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MARCH 2006
Mirrored with permission from Lloyd S.A. de C.V.
See their Page on Mexico Connect.Favorable trade balance
Lowest risk rating ever
Reduced foreign debt
Airline updates
Employment figures
New banknotes
More buses, trucks and cars
World Water Forum
Record remittances
Favorable trade balance
Last year, Mexico's trade surplus with the U.S. exceeded 50 billion dollars, the largest amount ever. According to the U.S. Department of Trade, Mexican exports to the U.S. rose 9.1% to 170.15 billion dollars last year, while imports climbed 8.3% to 120 billion dollars. Mexico is the U.S.'s second largest trade partner, after Canada.
Lowest risk rating ever
The "country risk" has fallen to 112 points, its lowest in recent years, down from 411 points when President Fox began his administration in the year 2000.
The country risk, which reflects the difference in interest rates between Mexican and U.S. government-issued securities, is a point of reference for international investors and helps to explain why Mexico continues to attract very significant sums in direct foreign investment (DFI), and why major international investors have invested in the Mexican stock market.
Mexico was the main recipient of DFI in Latin America in 2005, receiving over 17 billion dollars, an amount exceeded only by China, Hong Kong SAR and Russia, according to an UNCTAD (United Nations Conference on Trade and Development) report.
Stable public finances, low interest rates, high international reserves, controlled inflation and the high price of oil on international markets have all contributed to Mexico's favorable risk rating.
Reduced foreign debt
Government revenue rose last year, due both to a sharp rise in the number of individuals and businesses paying tax, which reached 18.8 million by year-end, and to unexpectedly high oil revenues. Taxes and royalties collected from Pemex account for 37% of all government revenue. Oil exports averaged 42.65 dollars a barrel in 2005, giving the government 10.2 billion dollars more revenue than originally targeted.
Oil exports helped to boost international reserves to an all-time record of 69.609 billion dollars by the end of January this year. The government has been steadily reducing foreign debt, replacing some of it by peso-denominated bonds, which have been very popular with investors.
Now, there is broad support for using some of the foreign reserves to further reduce the nation's foreign debt, which stood at only 67.4 billion dollars at the end of 2005, down from 78.0 billion dollars a year earlier.
Airline updates
Several airlines have announced aircraft purchases and new routes. Aeroméxico has ordered six more Boeing-737 NG (New Generation) aircraft, as part of its on-going fleet modernization.
Aviasca is adding three additional planes to its fleet of 29, and plans to add new routes in the second half of year, including Toluca-Monterrey, Toluca-Guadalajara and Monterrey-New York.
Forty years after its first flights into Mexico, Continental Airlines continues to expand its routes. The airline has announced increased service to destinations such as Huatulco, León, Durango and Morelia to complement its flights to small and mid-sized cities such as Aguascalientes, Ciudad del Carmen, Chihuahua, Torreón, Saltillo, Tampico and Villahermosa.
Volaris (jointly owned by media giant Grupo Televisa, Grupo Inbursa and the central American airline TACA) has become the latest low-cost airline to compete for domestic passenger traffic. Later this month, Volaris will begin flights from Toluca to Tijuana, Cancún, Monterrey and Guadalajara.
Employment figures
Mexico's workforce now comprises 43.7 million individuals. Unemployment averaged 3.58% in 2005, according to the National Statistics Institute, INEGI. Comparisons are not possible with previous years because the way the index is measured was updated in 2005 to match the methods used by other OECD (Organization for Economic Cooperation and Development) countries.
An INEGI official said that the low unemployment rate (sometimes claimed to be due to bad measurement) resulted from the reduced pressure on jobs because of international migration, coupled with the flexibility of the Mexican job market, which is less regulated, less expensive, and which lacks the unemployment benefits offered by some countries.
The OECD agrees that INEGI's methods also provide reliable estimates of the number of people in the informal sector and the incidence of under-employment.
New banknotes
The national mint is introducing a new series of banknotes later this year, incorporating extra security measures. For the first time, the size of the notes will reflect their denomination, making it easier to distinguish between them. The first notes to be issued will be 50 peso bills.
Founded 470 years ago, the mint produces both regular coins and commemorative coins for investors and collectors. The mint, located in San Luis Potosí since 1983, is negotiating to manufacture coins for several countries in Central America, Europe and Asia.
More buses, trucks and cars
DaimlerChrysler has two plants in Mexico. The first turns out trucks and trailers in Santiago Tianguistenco, in the state of México; the second produces buses in García, Nuevo León. The firm is spending 26 million dollars to modernize the plants, and expand their capacity.
DaimlerChrysler's Mercedes-Benz bus-making division supplied 6,090 new vehicles in 2005, 54% of the total national demand. There is considerable room for expansion in bus sales since about one-third of the national fleet of 400,000 buses is now more than 20 years old.
Toyota entered Mexico for the first time in 2002. It has announced plans to expand production of cars from 35,000 last year to 50,000 by 2007, and of Tacoma pick-up cabs from 180,000 to 200,000 a year. The plan requires the purchase of domestic-manufactured autoparts worth 1.4 billion dollars this year, 7.7% more than during 2005.
Toyota's decision to open a factory in Tijuana led many other Japanese firms, including Maruyasu, Sango, Nifco, Yorozu and Kasai, to open autoparts plants nearby. Toyota's expansion is a boom for other suppliers as well, such as Alpha, Asahi Glass, Bridgestone, Sumimoto Wiring System and Yazaki Corporation.
World Water Forum
The 4th World Water Forum takes place March 17-21 at the Banamex Center in Mexico City. The global forum is the tri-annual meeting of the World Water Council, an international body examining appropriate responses for the increasing international concern about global water issues. The forum's theme is "Local Actions for a Global Challenge".
Alongside the forum, the World Water Expo will showcase environmental, technological and research solutions for dealing with water-related issues: wastewater, purification, distribution irrigation, filtration, energy and pumping. More than 10,000 participants are expected to attend, from more than 100 different countries.
Record remittances
About 27 million Mexicans (10 million of them born in Mexico) are thought to work in the U.S. The remittances they sent home totaled 20.035 billion dollars in 2005, 20.5% more than 2004, and a new record, according to figures from Banxico, the central bank.
By way of comparison, the net balance of petroleum-related trade during 2005 was up 25% to 22.332 billion dollars (based on subtracting petro-related imports worth 9.329 billion dollars from exports which reached 31.661 billion dollars).
Analysts are noting that the geographical pattern of remittances is beginning to change, with a higher proportion of funds being sent to urban areas such as Mexico City, and a declining proportion entering rural states such as Michoacán and Zacatecas. The change reflects the fact that more regions are now exporting workers than previously, and that those going abroad include a higher percentage of females and are better educated.
The text of this report was not submitted to any Federal Mexican Authorities or approved by them prior to publication. In preparing it, we have done our own research, using sources we believe to be reliable. However, we do not guarantee its accuracy. Neither the information contained herein nor the opinions expressed, constitute a solicitation by us of the purchase of any security.
©
2006 Operadora de Fondos Lloyd, S.A.
© 2006 Allen W. Lloyd, S.A. de C.V.
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