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Baja Faces: Another Long Year

Aside from medical services, and return of some tourism the cross-border economy will endure more pain in 2009

A year ago, we observed 2008 would be pivotal for Baja’s economy in that our important neighbor to the south either would hold the course steady or suffer a reversal, undoing the gains of recent years. Much would depend on U.S. border policies, the second and retirement home markets, tourism, maquiladora output and demand and, finally, whether the perception of safety would improve for visitors traditionally eager to sample the rich diversity and bargains from Tijuana to Ensenada.

A year ago, we sensed that the United States was heading into a recession. Although the clouds of pessimism were hanging heavy over the land, national and local experts were predicting sunny days ahead, with many saying we were at or near the bottom. Last January turned out to be a relatively good month. In fact, it was really the last good month.

There is nothing on the horizon to suggest the situation in Baja will change in 2009, as there is little to indicate things will improve much in the United States over the next 12 months. Thus, Baja will suffer another year of economic problems. Some bright spots beckon, but we will get to those later.

First A Look Back

In hindsight, we can now declare 2008 to be in many ways among the worst years in the history of Baja California as a state. Much pain was delivered from the north, as the U.S. housing industry and financial sector melted down and jobs evaporated. Oil prices shot above $140 a barrel, pounding cross-border businesses. Lenders stopped lending.

Worst of all, U.S. consumers lost faith in the future.

As though the U.S. multi-sector meltdown wasn’t enough to drive a stake through Baja’s economic heart — and it was — Baja also suffered from its own internal problems — the escalating acts of violence from drug wars.

Tourism, responsible for 70 percent of the economic livelihood along the Rosarito-to-Ensenada corridor, fell more than 50 percent. Home sales to Americans who had created a real estate boom along Baja’s Pacific Coast corridor declined to record lows. Numerous high-profile and quality developments came to a standstill. Perhaps the highest profile project, Trump Towers, has shut down for two to three years, with others following suit.

Output from the manufacturing industry that feeds much of Tijuana’s economy has fallen, with the mostly U.S., Japanese and Taiwanese-owned businesses dramatically decreasing production levels.

The piñata of bad news rained new troubles with each month’s swing. Border crossing waits continued to be unbearably long, further discouraging visitors in both directions. Crossings into Tijuana and points south also were discouraged by fears of violence.

Economic stagnation led to a peso devaluation, making it more expensive for Mexicans to buy not only imported retail goods but also for businesses needing equipment and services from U.S. suppliers that might increase the marketability of their products. Even Mother Nature was a foe, delivering heavy rains in December that all but sealed off large parts of Tijuana and Rosarito, making it nearly impossible to navigate through the region.

The Road To Recovery

Business accounting teaches that market losses suffered in one month are felt in future months. Likewise, losses suffered for an entire year are felt for several years unless subsequent market gains are extraordinarily huge. Such a scenario is unlikely.

Now what about those potential bright spots?

For those with cash on hand, real estate is a bargain waiting for visionaries. In two or three years the pent-up demand from retirees in the U.S. seeking an affordable and higher quality of life will be released, increasing home sales in Baja. Buyers seeking affordable coastal second homes, whether condominiums or single-family homes, also will return.

Government agencies in the United States and Mexico are committed to spending hundreds of millions of dollars on new border crossings and improvements to existing crossings. These efforts have moved from planning to funding stages and really will happen, greatly improving passage between the nations for goods and people.

Tourism will begin to recover as more and more Southern Californians figure out that regional media is overly dramatizing and rehashing old news converting reporting into a series of sensationalized reports aimed at creating readership at the expense of our neighbors in Baja. Repeating one or two crimes against American visitors that took place in 2007 or before, as there are none more recent, is losing credibility. Already many are asking if Mexico is so dangerous for travelers, why do so many famous entertainers bask in their sun? Baja will then become an affordable temporary escape from the trials and tribulations of the economic gloom faced by the Southern California's middle class as well.

The biggest bright spot is the availability in Baja of high-quality medical services at savings of 50 percent to 80 percent from U.S. prices. California alone has more than 7 million uninsured residents and countless more who are underinsured. As word continues to get out about these treatments, more people will be willing to endure today’s border waits in exchange for saving hundreds or thousands of dollars.

The medical sector in Baja, particularly in Tijuana, will begin to thrive in 2009, creating new opportunities and employment, which in turn will begin leading Baja back into prosperity.