Beach view at the Ana y Jose boutique hotel in Tulum, Mexico.Photo by N. Parish Flannery. Instagram: @nathanielparish

Mexico’s tourism industry is booming. The country is the No.1 destination for tourists from the U.S. and is receiving record levels of visitors. Mexico logged over 10 million tourist arrivals during the first quarter of 2018 and is expected to attract 40 million tourists by the year’s end, a new record. Major new developments in Baja California Sur, the Riviera Maya, and Oaxaca continue to attract attention from foreigners.

At the same time, however, the tourism industry isn’t fully insulated from the general problems of violence and crime that hinder Mexico’s economy. Cancun has been hurt by a troubling increase in violent crime. In March, 2018 criminals planted a bomb on a ferry in Cancun, injuring at least 24 people. In 2017 three tourists were killed while visiting a beach in Baja California Sur by gunmen with automatic weapons. Perhaps no city has been hit harder by violence than Acapulco. In January 2018 a Chilean tourist was killed in shoot-out in a beach-side bar. In March, 2018 another tourist was killed in a shooting at a public event near the Caleta beach in Acapulco. On a number of occasions in 2018 gunmen have targeted tourists arriving in Acapulco via bus and car.

Mexico’s tourism industry still presents a strong upside, but is also being affected by serious security problems. It’s a dynamic that is affecting small local companies and resorts and also major publicly listed companies such as Starwood Hotels and Marriot. Mexico’s tourism industry has a lot of potential to keep growing, but investors doing due diligence need to understand how different regions of the country are exposed to differing levels of security problems and political risks. To hear more about the current dynamic I reached out to Alex Mahoney, the Mexico country head at BizLatin Hub, a Latin America-focused market-entry and business services advisory company.

Nathaniel Parish Flannery: Right now what’s driving growth in the sector? What are the top geographical areas for investment and visitor growth right now?

Alex Mahoney: Mexico is experiencing rapid growth in the tourism sector. In 2017, the country received about 35 million tourists. As well as this, the World Bank said that the tourism industry was the third largest source of foreign exchange in Mexico and is a major GDP contributor.

Interestingly, in 2017, a study carried out by the World Travel and Tourism Council identified tourism as having an annual increase of 3.0%, above the national economic growth rate. Furthermore, Tourism Minister Enrique de la Madrid stated that in 2017 the tourism industry had revenues of $21.3 billion, seeing a 2.9% growth in the revenues compared to 2016. This is a positive trend I expect will continue in the short to medium term.

In order to help encourage the growth of this sector, the government has committed public spending to upgrade infrastructure, and it is also making efforts to welcome foreign investment in a variety of areas linked to the tourism sector. As one can imagine, this kind of backing and support is key in ensuring steady growth.

The most popular investment destinations in Mexico include Mexico City, Riviera Maya, Los Cabos, Cancun, Puerto Vallarta, and Riviera Nayarit. In these areas, visitors mostly come from the U.S., Colombia, United Kingdom, Spain and France. With such solid growth in tourism in these locations, it is not surprising that we see an increase in investment. Gerardo Corona of Mexico’s tourism ministry, SECTUR, recently explained that tourism in Mexico is “enjoying one of its best moments in history.”   

Acapulco, once Mexico’s most famous tourist destination, has seen its reputation hurt in recent years.Photo by N. Parish Flannery. Instagram: @nathanielparish

Parish Flannery: Are there any major infrastructure projects that are helping to pull in additional tourism industry investment?

Mahoney: Yes, in fact, Mexico has seen a dramatic growth in infrastructure projects over the past few years, with many more planned. Mexico has even developed a National Fund for Tourism Development [FONATUR], welcoming FDI for infrastructure that will positively contribute to the so-called ‘tourist experience’ in Mexico.

One major infrastructure project underway is the opening of a new airport terminal in 2018 in Cancun, the ‘Corazón’ of the Mexican Caribbean coast. This project aims to cater for the huge number of tourists (mainly North Americans) who flock to the beachside city every year. This new terminal will mean more flights coming into the city, and they reckon that it will allow for an additional 9 million passengers each year. This new infrastructure project is expected to be completed in October this year. With the influx of tourists entering the region rising, tourism investment also continues to grow; some examples include travel agencies, health/travel insurance companies, hospitality industry, English schools etc.

In addition to Cancun’s airport upgrade, both Mexico City and Merida’s airports will be also be upgraded to cater for more international visitors, helping growth in the tourism industry. These exciting projects clearly highlight the overall growth of tourism in all of Mexico, not only on the Caribbean coast.

Two other interesting, yet less well-known infrastructure projects are the Palacio de la Música and Centro Internacional de Congresos in the city of Merida, the capital of Yucatan. I think these projects will boost tourism to an area that is already a very popular place to live for expats and Mexicans, renowned for its high levels of security and quality of life. It’s strange, but despite having a rich cultural history and being the home of the world famous Chichen Itza, Yucatan often gets overlooked as a tourism destination, with tourists generally heading east to the Riviera Maya, an area that includes Cancun, Playa del Carmen, and Tulum.

Police Patrol in Acapulco.Photo by N. Parish Flannery. Instagram: @nathanielparish

Parish Flannery: How are security problems affecting the tourism industry? 

Mahoney: This is certainly an interesting question. Security in Mexico is definitely a problem that the National Government has recognized as a threat to the continued success of Mexican tourism.

Unfortunately, recent violence has been affecting the country, with highly populated tourist destinations such as Baja California Sur seeing a spike in violent crime in recent months. There have also been over 120 murders in 2018 to date targeting political candidates and politicians. These are frightening statistics, any way you look at it, and there are no ways of disguising the fact that as a result, Mexico ranks pretty high in terms of dangerous countries to live in. There were more than 25,000 homicides in 2017! This is a 26.9% increase compared to 2016, the highest number since 1997.

Despite the insecurity that is prevalent in Mexico, the levels of tourism have not been majorly affected, which is a surprise for us.  

The destinations that are most isolated from violence are the Riviera Maya, Cancun, Puebla, Mexico City, Guanajuato, Merida and Chiapas. You can see this in examples such as the state of Guerrero which had 1,1161 homicides in the 1st quarter of 2018 alone. When you compare this with popular the tourist destination of Quintana Roo, which had 134, this puts it into perspective.

I think that the longer term issue of security will also depend heavily on the stance that the president-elect Andres Manuel Lopez Obrador will adopt and the willingness of the Mexican government to cooperate with the U.S. in combating crime and drug trafficking.  

https://www.forbes.com/sites/nathanielparishflannery/2018/07/26/the-risks-and-rewards-in-mexicos-tourism-sector/