Diageo's Seiersen: crime could chase away investment. Diageo's Seiersen: crime could chase away investment.

Crime, impunity put investment at risk

Diageo chief sees volatility, insecurity at highest level in nearly 3 decades

Rising levels of violent crime in Mexico this year resulted not only in record-breaking homicide figures but also took a heavy toll on companies operating in the country.

The official number of homicide investigations reached 23,101 by the end of November, surpassing the record for the previous most violent year set in 2011. Figures for a range of other crimes including robbery, extortion and kidnappings are also up.

The increased insecurity doesn’t make for an environment conducive to successful business dealings, especially for companies that use Mexico’s transportation infrastructure to move large quantities of products for distribution.

The Mexican head of British multinational alcoholic beverages company Diageo said that in the almost three decades he has been in Mexico, he has not experienced a situation similar to the one the country currently faces.

“I’ve been working in Mexico since 1990 and I’ve never seen this level of volatility and insecurity,” Erik Seiersen told the Financial Times.

Seiersen, who is also the president of the national Wine and Liquor Industry Commission, said that transporting merchandise on freight trains became too risky this year due to the high number of robberies.

Consequently, many companies switched to the nation’s highways halfway through the year in order to ensure that their products reached their destinations intact. But the decision came at a considerable cost, he explained.

“When you shift to trucks, there is a high increase in costs,” Seiersen said, adding that those costs could “skyrocket 100, 200, 300%.”

When thefts also became increasingly common on certain key highways, such as that between Puebla and Veracruz, many companies switched back to rail transport again.

However, robberies are not the only problem that companies have to contend with, according to the head of the National Association of Private Transport.

“It’s not just the theft of cargoes. They are selling these goods on illegal markets at below the price of production and competing against our own products,” Leonardo Gómez said.

One example is the illegal fuel market.

Pipeline thieves known as huachicoleros set a new record this year for illegal taps on Pemex fuel lines, and over the past seven years the practice has cost the state oil company an estimated 160 billion pesos.

The Wine and Liquor Industry Commission also reported that its members were victims of 151 robberies in 2017, in which 109,000 cases of alcohol worth 352 million pesos (almost US $18 million) were stolen.

Some analysts believe that the insecurity problem could get even worse in 2018 due to factors such as police corruption and the 2018 presidential election.

Last week, President Enrique Peña Nieto promulgated the controversial Internal Security Law (LSI) after it was passed by both houses of Congress. Critics of the law argue that it will militarize the country and act as a disincentive for the nation’s police forces to professionalize.

They also point to a failure to reduce violent crime since Felipe Calderón first deployed the military in the so-called Mexican War on Drugs in December 2006.

But the government counters that the law is necessary so that the military can help to curtail crime in the country by supporting local security forces while working within a legal framework that directs their actions.

Some of the crimes committed in 2017 have been particularly brutal and confronting, such as six bodies that were found hanging from bridges in Baja California Sur last week and severed heads that were left in a cooler outside an office of broadcaster Televisa in Guadalajara last month.

Twelve journalists have also been killed in Mexico this year, ranking Mexico alongside Syria as the deadliest country in the world for journalists, according to the organization Reporters Without Borders.

Seiersen believes that the alarmingly high incidence of violent crime, coupled with high levels of impunity, could result in less investment in the country at a time when NAFTA renegotiations, a plunging peso, U.S. tax reform, high inflation and political speculation have already created significant economic uncertainty.

“We want to invest in Mexico but this level of insecurity is unheard of . . . People are going to lose interest in [investing in] Mexico,” he said.

Source: Financial Times (en)

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