The Connection

By Patrick Osio

November 2008

Baja’s Perfect Storm
Economic and other reasons to
support our southern neighbors
First it was the U.S. real estate bust reaching across the border and slowing sales in Baja. Next came the drug capos fighting each other and spilling blood onto the streets of previously quiet neighborhoods. Then came the Wall Street cave-in, a shock that is shoving the United States into a recession and dragging along much of the world, including Mexico. As a consequence of the financial meltdown, the value of the peso fell against the dollar. Binational business continues to be slowed by lengthy delays of people and cargo at the ports of entry.
On the ground, the effects in Baja are many:
Real estate sales are off by more than 70 percent.


Real estate developments have either stopped construction or slowed considerably.


The drug wars have greatly diminished tourism in Tijuana, Rosarito and Ensenada. As the violence mounted in October, Ensenada’s tourism plummeted more than 60 percent and Rosarito more than 70 percent. It may get worse.
Wall Street’s Cross Border Wallop
A number of companies traded on the New York Stock Exchange and doing business in Mexico suffered losses. Fearful Mexicans began hoarding dollars that bumped the exchange rate from about 10 pesos to the dollar to nearly 14 pesos to the dollar. The Mexican government stepped in, buying pesos from its dollar reserve account to keep the nation’s currency from a December 1994-style major devaluation. As of late October, the move seems to have halted the plunge.
Why Worry San Diegans?
Let’s review what Mexico and Baja California mean to the San Diego economy. Kelly Cunningham, senior fellow and economist for the San Diego Institute for Policy Research, says Mexico and Baja California combine to be, by far, the biggest San Diego trading partner. Other sources estimate this amounts to more than $9 billion a year for the regional economy.
The Baja maquiladora industry buys great quantities of materials in San Diego, ranging from heavy machinery to small supplies. Baja’s restaurants are some of the best clients for San Diego’s food and hospitality equipment suppliers.
When Baja stops spending, San Diego retailers notice. Visiting Baja Californians contribute more than $3 billion annually to San Diego’s economy, the equivalent of six Super Bowls. South San Diego retail centers and the malls in Mission Valley will hurt most from the decline in their business.
As Mexico’s stock exchange struggles, investment for growth and employment will dry up. With the peso worth less, Mexican companies will defer major purchases from U.S. suppliers as the rising dollar functions as the equivalent of a 30 percent price increase.
Like the San Diego construction industry, Baja’s is in dire straits with unemployment growing rapidly. Who knows where those workers will go for jobs.
As Mexico’s war on crime escalates, it will draw on funds that could otherwise be used to help its citizens and businesses cope with the economic decline. Spillover from the crime also will demand more attention, time and money from law enforcement agencies in San Diego.
What can San Diegans do to help? Campaign against the use of drugs in neighborhoods, schools and the workplace. Stand in solidarity with the people of Baja. Baja is a tourism bargain, including gasoline cheaper than that pumped at your favorite Costco. We are one region.
Patrick Osio Jr. can be reached at posiojr@sandiegometro.com. The veteran consultant also has issued The Mexican Perspective, an intensive primer on business culture and protocol. Copies are available at hispanicvista.com/sales/book_sale.htm.