SONORA PROVIDES SOFT LANDING TO NEW FOREIGN

UNCLAS SECTION 01 OF 03 MEXICO 003165

SIPDIS

SIPDIS

STATE FOR WHA/MEX, WHA/EPSC
STATE PASS USAID FOR ROBERT KAHN
TREASURY FOR IA MEXICO DESK - JASPER HOEK
COMMERCE FOR ITA/MAC/NAFTA ANDREW RUDMAN

E.O. 12958: N/A
TAGS: ECON EIND EINV ETRD MX
SUBJECT: SONORA PROVIDES SOFT LANDING TO NEW FOREIGN
INVESTMENT

REF: A. MEXICO 864

B. MEXICO 1884


1. SUMMARY. The State of Sonora, often one of Mexico's
largest FDI destinations due to its proximity to the U.S.
border, has boosted its success in business and capital
attraction with its Soft Landing Program. Created as part of
the state's incentive package to attract Ford to Hermosillo,
the program provides state of the art office space, including
all infrastructure and support services, as well as
relocation and consulting assistance to businesses free of
charge while they establish their permanent facilities in the
state. Soft Landing currently operates in Hermosillo and
Nogales. A highly educated work force and modern
infrastructure coupled with Soft Landing give Sonora a
competitive edge in FDI attraction. END SUMMARY.

OPEN FOR BUSINESS - IMMEDIATELY
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2. Hermosillo PO and Embassy Econoff met with Hector
Sanabria, Promotion Director of the Economic Development
Council for Sonora, and Martha Campa, Foreign Trade Promotion
Director of the Economic Development Council for Sonora.
According to Sanabria, Soft Landing was created by the State
of Sonora as part of the incentive program to convince Ford
to locate in Hermosillo. The creation of the program was
mandated in the state's economic development law. Soft
Landing makes available modern office space, including all
infrastructure such as internet and telecommunications as
well as support services from business experts including
secretarial services, free of charge to companies who are

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relocating or opening a new facility in Sonora. It also
provides facilities to host meetings (including food service)
and assistance with relocation such as the location of
housing and business properties. Soft Landing can even be
used as a physical address during the transition stage.
Companies may also consult with a dedicated staff of
individuals who research all federal programs and funds to
determine all available incentives. The program currently has
16 office spaces available in Nogales and Hermosillo. Four
companies are currently working out of the Soft Landing
facilities.

AN ECONOMIC TRANSFORMATION
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3. Sonora, according to Campa, has undergone an economic
transformation in the 20 years since Ford arrived in
Hermosillo in 1986. The state is home to 43 industrial parks.
The State's overall development vision is to move its
economy towards cutting edge industries such as metal
mechanics, software development and aerospace, with one third
of all aerospace companies in Mexico having a presence in
Sonora. These companies supply such companies as GE, Airbus
and Honeywell.

A COMPETENT WORK FORCE
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4. Sanabria explained that Sonora has 31 universities and
eight technical universities which produce 9,000 graduates a
year. Sonora, he said, is dedicated to attracting industries
with competitive salaries to employ this work force. Over 50
percent of the state's budget is dedicated to education.
Nearly 80 percent of the state's population is native to
Sonora and the state, he claimed, has the lowest personnel
turnover and absenteeism rates in the country. Campa
indicated that the state is working with companies to match
CONACYT (federal science and technology program that provides
scholarships) scholarships in key sectors.

QUALITY INFRASTRUCTURE
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5. Campa and Sanabria view the state's highly developed
infrastructure as one of its best assets when promoting the
State. The port of Guaymas is more cost effective than
either Long Beach or Manzanillo and is connected via rail
through a free trade corridor to the U.S. The Puerto
Libertad Gas Terminal is scheduled for completion in 2009. 50
percent of its production will be sold to El Paso Energy.
The pair also outlined current infrastructure projects and
future goals of the pro-business governor, Eduardo Bours. An
alliance exists with Baylor University to construct new

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hospital facilities in Hermosillo. The Governor has created
the IMPULSOR project which will create a coastal highway
systems, develop the marina in Guaymas and improve tourism
infrastructure.

TARGETING SPECIFIC COMPANIES
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6. A study by the state revealed that 85 percent of support
companies and suppliers are tied to one anchor company.
Campa highlighted this as a weakness and said that the state
is working to develop new markets so that suppliers are not
dependent on one client. The goal is to link Tier 1 with
Tier 2 and Tier 3 companies (Tier 1 companies produce the
final product while Tiers 2 and 3 produce parts of the final
product) more effectively. This goal is being achieved
through courses at five regional offices that teach Mexican
companies how to establish business relationships in the U.S.
Campa indicated that Sonora is also focusing on attracting
business that can meet all of their supply chain needs in
Mexico with inputs from local support services.


ECONOMIC DEVELOPMENT LAW
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7. The Soft Landing Program was formed as part of the 2002
Sonoran Economic Development law. The law in Sanabria's
words provided fiscal and non fiscal incentives and legal
certainty to investors in the state. Some incentives are
specifically tied to projects. A major goal of the law, he
continued, is to provide prompt and reliable assistance with
all permitting, licensing and other government procedures.
Soft Landing creates linkages to all three levels of
government. The program originally began with half of its
funding from the private sector and half from the public
sector. In 2002, 15 percent of its funding came from a two
percent State payroll tax. All Soft Landing projects must be
approved by a state economic development council comprised of
government authorities, union leaders and businessman. Both
Sanabria and Campa noted that Governor Bours is the first
businessman turned politician in Sonora and that he has
become very active in Soft Landing and the economic
development process.

DEVELOPMENT CHALLENGES
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8. Hermosillo PO and Embassy Econoff met with Ricardo Platt,
Secretary of the Economy for the state of Sonora on April 4.

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Platt recently left the private sector to take this position
at the request of the Governor. He explained that some
issues, such as some of the world's highest telephone and
internet rates that are charged by Telmex (according to the
OECD),frustrated him in the private sector and are now an
impediment in his work to attract foreign investment.
According to Platt, while the state will do everything it can
to get Telmex to lower its rates, it must find other
incentives that outweigh this disincentive in the interim.
Platt agreed with other industry groups (REF A) that it is
difficult to attract foreign investment when there is not one
voice representing Mexico to potential investors. He alluded
to a Sonora delegation that was in Texas and how the state is
determining where and how it should market itself in the U.S.
in relation to other Mexican government trade promotion
efforts in the U.S.


9. Platt mentioned that Sonora has been contacted by other
states who would like to use the Soft Landing program as a
model for how to improve their own economic development.
Platt does not foresee drastic changes in economic
development in Sonora, or the Soft Landing Program,
regardless of the outcome of the upcoming presidential
election. He noted that the program has continued during
two gubernatorial administrations and is working now with a
Mexican President from one party, a Governor from a second
and the mayor from Hermosillo a third. This experience, in
Platt's view, has prepared the state to work with all
political parties.

COMMENT
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10. Sonora's Soft Landing program has been a success for
nearly five years during which industry groups and other

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states have publicly and privately complained about the
difficulties of attracting investment due to the lack of
incentives they can offer at the state and local level (REFS
A and B). This issue has been discussed by the economic
advisors of all of the leading candidates in the upcoming
presidential election. The Sonoran model has demonstrated
that it can be effective even when different government
authorities come from opposing parties. The Soft Landing
program should be considered as a model for other states to
consider in their attempts to attract FDI and for the new
federal government as it reviews its investment and trade
promotion strategy.


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GARZA