Loreto is the oldest colonial settlement in the Californias, built around a mission that was founded in the year 1697. Loreto was the capital and administrative center of Baja California until the capital was moved to La Paz following a devastating hurricane in 1829. Historically, the economy of Loreto has been based on fishing and ranching. The society and economy of the Loreto region underwent fundamental changes in the second half of the 20th century. The rural-based society transformed into an urban society, while the economy based on primary sectors transformed into a predominantly service-based economy. The environment has also begun to show signs of degradation due to inappropriate use of natural resources and the lack of adequate conservation efforts (Fuentes, 2003). The region now depends heavily on tourism, focused mainly on sportfishing. Foreign visitors currently number more than 60,000 per year. Most of these visitors are from the western areas of North American and typically come for a few days of fishing.


Loreto is known for its outstanding natural beauty. Dramatic mountains descend steeply to a narrow coastal strip along the Sea of Cortez on the eastern shore of Baja California. The views over the water are notable, accentuated by a number of offshore islands. However, the beaches in the Loreto area are not considered first rate. Moreover, stingrays inhabit the dark sandy bottoms in many of the near-shore areas, further reducing the appeal for the ‘sun and sand’
tourism market. The region of Loreto is recognized for its emerging potential for nature-based tourism. Kayaking, trips to the islands of the Marine Park, and hiking are popular activities for tourists in the Loreto region. A golf course and tennis facilities in the Nopoló area offer more traditional recreational opportunities. Loreto is known as a three-season destination: the intense heat and humidity of the summer months make Loreto an uncomfortable place to be in the summer.


In the late 1960s, Loreto was identified as one of a select number of areas with the potential to be a major tourism destination by the Fondo Nacional de Fomento al Turismo (FONATUR), the Mexican federal agency charged with tourism development and investment promotion. Subsequent public investments in infrastructure included the construction of an airport, new roads, water supply, sewage treatment, and a hotel. These investments were carried out at approximately the same time as those in Los Cabos. Whereas tourism took off in Los Cabos, the expected growth of tourism in Loreto did not materialize, except for a failed marina and development at Puerto Escondido. The rising interest recently among North Americans in real estate in Baja California, and the renewed efforts by government tourism promoters, has revived the hopes for economic growth spurred by foreign visitors and investments.


Development plans for Loreto have also played a central role in the Escalera Nautica project, a regional project being promoted by FONATUR. The Escalera Nautica is designed to increase tourism in Baja California with a series of marines to attract recreational boaters to the Sea of Cortez, mainly from the west coast region of the United States. The Escalera Nautica project has not proceeded as planned and has been subject to criticism that the demand estimates were overly optimistic and that the environmental impacts had not been adequately addressed.


If the economy of Loreto is to experience strong growth in the coming years, this growth will be based on tourism and real estate development. There are no other apparent sources of robust growth. However, tourism in Loreto did not grow as expected over the past two decades despite the public investments in infrastructure. This suggests that skepticism regarding the potential for strong growth based on traditional tourism markets would be well founded. The development trend has shifted from conventional tourism to the sale of second homes to North Americans. This market does show remarkable potential for growth as exemplified by the surge in real estate transactions in Baja California in recent years. Loreto is now being marketed not only as an ecotourism destination but also as an excellent location for investing in a second home.


In the Nopoló area, the Loreto Bay Company, based in Phoenix, Arizona, is constructing a residential community. This planned community is being sold as a sustainable community based on the principles of New Urbanism. This project plans to build and sell thousands of homes, and promises to dramatically change the economic and social landscape of the Loreto region.


Real estate sales are quietly transforming the structure of landholding throughout the region. Communal property owners have been selling ejido land along the coast, most commonly in rectangular plots with 20 meters along the oceanfront. Relatively few of the plots sold have been developed, as water, electricity and roads service very few of these areas. These purchases are perhaps best explained as an attempt ‘to get in early’ and purchase oceanfront property while it is still affordable.


Loreto is not an affluent area. Per capita income and human development measures place it below average for Baja California Sur, though above average for the country. Nevertheless, surveys suggest that residents are generally content with the quality of life in Loreto. Access to public services, and in particular healthcare, is substandard. The incidence of social problems is on the rise, which adds to the development debate taking place in Loreto. Some attribute this to the recent surge in construction and associated influx of outside workers. Others point to the slow economic growth of the past several decades.