaborating with Pemex and the universities of Cambridge and Aberdeen to that effect. Companies that are used to export realize that this building relationships takes time, but that the rewards can be significant and I’m sure we’ll see many more UK firms coming to Mexico in the near future.
As one of the first people to hear the concerns of British enterprise, what is your advice to British entrepreneurs aspiring to become the next Petrofac-style success story?
I would let them know that there are a great many opportunities across the full supply chain of the energy sector. We tend to focus on upstream because clearly that is the spicy bit with the largest margins, but there are also massive opportunities in terms of the supporting infrastructure and we are already seeing large numbers of private investors approaching international companies that specialize in infrastructure.
It is also very important to remember that the Mexican oil and gas industry didn’t start from scratch just after the reform. Mexico is a country already producing 2.5 million barrels per day and you will find most of the international oilfield service companies – whether Schlumberger, Halliburton or Cameron – already operating here. Many UK companies will have worked with one or more of these firms before and so it will be easy to approach them. Meanwhile there is a load of indigenous Mexican firms that have been present in the market for quite some time that are extremely eager to upgrade their capabilities with the latest generation technology.
My advice is to come to us and we will direct you to the right interlocutors and contacts. It certainly takes time, but then again it has taken time to build markets elsewhere and those companies that persevere are likely to do very well out here.
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