Lloyd Mexico Economic Report November 2005
Table of Contents
Business leaders and politicsEconomic strength
The importance of remittances
Sending remittances for free
Oil output up
Gas terminal expansion
Construction boom
The most livable cities
Business hotels
Post-hurricane reconstruction
Recognition for the Sea of Cortes
Refrigerator colossus
New vehicle models
Business leaders and politics
It is a sure sign of Mexico's growing democracy that the current generation of business leaders is no longer content to conduct its lobbying behind the scenes, but is taking an increasingly active role in the political process.
As the July 2006 campaigns get under way, a group of corporate leaders, led by Carlos Slim, have published a "National Accord for Unity", calling for tax, energy and legal reforms, better public services and more investment opportunities.
Economic strength
GDP grew 4.4% in 2004, and is expected to grow 3% this year and 3.5% in 2006, according to the latest World Economic Outlook from the International Monetary Fund (IMF). The IMF predicts that inflation, which was 4.7% in 2004, will fall to 4.3% this year, with a further decline to 3.6% in 2006. It calls for additional structural reforms to strengthen medium-term growth, arguing that reforms in the labor market would increase productivity and formal sector employment.
To satisfy the growing demand among international investors for secure, long-term bonds, the administration is issuing Mexico's first ever 30-year bonds, setting a new benchmark for emerging economies.
The importance of remittances
Remittances are now the second largest source of foreign exchange after oil exports. More than 19.5 billion dollars will be sent home by Mexicans resident in the U.S. this year, equivalent to 2% of Mexico's GDP.
According to the National Population Council, some 560,000 households, 65% of them in rural areas, rely totally on remittances to cover their expenses.
Remittances sent to the state of Michoacán are equivalent to 600 dollars for every man, woman and child in the state, the highest per capita figure in the country. Other states where remittances are especially important on a per capita basis include Zacatecas (346 dollars), Guanajuato (334), Guerrero (283), Hidalgo (281), Nayarit (277) and Aguascalientes (271).
Sending remittances for free
The rates charged to send remittances from the U.S. to Mexico have fallen sharply, and at least one major bank now offers fee-less transfers.
Bank of America allows any of its checking account holders to "Safesend" remittances to previously nominated recipients in Mexico completely free of charge. Individual transfer must be less than 1,500 dollars, with a monthly limit of 3,000 dollars. Recipients withdraw the funds from any branch of Santander or Banorte banks, or from any Telecom office.
Oil output up
Mexico is the world's sixth-largest oil producer but imports 20% of its natural gas and 25% of its gasoline needs. In the wake of Hurricane Katrina, the government will spend about 870 million dollars to subsidize natural gas and gasoline prices for consumers, ensuring that fuel costs do not put a brake on economic growth.
For the first eight months of this year, the nation's production of crude oil averaged 3.33 million b/d, 72% of it heavy Maya-grade crude, with the remainder either light Istmo crude or ultra-light Olmeca crude. Lighter grades are easier and cheaper to refine into fuels and therefore command higher prices on world markets.
The state-owned oil giant Pemex (Petroleos Mexicanos) posted revenues of 70 billion dollars in 2004 and generated close to one-third of government revenues.
Gas terminal expansion
Sempra Energy is considering expanding the capacity of its LNG (liquefied natural gas) terminal, currently under construction at a site 20 kilometers (12 miles) north of Ensenada in Baja California. The terminal should be completed by 2008, with an initial capacity of 1 billion cubic feet per day. The expansion would increase capacity to 2.5 billion cubic feet. Much of the gas produced at the plant would be exported from Mexico to southern California, which produces only 16% of the gas it consumes.
Construction boom
The construction sector in Mexico will grow 4.8% this year, and by year-end the government alone will have awarded 8 billion dollars worth of contracts, according to a Citigroup study. The nation's largest construction company is Empresas ICA, but equally well placed to capitalize on the construction boom is Impulsora del Desarrollo Económico de América Latina (IDEAL) which recently acquired the concession to operate the Tijuana-Tecate highway in Baja California.
IDEAL already administers several highways, and will also operate the Toluca by-pass, still under construction. The company, a spin-off of Grupo Financiero Inbursa SA, is actively studying a variety of projects ranging from energy and natural gas to airports, water treatment plants and health services.
The most livable cities
A major two-year study by researchers of the Federal Commission for Improved Regulation combined 38 different criteria in an effort to find the nation's "most livable" towns and cities. The criteria included location, job market, health and education services, levels of poverty, crime, public transport, and communications infrastructure.
The overall winners were Querétaro, Monterrey, Chihuahua, Saltillo and Mexico City. Enrique Cabrero, director of the study, said that the highest ranking cities all offer a qualified workforce, a capacity for technological and business innovation, and have supportive local governments.
Business hotels
Grupo Posadas is launching a new 3-star hotel chain, designed for business people and traveling professionals. The first One Hotel is due to open in Mexico City next year, with plans for 50 more by 2010. Each hotel will have around 100 rooms equipped with wireless Internet and work stations, with an anticipated rate of about 60 dollars a night.
The chain will complement Posadas' luxury establishments (such as the Fiesta Americana and Caesar Park chains), allowing the group to serve a wider variety of business travelers and tourists than previously.
Post-hurricane reconstruction
Earlier this year, Cemex Inc, the U.S. subsidiary of Cemex, the Monterrey-based cement-manufacturing multinational, agreed a joint venture with Ready Mix, a company that already had a strong presence in the south-east U.S. Under the agreement, numerous Cemex plants and cement distribution centers in Alabama and Georgia will be operated in conjunction with Ready Mix plants in several states.
The timing could not have been better. Cemex's favorable position in the U.S. market (second quarter U.S. sales: 1.16 billion dollars) should be further enhanced as it responds to the multi-billion dollar opportunities for construction contracts in several U.S. states, following the catastrophic damages wrought by Hurricanes Katrina and Rita.
Recognition for the Sea of Cortes
The islands and marine reserves of the Sea of Cortés (Gulf of California), a major tourism area, have been designated as a World Heritage site by UNESCO, the United Nations Educational, Scientific and Cultural Organization.
Home to 40% of all the world's marine mammal species, the area includes more than two hundred islands, as well as stretches of coast in the states of Baja California Sur, Sonora, Sinaloa and Nayarit.
Mexico has 25 sites on the UNESCO list, more than any other country in the Americas.
Refrigerator colossus
Mexico has quietly become one of world's main centers for refrigerator manufacture, with numerous firms making significant investments in recent years. They include 80 million dollars by Samsung in Querétaro; 200 million dollars by Whirlpool in Ramos Arizpe (Coahuila); 150 million dollars by Electrolux in Ciudad Juárez (Chihuahua); 100 million by LG in Apodaca (Nuevo León) and 300 million dollars by Mabe to expand its plant in Celaya (Guanajuato).
More than two million refrigerators were sold on the domestic market in 2004, 13% more than a year earlier. The export market is also strong.
New vehicle models
Two major vehicle manufacturers have expansion plans. In Aguascalientes, Nissan is investing 1.43 billion dollars to enlarge its existing facility to make sub-compact Tida models, for sale both domestically and in the U.S. The highly automated plant, opened in 1992, was the first Nissan manufacturing facility to be built outside Japan.
Meanwhile, in Hermosillo (Sonora), Ford is turning out three new models (Ford Fusion, Mercury Milán and Lincoln Zephyr). When fully operational, each plant will produce 350,000 vehicles a year.
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.
Mirrored with permission from
Lloyd S.A. de C.V.
See their Page on Mexico Connect.
2005 Operadora de Fondos Lloyd, S.A.
© 2005 Allen W. Lloyd, S.A. de C.V.