What Do Foreign Investors Need To Understand About Baja California Sur, Mexico?
At the start of 2023, the state of Baja California Sur has a less problematic political risk profile than many other areas of Mexico. The risk of organized crime-related violence (public shootouts, kidnapping of executives) in Baja California Sur is quite low. Poverty and marginalization are less extreme in Baja California Sur than in other parts of Mexico. The risk of serious social unrest in a Baja California Sur is relatively low. Expropriation risk is very low in a Baja California Sur (and in other parts of Mexico.) In general, foreign-owned businesses in Baja California Sur are able to resolve potential corruption issues through government relations, liaising with business chambers, and working with lobbying firms. Overall, Mexico’s political and economic framework is relatively stable and unlikely to suffer from major disruptions in the short or medium term. The political leadership in the tourism hub of Los Cabos, the state government in Baja California Sur, and the federal government Mexico City are all members of the same party (Morena). The current dynamic is likely to hold stable for the next two years. Although economic indicators and security dynamics may both worsen slightly, overall Mexico looks like it is on track to maintain stability in the medium term.
Baja California Sur’s governor, Victor Manuel Castro Cosio, was elected in 2021. He will serve through 2027. Castro Cosio is a member of the Morena party of Mexico’s President Andres Manuel Lopez Obrador. Prior to joining Morena he was a member of Lopez Obrador’s old party, the PRD. Cosio is backed by a well-established political group including former members of the PRI party. One of the local power-brokers who supports him is Homero Davis Castro, who currently serves as the Secretary General in the Baja California Sur state government.
Los Cabos Mayor Oscar Leggs Castro was elected in 2021. He will serve through 2024. He is eligible to stand for re-election for another term. Leggs Castro is a member of the Morena party, the same party as Baja California Sur’s governor and Mexico’s president. The mayor in Los Cabos is from a different faction of Morena than the governor in Baja California Sur but the two enjoy a positive working relationship.
It is possible that in 2024 after local and national elections that Los Cabos mayor could represent a different political party than Mexico’s president. Given Los Cabos strategic importance to Mexico’s tourism sector the downside risk of a destructive rift emerging between the mayor and the state and national government is relatively minimal. The most likely scenario is that all three levels of government in Los Cabos will continue to be controlled by the Morena party after the upcoming election cycle. Overall, the political risk outlook in Baja California Sur is relatively stable.
Foreign executives doing due diligence on potential investments in Mexico need to understand the potential implications stemming from crime and security issues. In general, the risk of violent crime is lower in Baja California Sur than in other states in Mexico. It is not common for criminal groups in Baja California Sur to kidnap foreign executives or the employees of foreign companies. In 2021, Baja California recorded 77 murders, or 2.4% as many as the neighboring state of Baja California, which recorded 3,246 homicides in 2021. Overall, Baja California Sur recorded the 2nd fewest total number of murders of any state in Mexico. In 2017 three tourists were killed in a shooting at a beach in Los Cabos. Although Baja California Sur is relatively peaceful in 2022 there is no guarantee that the current dynamic will hold in coming years. In general, in Mexico violent crime depends on backroom deals and rifts between rival criminal organizations and political leaders. It is likely that current trends of violence in Baja California Sur and Los Cabos will remain steady over the next two years. However, the arrest or death of senior New Generation members in the state could provoke a new fight for control and cause a major uptick in violent crime. The default outcome for Baja California Sur and Los Cabos will be the continuation of current dynamics over the next two years.
Even though the homicide rate in Baja California Sur is lower than Mexico’s national average, common crime is still a potential risk in the state. In 2021, Baja California Sur recorded 397 incidents of cars being stolen but only five cases of violent carjacking. Baja California Sur did not record any express kidnappings or any kidnappings for ransom in 2021. Although Baja California Sur only recorded 7 violent home invasions in 2021, the state recorded 2,462 non-violent home burglaries. Truck hijackings are not common in Baja California Sur. The state reported only 2 cargo truck hijackings in 2021 and 1 during the first half of 2022. Given that organized crime groups in Baja California Sur are more focused on international drug trafficking than preying on local residents, it is likely that the current dynamics of common crime will hold steady over the next two years.
The criminal underworld in Baja California Sur is dominated by the New Generation Cartel of Jalisco. Because of the lack of competition between cartels, Baja California Sur enjoys a paz narco. Because of the ongoing presence of high level organized crime activity in Baja California Sur there is risk of public shootouts in Baja California Sur. Los Cabos is not considered to be a hotspot for organized crime-related violence. Companies that export products from Baja California Sur to the U.S. face some risk that criminal groups will try and pressure employees to collude in efforts to smuggle drugs into the U.S. Most exporters are able to mitigate this risk with rigorous internal control policies. Barring the death or arrest of a senior New Generation Jalisco Cartel member or the incursion of a rival group, it is likely that the current paz narco will remain intact for the next two years. In August 2022, the New Generation Jalisco Cartel launched a series of public attacks in the state of Baja California, north of Baja California Sur. In 2022, the New Generation Jalisco Cartel has adopted “narco-terrorism” tactics including burning businesses and shooting and killing innocent civilians. So far, the group has not engaged in this type of attack in Baja California Sur. It is possible in the future that similar security issues could affect Baja California Sur.
Although extortion by criminal groups is a potential risk for businesses operating in Mexico, it is not a major problem in most sectors in Baja California Sur. Extortion by criminal groups may be an issue in rural areas of Baja California Sur and for local fishermen. The number of open investigations for cases of extortion in Baja California Sur increased from 38 during the first half of 2021 to 71 during the first half of 2022. There are no recent news stories of hotels or restaurants in Los Cabos being burned down by criminals, a tactic used by extortionists in other parts of Mexico. It is unlikely that organized crime groups in Baja California Sur will start threatening and extorting established, formal-sector businesses over the next two years.
Overall, in terms of the threats posed by organized crime, security issues, and political instability Baja California Sur has a favorable political risk outlook.