Mexico: Doing Business In Mexico: Risk And Security Assessment

The recent visit of United States President Joe Biden and Canadian Prime Minister Justin Trudeau to Mexico in January 2023 for the North American Leaders Summit underlined how critical Mexico-specific safety considerations have become for the region at large. Not only was it ranked among the key issues to discuss, but the three leaders appeared to agree that enhanced multilateral cooperation to address border security and drug trafficking is needed. If value chains are to be fully integrated and North America is to become the manufacturing powerhouse of next-generation products, there is no question that questions involving safety need to improve at a macro level in Mexico and, even more critically, investors need to gain a strategic edge in analyzing and reacting to micro level security conditions prevailing in the areas where they operate. With improved conditions and enhanced intelligence, much-needed cross-border investments can thrive.¹

This issue brief analyzes a number of relevant security criteria that should be addressed while doing business in Mexico. As such, it proposes to move beyond the presentation of official statistics and present the criteria for a richer assessment that considers specific location, industry sector, as well as the population and the private companies' perception of security conditions in each region.

In Mexico, security remains one of the main concerns for foreign investors, particularly in certain regions of the country, which can disrupt the natural competitive advantages that Mexico provides.² It is therefore relevant for organizations to understand the real risks associated with the security conditions prevailing in Mexico, including the different operating realities across the country's regions and business sectors.

During his fourth annual message delivered in September 2022, Mexican President Andrés Manuel López Obrador ("AMLO") announced that there had been a 10% decrease in homicides compared to previous presidential administrations. Analysts criticized the data he was using and responded that the 10% decrease actually corresponded to the variation between his first year in office (2019) and 2022and not to the total number of reported homicides.³ According to the Mexican National Institute of Statistics and Geography ("INEGI"), the following are the official statistics for homicide deaths in Mexico under recent administrations:⁴

Figure 1 - Homicides in Mexico 2007-2022

Source: own elaboration with data from INEGI 2002-2021. The figure for 2022 is an estimate presented by the Federal Government in December 2022. INEGI's definitive number will be disclosed in 2023.⁵ In Mexico, each presidential administration covers six years. For comparative purposes, the data for December 2012 and 2018 was included in the figures of the respective outgoing administration.

Regardless of President AMLO's claim and the unending discussion in Mexico around the accuracy of the official figures, unofficial data show that the total number of homicides has reached the highest levels in history during President AMLO's administration.⁶ The controversy between the government's official numbers, the pundits and the press, as well as the disparity in which statistics are interpreted, only adds to the complexity for those attempting to precisely understand the security situation in Mexico.

Furthermore, discussions around the figures published by Mexican agencies are not necessarily meaningful for the private sector as they outline general trends that may be of little practical value. Investors and companies that operate - or intend to operate - in Mexico require more precise information and a tailored analysis that enables them to evaluate the threats and risks of conducting their specific business activities in the country.

One fundamental aspect of understanding the security conditions while doing business in Mexico is location. Violence, including the potential threat of violence, is not homogeneous across the country. According to 2021 data from the World Population Review⁷ and the United Nations Office on Drugs and Crime ("UNODC")⁸, the violence in certain states in Mexico is comparable to some of the most insecure countries in the world based on the homicide count per 100,000 population including Guatemala (3,881), Bangladesh (3,830), Honduras (3,732), El Salvador (3,340) and Iraq (3,339). According to data from INEGI, in 2021 (information from 2022 will be released in 2023) some Mexican states even reported a higher number of homicides than countries in the midst of war or other severe social conflicts. Those states include Guanajuato (4,172), Baja California (3,216), Estado de México (3,109), Chihuahua (2,728)and Michoacán (2,672).

On the other hand, data from the World Population Review and the UNODC, indicate that other states in Mexico can be compared to some of the safest countries in the world, such as Belgium (193), Guyana (111), Finland (90), Portugal (81), Denmark (58)or Switzerland (50). These Mexican states include Durango (147), Aguascalientes (97), Campeche (87), Baja California Sur (71)and Yucatán (55).⁹

The following map provides a state-by-state comparison of the total number of annual homicides reported by INEGI in 2021:

Figure 2 - Homicides by State in Mexico 2021

Source: own elaboration with data from INEGI 2022.

Perception of Violence

Actual perpetrated violence is a meaningful statistic, but the perception and threat of violence is an additional layer of information to incorporate into a security analysis. According to the 2022 Business Security Survey conducted by the American Chamber of Commerce of Mexico ("AmCham"), the major security concerns for companies in 2021 were the following:¹⁰

• Cargo transport, supply chain attacks and robbery¹¹
• Offenses, threats and aggravated assault to employees and/or their relatives
• Physical security, intrusion of facilities and burglary¹²
• Travel protocols
• Information leaks, data security and cyber-attacks

These key concerns were confirmed separately by the Mexican Association of Private Security Companies ("AMESP")¹³ and the Confederation of National Chambers of Commerce, Services and Tourism of Mexico ("Concanaco").¹⁴

Companies consulted by AmCham provided the following perceptions of security and violence by state in 2021:

As illustrated above, the private sector's perception of security and violence differ from data presented by the Federal Government. For example, Baja California, a key state for the maquila and manufacturing industries that borders the United States, registered the second highest number of homicides in 2021 (Murders by State in 2021: 3,216); however, according to the AmCham, Baja California did not even make the Top 10 states in terms of security concerns for private companies operating in the state.¹⁵ The data reveal that private companies must complement the information produced by security authorities with local level information from experts, peers and other operators on the ground to build an accurate picture of operating conditions.

Sector Considerations and Specific Threat Analysis

In short, business sectors matter. Mining companies in Northern Mexico face qualitatively and quantitatively different threats¹⁶ than those encountered by energy firms operating in the Gulf of Mexico.¹⁷ Transporting goods throughout the roads in the Bajío region (states of Aguascalientes, Jalisco, Guanajuato, Querétaro, San Luis Potosí and Zacatecas) imply different risks than those that arise from operating a factory or a retail chain in the same zone.¹⁸

Complete scrutiny should also consider the capability of a threat source to carry out harmful action against the companies, as well as the motivation and the threat source's degree of intent to target the organizations, facilities, personnel, assets or other aspects of their operations. Insight into the threat sources, capabilities and intent, including access to financial, logistical, technical and other expertise and resources, should be examined as well.

Furthermore, a comprehensive assessment should include a study of several additional factors, including: (a) Organized crime activity in the zone; (b) Homicide; (c) Extortion, racketeering and "derecho de piso" (the on- going extorsion of a business); (d) Kidnapping; (e) Security conditions on highways and roads; (f) Crimes against employees and workers in the energy sector; (g) Crimes against energy facilities and infrastructure and; (h) Crimes targeting expatriates.

Laying in the local population's perspective is also key, which may differ from multinational companies and even large Mexican conglomerates. According to a national survey conducted in August 2022, 45% of the Mexican population considers insecurity to be the country's main problem.¹⁹ Among the respondents who claimed that insecurity was Mexico's main problem, the concerns were broken down into the following areas:²⁰

Figure 3 - Main Security Concerns

Source: own elaboration with data from Enkoll 2022.

The survey demonstrates that the Mexican population has a different perspective regarding security conditions in Mexico. Most Mexicans are concerned about assaults or home robberies, which differs from the potential implications of violence on businesses activities, but is certainly relevant when considering duty of care concerns for the employees of businesses operating in Mexico.

In conclusion, security is a key concern for the Mexican government, for companies and businessmen, as well as for the Mexican population, but the meaning of "insecurity" varies by each stakeholder. Security conditions are an evolving and complex issue and any analysis depends on how the topic is approached and analyzed to be able to produce a meaningful result.

How Can We Help

FTI Consulting's Global Risk and Investigations Practice ("GRIP") in Mexico provides accurate and definitive insight into locations where companies are operating or are contemplating operations. FTI produces comprehensive multidimensional risk assessments, which collect and analyze selected indicators to evaluate threats and vulnerabilities associated with conducting business in a specific city, state or region in Mexico, aiming to anticipate potential implications for our clients. Our unique and skilled team of multilingual professionals provides a multidisciplinary approach to critical investigations, combining functional expertise with a deep understanding of compliance policies and investigative processes. FTI Consulting's team combines the skills and experiences of lawyers, forensic accountants, former government officials and regulators, anti-corruption investigators, computer forensic and enterprise data specialists. In the dynamic context of Mexico's security concerns, threat assessments have become more important than ever and FTI Consulting has the professionals to assist key stakeholders in protecting their people, property and assets.

Footnotes

1: Dave Graham. "Analysis: Security, migration trump energy dispute at Biden Mexico summit." January, 2023. https://www.reuters.com/world/us/security-migration-trump-energy- dispute-biden-mexico-summit-2023-01-11/ Dave Graham and Jarrett Renshaw. "U.S., Mexico discuss economy, drug gangs and migration at summit." January, 2023. https://www.reuters.com/world/americas/economy-migration-security-agenda-mexico-us-talks-2023-01-09/

2: Emilio Arteaga. "Security in Mexico: An Honest Review." Doing Business in Mexico. https://doingbusiness-mexico.com/security-in-mexico/

3: Lidia Arista. "Cuarto Informe: AMLO presume baja en homicidios, pero hay otros datos." Expansión. August 31, 2022. https://politica.expansion.mx/presidencia/2022/08/31/%20 amlo-presume-baja-en-homicidios-pero-hay-otros-datos

4: Pedro Domínguez. "En informe, AMLO destaca reducción de hasta 81% en secuestros y homicidios." Milenio. September 1, 2022. https://www.milenio.com/politica/cuarto-informe-amlo-destaca-reduccion-homicidio-secuestro "Defunciones por homicidios." INEGI. July, 2022. https://www.inegi.org.mx/sistemas/olap/proyectos/bd/continuas/mortalidad/defuncioneshom.asp?s=est

5: FTI notes that for the latest information available from INEGI corresponds to July 2022. However, on December 29, 2022 the Mexican Federal Government published an estimation for 2022, that was included on the graph elaborated by FTI. Reuters. "Gobierno asegura que homicidios en México descendieron 6.6% en 2022." El Economista. December 29, 2022. https://www.eleconomista.com.mx/politica/Gobierno-asegura-que-homicidios-en-Mexico-descendieron-6.6-en-2022-20221229-0030.html

6: "Con AMLO, tasa de homicidios se estanca en el punto más alto." El Economista. July 28, 2021. https://www.eleconomista.com.mx/politica/Con-AMLO-tasa-de-homicidios-se-estanca-en-el-punto-mas-alto-20210727-0159.html "En sexenio de AMLO se han cometido el doble de homicidios que con Calderón." El Financiero. July 2, 2021. https://www.elfinanciero.com.mx/nacional/2021/07/02/con-amlo-mas-del-doble-de-homicidios-que-con-fch/

7: "Murders Rate by Country." World Population Review. 2022 report with data from 2021. https://worldpopulationreview.com/country-rankings/murder-rate-by-country

8: "World Drug Report 2022." United Nations Office on Drugs and Crime. 2022. https://www.unodc.org/unodc/en/data-and-analysis/world-drug-report-2022.html

9: "Defunciones por homicidios." INEGI. July, 2022. https://www.inegi.org.mx/sistemas/olap/proyectos/bd/continuas/mortalidad/defuncioneshom.asp?s=est

10: "Sondeo de Seguridad Empresarial 2022." American Chamber of Commerce of Mexico. May, 2022. https://amcham.org.mx/sites/default/files//publications/SondeoSeguridadAMCHAM2022%20%281.pdf

11: Robbery: The taking or attempting to take anything of value from the care, custodyor control of a person, by force or threat of force or violence. https://dictionary.cambridge.org/es/diccionario/ingles/robbery

12: Burglary: the unlawful entry of a structure to commit a felony or a theft. https://dictionary.cambridge.org/es/diccionario/ingles/burglary

13 Octavio García Peregrina. "La importancia de los procesos de seguridad en la cadena de logística." October, 2022, page 28. https://amesp.mx/wp-content/uploads/2022/11/25-Boletin25_OCT02_FIN.pdf

14: Concanaco. "Boletín de la Comisión de Seguridad CONCANACO SERVYTUR". December, 2022. https://www.concanaco.com.mx/boletines/divisiondesalud/20-boletin-de-la-comision-de-seguridad https://www.concanaco.com.mx/boletines/divisiondesalud/19-boletin-de-la-comision-de-seguridad

15: "Sondeo de Seguridad Empresarial 2022." American Chamber of Commerce of Mexico. May, 2022. https://amcham.org.mx/sites/default/files//publications/SondeoSeguridadAMCHAM2022%20%281.pdf

16: Heriberto Paredes. "Minería, violencia y la tierra como enemiga." June, 2022. https://estepais.com/ambiente/mineria-violencia-mexico/ BnAmericas. "Minería en México: una historia de violencia." September, 2020. https://www.bnamericas.com/es/noticias/mineria-en-mexico-una-historia-de-violencia

17: Diana Gante. "Inseguridad en México golpea a empresas petroleras." August, 2022. https://www.reforma.com/inseguridad-en-mexico-golpea-a-empresas-petroleras/ar2454045 Yolanda Morales. "Inseguridad y violencia debilitan a industrias del petróleo, turismo y servicios: Moody's." March, 2019. https://www.eleconomista.com.mx/economia/Inseguridad-y-violencia-debilitan-a-industrias-del-petroleo-turismo-y-servicios-Moodys-20190305-0038.html

18: Luciano Vázquez. "Violencia en Guanajuato: Esto sabemos sobre las detenciones y la quema de vehículos." August, 2022. https://www.elfinanciero.com.mx/estados/2022/08/10/violencia-en-guanajuato-esto-sabemos-sobre-las-detenciones-y-la-quema-de-vehiculos/ Carlos Montesinos. "Crimen organizado lucha por el control de la región Bajío-Occidente del país." June, 2022. https://www.reporteindigo.com/reporte/crimen-organizado-lucha-por-el-control-de-la-region-bajio-occidente-del-pais/

19: Francesco Manetto. "Los votantes señalan la inseguridad como el principal problema de México." August, 2022. https://elpais.com/mexico/2022-08-29/los-votantes-senalan-la-inseguridad-como-el-principal-problema-de-mexico.html

20: Enkoll Survey. August 29, 2022. https://ep00.epimg.net/descargables/2022/08/29/08091940345e4ca949b25a83119ebc8b.pdf https://elpais.com/mexico/2022-08-29/los-votantes-senalan-la-inseguridad-como-el-principal-problema-de-mexico.html

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.