I would first like to thank the Canadian Chamber of Commerce in Mexico -and especially your President, JoAnne Butler- for inviting me to speak with you this morning. Over the last few months I have spoken to a variety of business audiences on the dramatic changes the globalized economy has made to the conduct of trade, and the challenges Canadian companies are going to have to meet to remain competitive and successful internationally.
Key to that message is the fact that two way trade and investment abroad are just as essential as exporting for success. That is a message I do not have to deliver today. You do not need to hear it, you are living it. What I will talk you about is what we at EDC can do to help you in that work, and about our focus here in Mexico. And I would it like it to be a two way exchange and hope we can have a lively exchange of questions and comments after my remarks.
Mexico is important to your business. You've made those business decisions and you are committed to the market. I want you to know that Mexico is important to Export Development Canada as well and we share that commitment. We have deep and productive relationships with Canadian and Mexican partners alike. In many ways, what we have done in Mexico has become the model for our approach in other key markets. We have developed roots in Mexico, and we intend to strengthen them, but before talking about that future, let me recap where we are now.
Since the implementation of NAFTA in 1994, Canadian-Mexican trade has quadrupled to $22 billion from $5.6 billion. In the case of Canadian exports, they too have quadrupled -- standing now at about $7.5 billion. And EDC has been a participant in some form in about 30 per cent of that business - a very high penetration rate for a market of this size and diversity.
On the investment side, the figures are more telling. Canadian investment in Mexico in 1994 was $740 million. Today it stands at $5.1 billion - a nearly seven-fold increase. Mexico is now home to more than 1,600 Canadian-based affiliates, and we expect those numbers to continue to grow, reflecting Mexico's status as an investment grade market, well integrated into both U.S. and Canadian manufacturing supply chains, and whose financial markets are increasingly sophisticated and deep.
EDC's business in Mexico has grown and our partnerships have increased. Our business has averaged over $2 billion in each of the past five years. While the total tapered slightly in 2005 to $1.7 billion, I can tell you that as of August 2006 we are at $2.2 billion, and we are well on our way to setting a new record.
The growth in our business in Mexico reflects the significant growth in the number of Canadian companies active in this market. We are seeing that same interest in emerging markets around the world, as more Canadian businesses understand the importance of these high growth and opportunity rich markets to their future success and health.
In Mexico, and other strategic emerging markets, EDC's response has been a straight forward one: we are going to follow our mandate, to do as much as we can to help Canadian companies grow their business worldwide. Today, the quickening pace of change means that we at EDC have to be as thoughtful, adaptive and innovative as we can to not just respond to that change, but anticipate it.
The good news is that just as our customers need EDC to do more, the Corporation is in a strong capital position to do so. As I said earlier, we have come through a protracted boom period. In that time, our loan portfolio declined as global credit conditions improved. Better conditions meant we were also provisioning less for credit losses, and our balance sheet showed that. It is a normal part of economic and credit cycles, but now as the global outlook is more checkered, EDC is willing and able to take on more risk. And we are doing so.
How are we putting that will into practices here in Mexico? EDC has learned that an essential element of being a competent, credible finance and insurance institution in a market means you have to be in the market. A huge part of the growth we have been part of in Mexico is a result of the decision we made very early on to establish permanent representation here. Our credibility ultimately hinges on how well we understand a market, and our customers in that market, and the only we to demonstrate that understanding is by being here permanently. Relationships may be founded on transactions, but they are built and maintained by collaborating and developing meaningful business solutions. And that is something that can best be done face-to-face, on the ground.
In 2000 we made the strategic decision to locate an EDC representative in Mexico City, and we based our first representative out of the Canadian Embassy. We felt it would quicken the pace of making contacts, raising profile, and getting quickly plugged in to all of the others - both private and public, Canadian and Mexican - who are actively involved in growing trade and investment between the two countries.
That enabled EDC to hit the ground running and in 2002, we followed up on that initial commitment with a second permanent representative in Monterrey. Canada had opened a consulate there with a strong trade component in that major commercial and industrial centre. Again, we based our representative, Noé Elizondo, in that Canadian office.
These representatives were among our first dedicated account managers for Mexican buyers, borrowers and investors. It has increased our knowledge, strengthen our relationships, and broaden our capabilities. It has allowed us to better understand the opportunities present in the Mexican market, and to develop financial solutions tailored to the business needs of our customers. Being here meant more than being able to do more, it changed our whole view and our definition of who were our clients.
For years, as Canada's export credit agency, we tended to define our clients as our Canadian clients. The foreign buyer was important, but was seen more as part of a transaction, rather than a relationship. It was shortsighted, perhaps even myopic. But being in market has corrected that view. The customer-centric perspective that enabled us to work closely with Canadian exporters and investors is now brought to our interaction with Mexican business, Mexican financial partners, Mexican trade associations and increasingly the Mexican partners and even subsidiaries of Canadian business. In only five short years, being on the ground has broadened our experience, widened our view, and dramatically expanded the way we can do business. We have put the same account management approach into practice with our Mexican customers as we have with our Canadian clients. And a major part of our value to both Mexican and Canadian business, is that we have those relationships with both.
China and Mexico were the first markets where we established permanent representation, and in the case of Mexico in particular we have used it as a model for subsequent expansion to Brazil, South East Asia, Central Europe, India, and in early 2007, Russia.
We have achieved much in a short time, and a large part of that is due to the quality of the representatives we selected. We have a new Chief Representative here in Mexico City, Mr. Michel Villeneuve. His professional experience underscores our commitment to increasing our business, but more importantly, increasing the range of business where we can be a relevant player, and solution provider.
Michel worked for several years in commercial term lending before joining EDC in 1982, where he was Director of commercial development in Quebec. In 1994 he moved to the private sector, and served at the CIBC's Chief Mexico Representative from 1994 to 1996 - a momentous time for Mexico with the devaluation of the peso following quickly on the heels of NAFTA coming into force. Michel's career in commercial lending and trade finance continued in both Canadian and International Banks, returning to EDC to work as a Senior Business Development Manager in 2002. His assignment in Mexico City began in July. In short, Michel knows EDC, he knows banking, he knows trade, and he knows Mexico. The combination means we should continue to grow, to stretch our boundaries, and push the envelope in this market.
But EDC's approach to Mexico is not on just on the shoulders of Michel and his colleague Noé Elizondo in Monterrey. Our approach to strategically important markets does not begin and end with them. They are supported throughout the year by a large team of sector experts, strategic account managers and senior management who come in market with knowledge and expertise, learn more about customer needs, and work with customers to develop business solutions. And they are of course also supported by trade officials with Canada's embassy and consulates throughout Mexico and by associations like the Canadian Chamber of Commerce in Mexico to better connect with and better understand the needs of Canadian companies and their Mexican partners.
Let me summarize a few initiatives where this approach has already paved the way to a wider service offering here in Mexico.
We have strengthened our relationships with buyers, we are now in a much better position to leverage our credit facilities with them to open export opportunities for Canadian business. In this way, we're "thickening the supply chain" of Mexican firms by exposing them to quality sources who in turn are committed to establishing themselves in the market. A good example is our facility with Pemex - which is bringing in 60 to 70 different Canadian companies per year.
We are helping Mexican firms to invest directly into Canada. For example, we helped finance automotive giant Nemak's acquisition of an aluminum casting plant from Ford Motor Company in Windsor, Ontario. Foreign direct investments in Canadian assets that in turn grow Canada's export capacity make sense for EDC -and they make sense for Canada, when these create jobs and open the door to new trade.
We are exploring risk sharing guarantee programs with Mexican banks to enable small and medium-sized Mexican buyers to access financing for equipment, technology and services from small and medium sized Canadian suppliers.
We intend to continue to be that focused.
We are now expanding our relationships with financial institutions in order to meet the needs of Canadian business and their affiliates. Here in Mexico, we are looking at ways we can work with local banks to make accounts receivable insurance available to Canadian affiliates on their sales within Mexico. Our Canadian clients active in Mexico identified this as a need. We know that the ability to access this coverage will have tremendous implications for their operations as that insurance generates new credit.
Canada's top sales to Mexico are in vehicles, machinery and electrical appliances, and electrical equipment and parts. We will continue to be active in that business, but we also intend to develop sector campaigns focused on other areas where we believe there are great opportunities to partner in Mexico. These include information and communications technology, the mining and energy sectors, and further work in auto and ground transportation.
We have also identified 10 strategic accounts with Mexican companies where we want to increase our contacts and collaboration. I have already mentioned Pemex. Earlier this summer we announced a USD 250 million participation within a USD 5.5 billion facility for that oil and gas giant. EDC acted as Mandated Lead Arranger within that facility. As I noted earlier, deepening our relationship with buyers opens doors to Canadian business. We have seen that with Pemex. We want to duplicate it with the others.
We know there is a greater role for us in financing investment and facilitating expansion by Canadian firms throughout the world. A key part of meeting that need is making financing available in local currency. Mexico has been our test bed on this new approach. This August, I was proud to announce EDC's first Mexican peso loan to DaimlerChrysler México Holdings (DCM) -of 2.1 billion pesos- to facilitate sales to Mexican purchasers of vehicles manufactured by DaimlerChrysler Canada. The facility will be used to fund DCM's financing services subsidiary which serves retail and wholesale buyers in Mexico. This transaction will directly benefit over 12,000 Daimler Chrysler Canada employees and hundreds of part suppliers located across Canada. It will naturally contribute to the health of a multinational company with an important stake in Mexico. I can tell you that this was not a "one-off" test run. EDC has given the green light to make much-needed local currency financing a regular offering to our customers.
And we are also going to be increasing our research into market needs. In the weeks ahead, many of you may be contacted as part of a market needs analysis that will assist us in the sectoral and other strategies we are developing here.
Growing our business, whether in Mexico or other strategic markets, depends on how well we explain our value proposition to customers abroad. Our existing and potential customers have to know not only the new products and services we offer, they have to understand that EDC is a unique potential partner for them in increasing their business. The measure of our success in that will ultimately be reflected by increases in our involvement in Canadian direct investment abroad, mergers and acquisitions, our level of involvement with local banks, facilitating leasing, and broadening affiliate coverage in terms of accounts receivable insurance and contract insurance and bonding.
We want to communicate that EDC is flexible, that can bring real added value to your business.
Let me outline what we will be saying to customers and partners here in Mexico and worldwide.
We are Canada's export credit agency, but we operate on a commercial basis. That means our foreign partners get all of the benefits that come with our links to all of the rest of the Government of Canada's trade departments and agencies, adherence to international agreements and standards, recognized strong business ethics and environmental practices. But it also means we operate on commercial principles. And we work and deliver on commercial timelines.
We have a unique quality because we have great risk capacity. Not only is it greater, it is also sustained - our track record shows that we stay and remain active in markets that others either quit or avoid.
As a public agency, we are not in trade just to turn a profit. Nor are trying to sell anything to customers other than the service they need. We are not, and have no intention of trying to become a full-service banker. We are here because of our mandate - to increase the capability of Canadian companies to engage in trade.
At our core, we are in business so that more Canadian firms can increase their business worldwide. That means we are a doorway for customers abroad to identify more than 7,000 new potential sources or partners in Canada. Once upon a time we primarily financed Canadian exports. It is a different world now, and we are finding facilitating trade means having a service offering at all stages of the continuum of trade and investment, and available to both Canadian investors and exporters and Mexican borrowers, buyers and investors. It is our unique capability to act as a bridge between the two that significantly adds value to both.
The unique blend of public purpose and private principles means that the value proposition we bring to the business table is different. We don't think it means bringing extra baggage, we thing it means bringing added dimensions.
As I said at the beginning all of you in this room are committed to Mexico. I want to assure you that EDC is too. We see it as a market that is strategically important to Canada. It has enormous potential, and Canadian business' strengths and capabilities are greatly complimentary to the needs of the market.
I have told you some of the key ingredients of EDC's plans for Mexico, but the purpose of this morning is also to learn more about the opportunities you see, the needs you have, and your take on what EDC could do to help you grow your business.
I look forward to your questions. I look forward to your comments.
Thank you. Merci. Gracias.
