​​​​​​​Another Look at Mexico | 3Q17

Clients in the mining, real estate, investment, and logistics sectors have all engaged Southern Pulse in 2017 to support the process of separating fact from fiction as observed across the country’s public security landscape. Our routine review of the country -- specifically ports, routes between cities, areas around mines, hotspots, and political intrigue -- certainly indicated that there would be rumble in the jungle post El Chapo’s extradition to the United States. Our clients felt the same tension. Some reached out pro-actively, which unfortunately is not normal, but most picked up the phone only after something had happened. Most of the time, a close one triggers that call. On two occasions a significant event galvanized attention.

Post Chapo’s extradition, Mexico’s criminal underworld began to convulse at a pace and rhythm we didn’t expect in 1Q17. El Chapo left El Mayo and his sons with keys to the kingdom, but it didn’t take long before his number two, aka “El Licenciado,” made a move against the sons. He made a deal with “El Mencho,” the head of the Cartel Jalisco Nueva Generación (CJNG) -- whom many think is literally the devil -- and remnants of the Beltran-Leyva Organization (BLO) to take a run directly at what was left of the Sinaloa Federation. That fight rages on and is responsible for much of the violence that erupts here and there across the country.

When we took a closer look at Baja California, we learned that Los Dámaso -- the cadre that chose to follow El Licenciado and his son before their arrest -- is itself splintering. Pressure from rivals is not the cause here; rather, it a desire to seize control of what local leaders have in hand. The battle between remnant Sinaloa Factions, broken pieces of Los Damaso, and the CJNG, which supports a Baja California group out of Tijuana -- the Cartel Tijuana Nueva Generación -- finds itself on the local news on nearly a weekly basis in September 2017.

This year, we’ve looked closely at a port Sinaloa, mining site and routes in Guerrero, manufacturing in Queretaro, and a broad-spectrum review of public security and politics in Mexico State. There is a similar thread woven through public security concerns in every state -- a tapestry colored by varying degrees of violence and different actors. But one question wraps these pieces together: what is the federal government going to do?

Not much. Here are a few data points:

During the first quarter of 2017, we took a close look at CJNG encroachment in Queretaro, a state that has perennially been quiet. Source work in Mexico City at the time confirmed that there is no federal plant to confront the CJNG. It is something left up to the states.

Work in Guerrero confirmed that lesson. When we looked at the Guerreros Unidos and their relationships with larger, national actors -- specifically the CJNG -- sourcing lined up with the above, and it went a step further. The state doesn’t have the resources to combat organized crime -- a ground truth echoed in the media.

Finally, our continued work on state politics has led to one strong conclusion: the federal government will not again approach public security until 1Q19. That’s right. Sometime in February or March of 2019 we’ll see a new policy, maybe a new federal police force (at least in name and logo).

The 1 July elections in 2018 have the PRI focused on, first, who their candidate will be -- Osorio Chong is currently polling well but he’s not assured the nod -- and then winning the national election. Winning doesn’t just mean presenting a polished, likable candidate. It also means winning the states. So the top-down focus of the PRI between now and the end of 2017 will be finding the right man -- or woman. Between January and July, the focus will then shift to winning states and the nation. The incumbent government will do very little between July and inauguration in December, and then Christmas holidays. Suddenly, the new government wakes up in early 2019 to focus on the most pressing concerns of the new administration, hoping to roll out attractive policies within the first 100 days of the new year.

If the Lopez Obrador team wins, pressure to improve public security will likely rub against large expectations for social inclusion policies. Among of the craziest ideas we’ve heard from his camp: outright legalizing community self-defense forces. Giving them training, supplies, and a little cash… More on that idea and the Lopez Obrador quest -- his third -- for the presidency in our next touch up on Southern Pulse work in Mexico.

Brazil's Upcoming Contentious Runoff Elections

Brazil's runoff elections have piqued the interest of on-lookers in Rio de Janeiro and Belo Horizonte in the past week. Both cities are hubs for business and travel in Brazil, with major extractive industries and tech sector companies based there, as well as being the second and fourth richest (GDP) cities in Brazil, respectively. 

Can the OAS Respond to Constitutional Coups and Democratic Erosion?

Luis Almagro, Secretary General of the Organization of American States, has faced mounting criticism for his handling of recent democratic crises in Latin America. In particular, people have called Almagro’s approach to Venezuela hypocritical, given his lack of condemnation for the “soft-coup” in Brazil. However, Almagro’s handling of these democratic crises highlights the predicament facing the OAS when addressing threats to democracy in the 21st century. Although the challenges are evolving, the institutional tools for addressing them have not.

Taking a Look at Colombia's Peace Deal Post Plebiscite

boz (James Bosworth, Southern Pulse CEO): Hi everyone

boz: On 2 October, a plebiscite on the Colombian government's peace process with the FARC failed by a very narrow margin. The government and FARC had already signed the agreement and the FARC were moving towards demobilization. The past three weeks since the referendum have been a flurry of activity as the government has worked to rescue the peace agreement and the “no” side lead by former President Uribe has tried to figure out how to manage their stunning upset victory.

We’re going to chat for the next half hour or so about the peace process after the no vote and what it means for Colombia’s future. Let me start with the first obvious question: Will Santos be able to save the peace process?

Networked Notes - 19 October 2016

Eduardo's Cunha's preventive arrest represents a potential problem for the Temer Government and the Brazilian political system as a whole. In the past week, plea deals involving Temer's close confidants and cabinet members --Eliseu Padilha, Moreira Franco and Romero Jucá-- for receiving bribes from Odebretch were leaked. Cunha's arrest puts additional pressure on these key government members, who Cunha now views as political enemies responsible for his downfall. 

Networked Notes - 15 Sept 2016

All polling shows the Colombia plebiscite is likely to pass by a significant margin. Still, the Santos government is not taking victory for granted. Sources close to the government suggest an ongoing press for votes to deliver a giant margin of victory if possible, giving the peace deal the largest possible mandate.

Networked Notes - 30 Aug 2016

Colombia

The FARC leadership expressed sincere gratitude to Venezuela’s government for the success of recent peace negotiations. In reality, it is Venezuela’s government which should be thanking the FARC. The extended peace negotiations are a critical reason why Colombia specifically, and Latin America in general, has been reluctant to more forcefully denounce abuses of human rights and democratic values in Venezuela.

Boom or Bust: The Panama Canal Expansion

Despite the myriad of budget overruns and problems encountered during the construction of the US$5.4 billion Panama Canal Expansion, many hope the expanded canal will increase annual Canal revenue from US$2.6 billion to as much as US$16 billion (Fortune). This is especially true since Cosco Shipping Panama paid US$575,545 for its inaugural trip and Hong Kong-flagged MOL Benefactor (10,000 tea) paid US$829,468 — a US$1 million fee seems likely given the canal can handle higher capacity vessels. However, not only did the Expansion open two years late, it was inaugurated (26 June 2016) during a time when global commodities and shipping have taken a hit. Crawling global trade combined with potential safety and construction issues with the canal put the Canal’s revenue rates at risk.

PPK's Peru: Financial Sector

  • After Peru’s economic growth dropped in 2015, PPK and his team have emphasized improving the economy and returning it to a target growth rate of at least 5 percent through creating policies that formalize the economy and promote sustainable growth, investment.
     
  • PPK wants to implement several tax reform policies that aim to lower taxes, simplify the laws, and improve collection rates, including gradually reducing the IGV from 18 percent to 15 percent by 2019 and providing tax incentive to small and medium businesses.
     
  • PPK will likely have to water down his economic policy proposals, especially tax reforms, to garner approval from an opposition controlled Congress.

PPK's Peru: Extractives

  • PPK seeks to reignite the Peruvian economy’s growth by increasing the value of mining exports by 25 percent, through simplifying bureaucratic processes to open mining projects and reviving stalled mining projects.

  • There are several challenges PPK will have to overcome to achieve his mining sector goals, including garnering congressional support, low commodity prices, social conflicts in areas where mines are concentrated, and illegal mining, which has a production value of US$1.3 billion.

  • The new government seeks to diversify Peru’s energy sector, with a focus on developing natural gas and expanding energy infrastructure, such as widening of the Transportadora de Gas del Perú (TGP) pipeline network and finish the Gasoducto Sur Peruano (GSP).