The "criminal tax" in Mexico threatens 'nearshoring'

On August 12, more than twenty cars were set on fire in Tijuana, for which businesses and shopping malls evicted customers. Omar Martínez (Cuartoscuro)

'In September of last year, after a meeting with White House officials, Mexican Foreign Minister Marcelo Ebrard was enthusiastic about the job opportunities that the neighboring country's semiconductor program could bring.

"Mexico was invited to the new investment package that the United States has just announced in semiconductors, electromobility," the official told reporters.

The US expects up to $280 billion to be spent on efforts to bring semiconductor chip production from China to its allied countries.

A couple of days later, a group of researchers published a study entitled "Business extortion and public security in Tijuana: who protects whom?"

Specialists from the independent research center México Evalúa, together with the Center for International Private Enterprise (CIPE), the University of California San Diego and the Global Initiative Against Transnational Organized Crime (GI-TOC) found, among other findings, that charging for “protection payments” that organized crime demands from businesses from $400 pesos a week to $3,000 a month, after an initial payment of $5,000.

They call it the "criminal tax" and those companies thinking of taking advantage of the US program to move their semiconductor production operations should be aware of the implications of the so-called

.

The Tijuana case has its particularities, explains Cecila Farfán, head of security at the Center for United States-Mexico Studies at the University of California San Diego, but it is not exclusive.

Similar behavior has been seen in different versions along the border.

“It wouldn't surprise me or seem strange to me if certain companies do the calculation and say 'it's not convenient for me to settle there at this time'”, says the academic.

“I understand that what businessmen want is to speak well of their city, and obviously, in the case of Tijuana, the city is not only the violence we are talking about, but I do call on the business community to remove their blinders” to see the situation completely.

Companies moving to Mexico in the five-year outlook are likely to continue to face security-related risks such as cargo theft and extortion, analysts at S&P Global firm Emily Crowley wrote in a text in July.

Jose Sevilla-Macip and Rafael Amielen.

“Reported extortion cases increased 28% year-over-year across the country during the first half of 2022, with manufacturing centers in Guanajuato and Nuevo León reporting the largest increase in incidence.”

Automotive components account for more than a third of all stolen rail cargo, analysts said, referring to one of the country's most important exports.

“While criminal hotspots are likely to fluctuate over the next decade in response to security force deployments and regional crime dynamics, national levels of criminal activity are likely to remain elevated,” the S&P experts said. Global.

The floor charge works like a vicious cycle, explains Farfán Méndez.

In order to determine their authority, criminals need their threats to be credible, so they use violence and thus get businesses to pay the right to land.

In this sense, you pay for there not being violence but inevitably there is.

The people of Tijuana lived through it with terror on August 12, when organized crime blocked roads, burned vehicles and carried out shootings in different parts of the city simultaneously.

As a result, according to data from the local office of the Coparmex chamber of commerce, foreigners canceled 90% of their medical appointments, part of the specialized tourism that attracts large revenues to the city.

One of the problems is the narrative that is used to tell the world what violence is like, says Farfán Méndez.

“In Tijuana, for example, you have two cities.

On the one hand, there is a Tijuana that is highly integrated with the California economy, and on the other, there is a forgotten Tijuana, where the discourse is also that it is a violent area, where criminals kill each other over drug issues.

It is a speech and a narrative that gets very stuck on the issue of drug trafficking, that the truth is not necessarily reflected by everything that is happening,” says the specialist.

One way in which companies have adapted to this reality is reflected in the increase in the services of security consultancies, analysis and intelligence firms that offer businessmen risk maps to learn how to cope with the threat of crime in a way that does not affect your operations.

The most recent data from the National Institute of Geography and Statistics show that, in 2022, companies and businesses spent 70,000 million pesos on preventive measures against crime.

The total cost of insecurity and crime to companies was 120,000 million pesos, equivalent to 0.7% of the Gross Domestic Product (GDP).

Extortion and theft or assault of merchandise, money, inputs or goods were the crimes with the highest incidence.

“This promise to bring these activities to Mexico, especially in a context where the United States and China are confronted, seems to be an opportunity with great economic incentives,” says Farfán Méndez, “but as long as they deny that there are also these realities in the cities I don't know how viable it can be."

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