Lloyd Mexico Economic Report - March 1999
CONTENTS:
- CORN PRICE BONANZA
- STATE ELECTIONS
- INTERNATIONAL CONFIDENCE
- DIRECT FOREIGN INVESTMENT
- INFLATION GOAL
- ELECTRICITY PRIVATIZATION
- PLATFORMS SUNK - REEFS CREATED
- ENRICHED WHEAT FLOUR
- AVOCADO CONGRESS
- MORE VEHICLES
- SHIFT IN TRADE PATTERN
- REDUCED FISH CATCH
- EXOTIC MEATS
- BUSINESS VISAS BY INTERNET
CORN PRICE BONANZA
The price of corn in the main producing state, Jalisco, has risen to new levels, contrary to pre-season predictions. The current price, 160 dollars per metric ton, is some 20% higher than expected, and an unexpected bonus for farmers throughout the country. Even taking into account transportation and storage fees totaling around 12 dollars per ton, an analysis published in the Guadalajara daily Público suggests that this year’s price rise will increase the profits of a farmer whose corn yield is around 1.4 tons per acre by more than 250%, as compared to last year. The price increase is mainly due to the withdrawal of the government marketing organization, Conasupo, from the process of commercializing corn, and to the removal of price controls on tortillas.
In 1998, Mexico produced 16.35 million tons of its staple grain, 1.7 million tons less than in 1997, and imported 5.28 million tons from the U.S.. Jalisco is responsible for 15% of Mexico’s total production, though only about 50% of all the corn grown there is sold on the open market, with the other 50% being consumed by the families growing it. A report in the Mexico City daily El Financiero says that the National Institute for Forestry, Agriculture and Fishing Studies, INIFAP, has announced a plan to introduce a new high-protein species of corn into Mexico by next year. The corn, already successfully tried in some parts of Africa, has immediate health benefits, especially among children, and Inifap hopes that about 12% of Mexico’s 19.8 million acres under corn will be sown with the new variety.
RELATED NEWS The price of another staple, the humble bean, has plummeted, with 60,000 bean farmers in Sinaloa, the main bean-growing state, complaining of being offered only around 400 dollars per ton for their crop, significantly less than their production costs.
STATE ELECTIONS
In keenly contested state elections held recently, the ruling Institutional Revolutionary Party (PRI) candidate, René Juárez Cisneros, narrowly won the governorship in the southern state of Guerrero (which includes the tourist resort of Acapulco) but PRI failed to win in Baja California Sur where Leonel Cota Montaño, the candidate standing for a coalition of the Democratic Revolution Party (PRD) and Labor Party (PT) gained a resounding majority. Nine states and the federal district of Mexico City are now held by the opposition. The latest results are seen by analysts as a major setback for the right of center National Action Party (PAN) which came a distant third in both states.
INTERNATIONAL CONFIDENCE
Mexico has successfully placed a 1-billion dollar 10-year bond on global markets, the first major bond offering by any Latin American country this year. Purchasers of the new bond, which has an annual interest rate of 5.49 points above U.S. Treasury Bonds, have the option in February next year of exchanging their holdings for Brady bonds, either for a five year term at variable interest or for a sixteen year term at fixed interest. The success of the global bond offering underlines the confidence that international investors have in Mexico’s economy.
Investors have also been impressed by how the economy has stood up to the buffeting caused by the economic problems in Asia and Brazil. Of all the Latin American countries, Mexico’s currency and stock market have shown the most resistance to the so-called "Samba effect", in part because of the government’s commitment to NAFTA, its adoption of a floating exchange rate and its fiscal and monetary discipline.
DIRECT FOREIGN INVESTMENT
The 2,700-member American Chamber of Commerce in Mexico, Amcham, believes that this country will continue to receive important flows of direct foreign investment during 1999. According to its director, James McCabe, Amcham predicts that such investment, principally destined for telecommunications, electricity and transportation services, may total as much as 8 billion dollars this year, about three quarters of which is likely to come from the U.S.
INFLATION GOAL
The consumer price index rose 2.53% during January, slightly less than some analysts had feared, but higher than the 2.44% increase reported for December. Milk and tortilla price hikes were partly responsible for the latest rise which brought the 12-month (January to January) figure to 19.02%. The government’s published goal for this year - 13% inflation - looks overly optimistic and most private sector economic consultants favor figures nearer 16%. Of the 46 cities used in compiling the index, the highest rates of inflation were recorded in Córdoba (2.87%), Villahermosa (2.86%) and Tehuantepec (2.81%) while the lowest rates were in Culiacán (2.12%), Torreón (2.26%) and La Paz (2.29%).
RELATED NEWS: Consumer confidence appears to have received a boost from December wage increases. Mexico’s largest retailer, Cifra, has reported same-store sales in January were 1.5% higher than the previous year.
ELECTRICITY PRIVATIZATION
President Ernesto Zedillo has submitted an initiative to Congress to modify Articles 27 and 28 of the Constitution and pave the way for the 100% participation by foreign corporations in the electricity-generating sector. The move is designed to attract increased investment in a sector that, according to the Energy Secretariat, needs to find at least 25 billion dollars in the next six years in order to add 37% more to the existing installed capacity of 36,100 megawatts. Observers expect the initiative to be approved by Congress within a matter of weeks. Early indications are that no state-owned assets will be privatized, though some existing generating stations may be offered as limited-term concessions to private companies.
More significantly, foreign corporations should soon be able to enjoy full ownership rights for any new generating stations and transmission lines they construct. The experience of other countries, such as Chile, Argentina, England and Spain, where part or all of the electricity sector has been privatized, suggests that industrial and commercial users will benefit first from more competitive prices, well in advance of domestic consumers, who may have to wait five or six years before they see any savings on their power bills.
PLATFORMS SUNK - REEFS CREATED
Several former drilling platforms and oil installations with a combined weight of 7,000 tons have been towed from their original location in the Santa Ana oilfield, off the Campeche coast in south-east Mexico, and deliberately sunk, to form artificial reefs, just offshore from Champotón. Three separate sections of reef have been created, under the watchful eyes of the federal Environmental Protection Agency, representatives of Greenpeace, and state authorities. The sinking serves a dual purpose - removing a potential shipping hazard and creating an ideal, albeit artificial, substrate for marine life of various kinds.
ENRICHED WHEAT FLOUR
Starting this month, all wheat flour produced in Mexico will be enriched with various minerals including thiamin, riboflavin, niacin, folic acid, iron and zinc, in order to improve public health and reduce malnutrition. The 114 mills across the country will absorb both the cost of additional equipment and the estimated 3-million-dollar annual cost of enriching the flour.
AVOCADO CONGRESS
The IV World Avocado Congress is to be held in the state of Michoacán from October 17 to 22. Avocado growing in Mexico is heavily concentrated in that state, particularly in the vicinity of the city of Uruapan, the self-styled "World Avocado Capital". More than 500 avocado growers from all over the world are expected to attend the conference, which will help showcase Michoacán’s extensive tropical produce-growing sector including such diverse crops as mangos, blackberries and macadamia nuts. Exports of Hass avocados to the U.S. were resumed last year after an 83-year break. This winter, about 10,000 metric tons of avocados are likely to cross the border. Mexican avocados are also exported to Japan and Europe.
MORE VEHICLES
Almost 1.6 million vehicles will be assembled this year in Mexico, 9.8% more than during 1998, according to the National Autoparts Association. It predicts that vehicle production will continue to grow until at least the year 2002, when it expects more than 2 million vehicles to be "Made in Mexico". The domestic market in 1999 will take around 645,000 vehicles with the remainder being exported. RELATED NEWS: Mercedes Benz de México is undertaking a 7-million-dollar expansion this year of its plants in the northern industrial city of Monterrey and Santiago Tianguistengo, near Mexico City. The majority of the new investment is destined for increasing its production of heavy trucks and urban and inter-city passenger busses, aggressively marketed by the company on a lease-purchase basis.
SHIFT IN TRADE PATTERN
Mexico had a trade deficit of 7.742 billion dollars during 1998, according to the revised figures published by the Finance Secretariat. Exports brought in 117.5 billion dollars, 6.4% more than during 1997 but imports rose to 125.242 billion dollars, 14.1% higher than 1997. Low international crude oil prices last year meant that petroleum-related exports amounted to only 7.147 billion dollars, the lowest figure since 1989 and 36.9% less than during 1997. Non-petroleum exports, mainly manufactured goods, grew 11.3% last year. Adverse weather conditions in 1998 caused the trade deficit in the agricultural sector to be substantially greater than for many years despite higher export sales of vegetables and fruit.
REDUCED FISH CATCH
Preliminary figures released by the Environment, Natural Resources and Fishing Secretariat show that fisheries production fell almost 23% and exports 60% by volume during 1998, compared to the previous year. Despite the sizable fall in volume, the value of exports was only 12.26% lower. The El Niño phenomenon has received the lion’s share of the blame for the poor catch. Some species did better than others in evading the fishermen’s nets with the El Niño-inspired temporary migration of tuna resulting in a 33% lower catch than during 1997. This was particularly unfortunate since the U.S.-imposed embargo on imports of Mexican tuna, dating back to 1991, had only just been lifted.
The balance of trade in fisheries products remained positive, to the tune of 650 million dollars, with the value of exports exceeding that of imports by about 300%. Of the 1.6 million tons in total of fisheries products caught in 1998, 85% was consumed on the domestic market and 15% exported. Despite the poor catch, the government’s seafood company, Ocean Garden, based in San Diego and overseen by the Foreign Trade Bank, did very well last year with sales up 18% and income up 8%. Ocean Garden specializes in marketing shrimp and abalone.
EXOTIC MEATS
Black-necked ostriches, indigenous to South Africa, are now being raised in several states, including Jalisco, Nayarit, Durango, Sonora, Nuevo León and Baja California Sur. The main market for ostrich meat is Japan, where demand exceeds 17 tons a week, and ostrich ranchers in Mexico will begin to supply both the Japanese and European markets starting this year. Proponents of ostrich farming foresee the creation of many indirect jobs resulting from the breeding of ostriches for meat, including the commercialization of skins, feathers and even the empty shells of ostrich eggs. Another exotic meat may soon be on consumers’ tables. The Agriculture Secretariat is studying the raising of red deer, native to Europe.
Preliminary results show that red deer are particularly adaptable to tropical pastures, grazing at low densities and reducing the risk of soil erosion. Apart from reducing the incidence of illegal hunting of the indigenous white-tailed deer for venison, the red deer’s coat is now highly prized in Australia and New Zealand for velvet.
BUSINESS VISAS BY INTERNET
Applications for business visas can now be made to the Mexican consulate in New York by Internet at http://www.quicklink.com/mexico/requisitos/visas.htm The new service, part of a program to make many of the consulate’s services accessible to computer users, is aimed initially only at those travelers residing in the consulate’s jurisdiction - the states of New York, Connecticut and New Jersey. The consulate’s web site receives more than 500,000 hits a month, though only a small proportion of these are related to business visas.
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© 1996 Operadora de Fondos Lloyd, S.A.
© 1996 Allen W. Lloyd, S.A. de C.V.