German engineering and electronics giant Siemens, which this year celebrates the 115th anniversary of doing business in Mexico City, does not see the city’s poor infrastructure as a problem. It sees it as an opportunity.

Last year, Siemens total revenues from the country amounted to $1.9bn, an increase of more than 15% on 2005. It has 18 plants throughout Mexico, including two that were opened last year. Its main engineering and design centres in the country are located in Mexico City.

Hans-Joachim Kohlsdorf, chief executive of Siemens in Mexico and Central America, says: “One of the biggest projects in Mexico we are currently involved in is the modernisation of the Ahmsa steel works, which has generated $275m in income for us. We are providing a whole new line for steel production. We began the project this year and it should be completed by the end of next.”

Energy generator

Siemens also generates more than $300m a year in Mexico from providing turbines, transformers and ‘power islands’ in the energy generation sector. The main companies it supplies are InterGen and AES from the US, and Iberdrola and Union Fenosa from Spain.

He adds that the automotive, telecommunications, transport and cement sectors in the country are important businesses for his company. Siemens is providing the networks for the Mexican telecommunications giant America Movil throughout the country. It is supplying the automation equipment and electronics for Cemex, the world’s third largest cement producer.

Huge potential

“Last year, the Mexican economy did okay and this year I think it will be okay again,” he says. “Compared to Asia, growth has been relatively low. However, I think the country has huge growth potential, very interesting potential, and I am confident that growth rates will rise in future years.

“Mexico used to be a highly centralised country, and this has created a strategic advantage for Mexico City, which has clusters of knowledge and expertise. Most of the engineering, design and research for big Mexican companies, such as energy distributor CFE and the oil company Pemex, takes place here. There is a huge amount of human capital concentrated in one place.”

He says that Mexico City has a large, well-trained workforce, including many experts working at hundreds of universities and thousands of companies. This situation compares very favourably with other ‘megacities’ around the world. Within Latin America, only Sao Paulo rivals it. Mexico City also has one of the world’s biggest metro and mass transportation systems.

However, Mr Kohlsdorf adds: “Brazil is a more important market than Mexico for Siemens, mostly because Brazil is a more populous country.”

Siemens is particularly interested in the opportunities that megacities throughout the world – such as Sao Paulo, Shanghai, Tokyo and Mexico City – present.

“The problems and challenges that Mexico City have should be turned on their head – they create opportunities. Siemens is very much committed to the sustainable development of megacities. For example, Mexico City needs a new airport and that creates many opportunities.”

Air traffic

The city is already served by three airports: the most important is Benito Juárez International Airport in the city itself, but Toluca and Puebla regional airports are nearby. A second terminal at Benito Juárez will open in autumn this year, and the technological solutions that Siemens provided for the project has generated $50m in revenues.

“I think that Mexico City will need an additional airport in the Valley of Mexico, as the federal government suggests. Obviously, there should be a degree of competition between these airports, but I believe that they should operate as a hub, in the same way that JFK and La Guardia work in New York. Mexico City has a huge strategic advantage because it is located between the US and the rest of Latin America.”

He adds that Mexico alone has higher exports to the US than the rest of Latin America combined, indicating the closeness of the Mexican and US economies: “This creates huge potential.”

One of the most important sectors for Siemens in Mexico in the next few years is likely to be water treatment and distribution. Next year, Mexico City’s government plans to put out to tender projects for new water treatment works, sewerage systems and a water distribution network for the city. Siemens would like to be one of the main suppliers of the project’s automation systems, filtering works and technological solutions.

Mr Kohlsdorf says: “In terms of GDP, adjusted for purchasing parity, Mexico City is ranked as the world’s eighth largest city and it is the biggest city in the developing world. That creates so many possibilities.”

Congestion problems

He is sanguine about the city’s famously busy traffic: “Although Mexico City has traffic congestion problems, it is not so noticeable if you live and work in the same part of the city. It is a bit like New York – not many people commute from New Jersey to Brooklyn every day. The downtown metropolitan area of Mexico City should be compared with Manhattan.”

He backs the city government’s idea of creating business corridors around Paseo de la Reforma and the Historic Centre. There are currently huge construction projects under way around Paseo de la Reforma, creating many hundreds of jobs, he says.

The country attracts nine million tourists a year. He believes the Historic Centre is the most important colonial centre in all of the Americas, and that the city has the potential to become as big a tourist attraction as Madrid.

Mr Kohlsdorf says: “Mexico’s membership of the Organisation for Economic Cooperation and Development (OECD) has been a big advantage in attracting foreign investment. The country has had trade agreements with the EU for many years, and is not like some South American countries, which are asking, ‘what should we do with Europe?’”

“The North American Free Trade Agreement has been a tremendous success for Mexico. The ‘southern cone’ countries still have problems with their relationship with the US, but Mexico settled this a long time ago. OECD membership also helped the country to secure investment grade status, because it meant that the economy had to be open to the rest of the world. For example, almost all imports to Mexico are tax free.”

Exciting future

Mr Kohlsdorf believes that a growth rate of more than 5% a year for Mexico City is sustainable, and says he is very excited about the future of the city, the country, and the rest of the continent. “Just look at the opportunities in housing, shopping centres, business parks – all of them require technological solutions.

“In the end, it is easy to do business in the city. There are issues that need to be addressed. One is the mass transportation system. Another one is the security situation, although the city government is putting plans in place to tackle this.

“There is also some red tape. If you are new to the city, the procedures can seem complicated but you soon learn how to deal with them.”

He says previous city governments have introduced new regulations on the use of petrol by vehicles in the city and that air quality is now much better.

“Cars must be checked for their emissions every six months and this is enforced well. Heavy manufacturing within the city has now been replaced by services and this, too, has had a positive effect on air quality.”

Siemens is just one major foreign company that is doing well in Mexico City by providing solutions to the city’s problems in infrastructure.