Oaxaca, Mexico’s Economic Forecast for 2013 [2]
Over the past couple of years the city of Oaxaca, a Mexico UNESCO World Heritage Site [3], has witnessed burgeoning growth in the tourism sector, in retail industry serving predominantly Oaxacans, and in land sales and housing starts. When the foregoing is viewed within the context of ongoing improvements to state highway infrastructure, Oaxaca’s economic future for the balance of 2012, and indeed throughout 2013 and beyond appears as bright as for anywhere else in Mexico.
Significant casualties resulting from the Mexican government’s war against drug traffickers, and the economic impact felt throughout the entire country in terms of a reduction in North American tourism, are two realities. A third is the exacerbation of the problem by media’s incessant reporting of every injury occasioned upon a Canadian or American in Mexico, whether tourist or resident ex-patriot. But the city of Oaxaca and its central valleys stand apart from other areas of Mexico; the region relies on tourism for its very existence, and yet it’s been resilient in the face of economic stagnancy staring it in the face. Growth over the past couple of years has been remarkable.
Growth in Oaxaca’s Tourism Sector
There has been an expansion in the high end boutique hotel market, with three properties having opened in the downtown core. In addition, an ultra-luxury spa style hotel, Cosijo, in a small village about 20 minutes outside of Oaxaca, is now catering to the pamper-plus crowd wanting it all, but in a rural environment.
Two new white linen restaurants, La Pitiona and Origen, are doing their best to pry tourist palates from Casa Oaxaca and Los Danzantes. Over the same period of time three Oaxacan cooking schools have opened. On the other hand, new Thai, Moroccan and Greek restaurants are trying to convince tourists that there are now more options for a Oaxacan comida than tlayudas and moles.
In recent years mezcal has become the new drink of choice in select American cities, at least for those who can afford the lofty prices charged for “designer” brands. A similar trend has arrived in Mexico City. In Oaxaca, four mezcalerias and tasting rooms having opened, catering to both national and international tourists.
Mexican and International Retailers Rally
Toyota was slow off the mark to launch a dealership in Oaxaca, finally opening years after top Japanese rival Honda, and long after other European car makers including Nissan. But now there’s even a Mitsubishi lot along car dealers row.
Within the past year we’ve seen OXXO convenience stores beginning to appear in Oaxaca. There are also two new plazas, in addition to a Wal-Mart, to compete with Sam’s Club for market share. Supermarket chains Chedraui and Bodega Aurrera have each opened two new superstores suggesting that stalwart Soriana (formerly Gigante) will soon expand operations.
While at first blush the opening of an Apple store and sugar-free ice cream outlets would appear to have little in common, their prime location by one of Oaxaca’s upscale northern suburbs evidences a growing urban middle class. The inauguration of a second branch of the modern, Western style butcher shop chain RYC, and the opening of another branch of fashionable Quemen pastry shop in the same neighborhood both corroborate the trend. The Starbucks rumors continue, which would be a formidable foe for its biggest Mexican competitor, The Italian Coffee Company, itself continuing to open gourmet coffee shops across Oaxaca. Espresso bar chain Cafeína is also expanding operations at a significant pace.
Land Sales and Residential Real Estate Development
In the suburbs of Oaxaca as well as in commuter towns and villages, real estate sales of both raw land and serviced lots as well as home construction have been strong over the past few years. While the annual rate of increase in asking price per square meter is not as great in the outlying areas as in the city, double digit inflation nevertheless remains the norm across the board. In the more desirable suburbs such as San Felipe del Agua, Colonia Loma Linda and Ejido Guadalupe Victoria, a 15 – 20% annual increase in land cost continues to be the norm, the pattern dating to the early 2000s.
Oaxaca has traditionally been one of the states with the lowest labor costs in all Mexico. The US economic crisis has kept the employment market in the city and central valleys relatively depressed. Oaxacans who emigrated to the US because jobs at home were scarce are returning to Oaxaca to compete for work which wasn’t initially available. Thus, contractors are able to hire both skilled and unskilled workers to build homes at a modest cost.
Low labor costs reduce the impact of rising land and materials costs, enabling builders and speculators to construct homes and sell them at a reasonable price. Thus, new home construction and sales remain vibrant industries. At any given time in the small suburb of Loma Linda, for example, there are roughly a dozen new homes under construction and major renovations and additions under way. In Guadalupe Victoria, a much more sprawling neighborhood with large tracts of raw land continuously being developed, homes starts are increasing at an even greater pace.
Oaxaca’s Highway Projects Point the Way to Future Growth & Continued Economic Prosperity
Oaxaca’s lofty status as one of the world’s premier UNESCO sites keeps tourists coming, despite the thumping Mexico receives from the media and the periodic Oaxaca advisories from foreign governments. The state’s Pacific coast beach destinations (Huatulco, and to a lesser extent Puerto Escondido and the smaller coastal areas) maintain the state’s vibrant tourism industry.
But for beachgoers wanting just a taste of culture on their vacation, and for those adventure-seeking souls who visit Oaxaca yet seek a weekend of sun, sand and surf before returning to the office, the cost of flying between the beach and the state capital has remained prohibitive for most, and the drive lengthy and queasy for many. Two highway projects extending between the city of Oaxaca and the coast will result in an economic boon for both holiday destinations.
A new toll road is under construction between Oaxaca and Huatulco, and a major highway widening project is progressing between Oaxaca and Pochutla, Puerto Escondido and smaller beach towns. It is suggested that the mere prospect of more and easier cross – selling between beach and cultural vacations has been contributing to the strength of economic growth in the city of Oaxaca and to a lesser extent throughout the central valleys. Once these improvements to state infrastructure have been completed, Oaxaca’s market share of the Mexican economy will dramatically increase. Those currently investing in Oaxaca are without a doubt looking to the region’s future.
Alvin Starkman has been monitoring Oaxaca’s economic growth for close to 20 years. Alvin operates Casa Machaya Oaxaca Bed & Breakfast (http://www.casamachaya.com [4]), writes about Oaxacan life and cultural traditions, and assists tourists to the region in planning their vacations. Alvin is a Contributing Writer for Mexico Today, a program for Marca País – Imagen de México.