SAN LUIS POTOSI GROWING ECONOMICALLY BUT NOT ENOUGH TO

UNCLAS SECTION 01 OF 03 MONTERREY 000100 SIPDIS SENSITIVE SIPDIS PASS TO USTR E.O. 12958: N/A TAGS: PGOV EAID ECON KCRM EIND EINV SMIG SNAR SOCI MX SUBJECT: SAN LUIS POTOSI GROWING ECONOMICALLY BUT NOT ENOUGH TO PROVIDE NEEDED JOBS MONTERREY 00000100 001.2 OF 003 ¶1. (SBU) Summary: In a February 12 meeting with San Luis Potosi Governor Marcelo de los Santos Fraga (PAN),the Governor told the Consul General that the state's current economic situation is strong and growing and projected a 50% increase in jobs by the end of his administration in the summer of 2009. The Secretary of Economic Development was equally upbeat, noting SIPDIS that the state is growing faster than expected. However, meetings with media leaders and the state's largest university painted a different picture, one of concern over the lack of professional opportunities for young people and the growing gap between rich and poor. During their February 12-14 visit to San Luis Potosi, the CG and EconOff observed that foreign investment opportunities for economic growth in the state are increasing, but remain limited. Meetings with security officials also indicated that, although the state remains relatively free of narco-violence and activity, common crime appears to be on the rise. The growing concern is that the state's strategic central location and role as a transit point will inevitably lead to an increase in organized crime. Key security officials are taking a proactive role to prevent this and requested U.S. government support, specifically for more training and greater cooperation with U.S. law enforcement agencies. End Summary. ¶2. (U) The state of San Luis Potosi (SLP) is located in the north central part of Mexico. Its capital of the same name sits approximately at the midpoint of a triangle formed by Monterrey, Guadalajara and Mexico City. The majority of the population lives within the metropolitan area of the capital (which has an approximate population of two million); the total state population is 2.5 million. SLP is divided into four regions and has 58 municipalities. Although it began as a mining settlement, today the capital is more of an industrial city and a distribution point for foreign and domestic merchandise. Agriculture and ranching continue to be important industries, and there is a growing tourism industry. Governor de los Santos noted that SLP's historic downtown center may soon be named a UNESCO World Heritage site. A Younger Version of Monterrey -------------- ¶3. (U) San Luis Potosi is strategically placed to be a transit point in all directions. It is at a mid-way point between Monterrey and Mexico City. In addition, the current administration of Governor de los Santos has invested considerably in expanding and improving infrastructure. For example, a new road from Mazatlan to Tampico that cuts through SLP has been completed. Governor de los Santos reported that there is another new road in the works from SLP to Matamoros that will cut the transport time to the border to five hours, down from the current eight. The airport is also being expanded. According to Carlos Barcena Pous, Secretary of the SLP Economic Development Agency (SEDECO),65% of all cargo passes through SLP. Barcena cited SLP's economic advantages as its location, combination of infrastructure and investment on both the public and private side, and its people. ¶4. (U) Barcena reported that 35% of SLP's GDP is industry-based, with a 2007 GDP of 16.6 billion USD. Its exports in 2007 totaled 1.72 billion USD and FDI from 1999-2007 was 935.6 million USD. At the end of 2007, SLP's growth rate was 4.3%, higher than the national growth rate. That put SLP into the top 8 among all Mexican states. In manufacturing, it was ranked 4th place with a growth rate of 5.2%. Barcena noted that SLP is the 5th or 6th largest industrial city in Mexico, with six industrial parks and hundreds of foreign companies. In comparison, Monterrey's 2007 GDP was 54.5 billion USD and its FDI in the last two years was over 3 billion USD. It is no wonder then that Barcena described SLP as "like Monterrey in the 70s." ¶5. (U) A visit to the Cummins factory in SLP illustrated some of the reasons for the state capital's growth and potential to attract more foreign investment. Cummins is a U.S. company that specializes in manufacturing and repairing diesel engines. It is headquartered in Columbus, OH and has a presence in 160 countries. It opened a plant in SLP in 1980 and currently employs 1,200 workers. As described by Miguel Kindler, Director of Operations, the Cummins SLP plant is a success story. It appears to have everything it needs in terms of human, electrical and water resources. ¶6. (SBU) Despite these positive economic indicators, SLP is not necessarily where it should be in terms of economic development. Given all the advantages cited by government officials, SLP MONTERREY 00000100 002.2 OF 003 should be on par with Monterrey, which it sees as its main competitor. Yet, SLP appears to be in a much earlier stage of development. The fact is, even though SLP may be a strategic transit point, it cannot compete with Monterrey's proximity to the border. Another drawback is the lack of skilled labor in SLP. An executive of Rockwell recently reported that the company had considered opening a plant in SLP but chose Monterrey instead. The reason he gave was that Monterrey has a large engineering base sufficient to support a high-tech investment, while SLP does not. The executive also noted that SLP might be appropriate for low-tech manufacturing, but when it came to high-tech, Monterrey is really the only choice. Government Downplays Real Issues -------------- ¶7. (SBU) Governor de los Santos, whose six-year term will end in summer 2009, reported that 160,000 new jobs have been created during his administration and that unemployment will have dropped 50% by the end of it. He stated that "only those who don't want to work don't have jobs." SEDECO's Barcena also reported that there are plenty of job opportunities in SLP. He claimed that SLP is growing so fast, faster than expected, that "we can't stop it." ¶8. (SBU) Yet, non-government officials painted a less rosy picture. In a roundtable discussion with local media representatives, each one cited a shortage of jobs as the number one challenge facing SLP. They noted that although the local universities are producing plenty of accountants, lawyers, and other traditional professions, these students are often unable to find employment within their fields upon graduation. Only IT graduates are exempt from this problem. ¶9. (SBU) The media reps also noted that outside of the capital the situation is even worse, and is greatly contributing to migration. One reporter stated that, essentially, most young people have two options: migration to Nuevo Leon or to the U.S. The issue of migration was down played by government officials. Both Governor de los Santos and Barcena cited Zacatecas, Michoacan and Durango as states with high migration rates. They never mentioned migration as an issue of concern for San Luis Potosi. Yet, according to figures from the National Population Council (CONAPO),SLP is the Mexican state with the 8th highest rate of migration to the U.S. ¶10. (SBU) The lack of job opportunities was also noted by Mario Garcia Valdez, Rector of Universidad Autonoma San Luis Potosi (UASLP). UASLP is the largest, and only public, university in SLP. There are currently also 40 private universities. UASLP has 17,000 students in the capital and 30,000 throughout the state. Garcia was very frank in stating that the university's students have a hard time finding employment upon graduation, again with the exception of IT graduates. He noted that UASLP is instead encouraging students to pursue self-employment options. Garcia also pointed out that the division between rich and poor is a growing concern. Specifically, the poor continue to have fewer opportunities for education, work and access to health care compared to the well-connected. He did not, however, specify ways in which the university or the state government are addressing this issue. Security A Growing Concern -------------- ¶11. (SBU) Security in San Luis Potosi is relatively good, with the overall number of reported drug-related executions near the lowest for any state in Mexico. However, there are several areas within the state that have seen a recent increase in criminal activity, namely the Ciudad Valles area in the eastern portion of the state and the capital city of San Luis Potosi. It is important to note, however, that the lack of reliable reporting of criminal incidents and other security issues makes assessing the level of security in the state of San Luis Potosi very difficult. ¶12. (SBU) The primary reason for the problems in Ciudad Valles is its proximity to the port city of Ciudad Tampico, Tamaulipas on the Gulf Coast, which is a major hub for cocaine and weapons smuggling and is currently under the control of the Gulf Cartel. Home invasions, robberies and petty crime are on the rise in Ciudad Valles, with many of the victims coming from the local business community. The state police explained that when the federal government cracks down on the Gulf Cartel in Tampico; the cartel members take refuge in Ciudad Valles, only an hour drive west. From Ciudad Valles the next stop heading west is MONTERREY 00000100 003.2 OF 003 the city of San Luis Potosi, and the proximity to Ciudad Valles makes it an obvious second choice for cartel members to hide. ¶13. (SBU) The city of San Luis Potosi has also been faced with a growth in petty crime as well as narco-violence; however this is largely due to its strategic placement on several main transit routes (Mex Hwy 57 and 63) which are critical trade corridors from central Mexico to the northern border. As a result of increasing international investment and urbanization, the city has been growing in population and the police force has not been able to keep up with the operational requirements. ¶14. (SBU) The state police force is growing its capabilities, but remains very undermanned and lacks training. There are approximately 1,000 state police who are operational on a daily basis. The state police also have a force of 500 federal police detailed to them to support operations, a recent and unusual occurrence which came about as a result of the connections of the new police commissioner. ¶15. (SBU) The majority of the leadership in the state police force is new to the state, and was brought in from other states under the new police commissioner Cesareo Carvajal. Carvajal was the Director of Public safety for the state of Morelos, and is a graduate of the FBI National Academy. Since his arrival to San Luis Potosi, there has been at least one attempt on his life, when a supposed cartel assassin shot multiple times into what he apparently mistook for Carvajal's vehicle. Notwithstanding this, Carvajal remains very proactive in his attempts to improve the intelligence and operational capabilities of the San Luis Potosi State Police, coordinate the development of a 24 hour "911" call-in center, and develop databases of intelligence on all incidents and persons of interests operating in the state. Police analysts have also begun to monitor major intersections and areas of concern within the capital city via closed circuit television, as well as all open sources reporting via radio, television and local newspapers. Advanced training has been made available to a fraction of the state police through the local federal police academy, which is a large, well-designed facility. ¶16. (SBU) Carvajal requested the CG's assistance with securing more U.S. government support. Specifically, he told the CG that one of his police force's deficiencies is that with weapons seizures his officers do not have the ability to trace the arms. The CG offered to arrange a training with post ATF officials to teach SLP officers how to collect the data necessary to begin a trace. Carvajal also expressed an interest in expanding cooperation with U.S. law enforcement agencies and emergency services, such as the FBI and Los Angeles EMT. He proposed hosting a training conference in SLP for Monterrey, Zacatecas, Guadalajara and SLP security forces. Post is working to respond to Carvajal's requests. ¶17. (SBU) While the efforts by the new police commissioner and his staff are likely to have an effect in the city of San Luis Potosi, outlying areas will likely continue to face major problems maintaining security. Personnel shortages, training deficits and corruption will continue to plague the police force and have a negative effect on the gains made by the police. Comment -------------- ¶18. (SBU) San Luis Potosi is clearly developing economically, but continues to face long-standing issues that are difficult to address -- such as the socio-economic divide. In addition, the capital city's economic growth has yet to keep pace with the number of graduating students, as well as those with lesser education of working age, thereby contributing to the elevated migration rates. The SLP government may be addressing these issues, but did not specify how or to what extent. In addition, the government's focus appears to be on further developing the capital city with little attention being paid to the outlying regions and municipalities where these problems are exacerbated. On the other hand, the willingness of security officials to take a preemptive and proactive approach to the overall security situation within the state could help to enhance SLP as an attractive option for both investors and tourists. Indeed, if the level of narco-violence were to escalate in Nuevo Leon, San Luis Potosi could potentially become the more attractive option. WILLIAMSONB