Lloyd Mexico Economic Report November 2003
OPTIMISM REGARDING JOBS
A major study by Grupo IDM suggests that improved employment opportunities are on their way. About 18% of firms questioned in the southeast and north of the country will be actively seeking additional workers in the next few months. A further 60% expect to retain their existing workforce intact.
Employers are less optimistic in the Valley of Mexico, where only 5% of firms plan to hire more workers. The survey does not include the informal sector which, according to a recent Banamex study, accounts for more than 48% of all the jobs in the country.
Several insurance firms offer policies that continue to pay installments on home loans for workers who are unfortunate enough to lose their jobs. Now, Seguros Banamex has launched the nation's first insurance product covering income losses resulting from involuntary unemployment or permanent incapacity.
The product is aimed at independent professionals and employees in "permanent" positions. Monthly premiums will range from 60 to 240 pesos, with corresponding pay-outs between 1,500 and 6,000 pesos a month. The institution hopes to sell around 10,000 policies in the first year, but the potential market is huge since there are 10.6 million workers currently registered with the Social Security Institute, IMSS.
Other insurance companies are expected to follow suit with their own versions of employment insurance and the federal government is also reported to be considering the creation of an unemployment benefits program jointly funded by the state and the private sector.
One hundred years after its founding, the Sanborns chain shows no signs of old age. The popular retail and restaurant chain was founded in Mexico City in 1903 by brothers Walter and Frank Sanborn. By the 1920s, Sanborns had developed into its present form, combining casual dining with a store selling pharmaceutical products, books and gifts.
Sold to U.S.-based Walgreen in 1946, Sanborns returned to Mexican ownership in 1985 when entrepreneur Carlos Slim Helú acquired the chain, through his Grupo Carso commercial holding company. Today there are 157 Sanborns spread across the country. An investment of 50 million dollars will add eight more locations in the next year, including the cities of Culiacán and Tuxtla Gutiérrez.
Keeping up with the latest trends, Sanborns has contracted with Internet provider Prodigy to turn its retail locations into Internet "hotspots", providing free public wireless (Wi-Fi) Internet access for patrons.
Other Grupo Carso concerns, including Calinda Geneve hotels are also offering Wi-Fi service. Prodigy is reported to be negotiating to set up further "hotspots" in other restaurant chains, such as Toks, and at major airports, including Tijuana, Monterrey, Guadalajara, Los Cabos, Acapulco and Cancún.
Last year, the number of flights linking Mexico and the U.S. increased 7% compared to 2001 and this trend looks set to continue. The highest rates of increase were to/from Monterrey (17%), Cancún (16%) and Los Cabos (7%). Several airports are receiving priority treatment as Mexico gears up for the anticipated growth in air traffic.
As part of the plan to relieve congestion in Mexico City's international airport, some 200 million dollars will be pumped into Puebla airport over the next 20 years. Puebla airport is significantly underutilized and operating at less than 20% of its capacity, moving only 87,000 passengers a year. The current round of investments seeks to meet the needs of up to 500,000 passengers (64,000 flights) a year.
Further north, work has begun on a 4.5-million-dollar remodeling of Torreón's "Francisco Sarabia Tinoco" international airport.
In the south, the Southeast Airports Group (Asur), quoted on both the Mexican and New York Stock Exchanges, operates airports in Cancún, Mérida, Cozumel, Villahermosa, Oaxaca, Veracruz, Tapachula, Minatitlán and Huatulco. Asur is undertaking a 70-million-dollar facelift for Huatulco airport, on the coast of Oaxaca, that will turn it into a facility worthy of one of the nation's most up-market tourist destinations.
COFFEE PRODUCTION AND PRICES
The 2002/3 coffee harvest turned out to be better than originally forecast. Total production reached 4 million 60-kilogram sacks, worth about 300 million dollars. Continued low international coffee prices have hit producers very hard and representatives from several countries met last month in Guatemala City at a meeting sponsored by the United Nations' Common Fund for Commodities to look for possible solutions to the on-going crisis facing growers.
Among the options discussed were the creation of a regional Coffee Exchange and strategies to increase the per capita consumption of coffee. At present, the 750 grams annual per capita consumption of coffee in Mexico compares very unfavorably with the equivalent figure of 4 kilograms for Brazil. Another option considered at the meeting was a new pricing structure to give a higher "value-added" component to higher quality coffees, such as organically grown beans.
A recent World Bank report on global economic prospects says that coffee prices should strengthen next year with arabica rising 9% and robusta 5%. Even so, prices will still be near historic lows, at about 30% of their 1960 real level. The longer term outlook is brighter. The report says that arabica and robusta prices should increase by 50% and 70% respectively by 2015.
NEW EXPORT COUNCIL
Work is advancing on the formation of a National Council for Foreign Trade and Investment. The new body, first proposed in August, will improve the links between Mexican and foreign businesses, and help coordinate the efforts of both federal and state governments to attract direct foreign investments.
The Council's members will include President Vicente Fox, the Secretaries of Economy and Foreign Relations, the heads of state Economic Development Secretariats and the directors of the Business Coordination Council, the National Council for Maguiladora Exporters and Mexican Council for Foreign Trade.
CFE STOCK CERTIFICATES
Last month, several million Mexicans became shareholders in the Federal Electricity Commission (CFE). It happened when CFE placed 230 million dollars (2.6 billion pesos) in 10-year peso denominated securities on the Mexican stock exchange in its first ever direct offering.
The debt issue, which will pay interest at 85 basis points above the 5.58% rate for six-month Treasury Bills (Cetes), was rated "AAA" by ratings agencies and was heavily oversubscribed. Most of the issue was quickly snapped up by retirement fund administrators, on behalf of their clients.
Further CFE securities are scheduled to be offered before the end of the year. The CFE is the nation's second-biggest company, in terms of assets, after Petroleos Mexicanos (Pemex), operating 163 power generation plants, with a total installed capacity of more than 40,000 megawatts.
OIL OUTPUT RISING
Pemex has successfully sold 500 million dollars of six-year floating rate notes on international markets. The proceeds will be applied to crude oil and natural gas projects and refinery upgrades. Pemex has also announced plans to launch a 10-year-term peso-denominated debt program for up to 1.8 billion dollars in the near future.
In the first eight months of the year, Pemex raised its daily crude output by 5.4% to 3.35 million barrels a day, comprised of 2.39 million barrels of heavy Maya crude, 516,000 barrels of lighter Isthmus crude and 444,000 barrels of extra-light Olmec crude. Output is expected to continue to rise in coming months as the giant Cantarell oil and gas field, off the coast of Campeche, is further developed.
Other major capital expenditure projects include the billion-dollar reconfiguration of Pemex's Minatitlán refinery, which involves the construction of 11 new refining plants, creating about 7,000 jobs directly and an additional 3,000 indirectly.
Another source of revenue for Pemex, in the near future, may be the generation of electricity, in association with the CFE. It is estimated that Pemex's waste products, such as water vapor, could be used to generate up to 5,500 megawatts of power annually.
ALL TEQUILA TO BE BOTTLED AT SOURCE?
About 50% of all the tequila produced in Mexico is marketed in the U.S. where consumption has risen rapidly from 4.4 million 9-liter cases in 1991 to 7.2 million cases last year. Much of this tequila is exported in bulk and bottled at its destination. Now, the Tequila Regulatory Council is pushing for the industry to adopt a stricter code for bottling that would mandate bottling prior to export. The move is in response to claims that some tequilas have been "watered down" when bottled overseas and would also help eliminate the market in clandestine tequilas.
A "bottled at origin" denomination would guarantee the product's quality and promote investments in the region where tequila originates. It would mean that all 140 million liters produced annually would have to be bottled in one of five states: Jalisco, Nayarit, Guanajuato, Michoacán and Tamaulipas. A definitive decision by federal authorities is expected shortly.
Unfortunately, the increased costs involved, estimated at up to 40%, would almost certainly eventually be passed on to consumers in the form of higher prices.
FORD PLANT EXPANDING
Ford, the world's second largest automaker, has announced a massive expansion of its plant in Hermosillo in the state of Sonora in order to accommodate production lines for its new "Futura" mid-size sedan. The total investment involved, including platform development, is more than 1.5 billion dollars.
The plant, due to open in 2005, will have the capacity to turn out 300,000 vehicles a year, 95% of them for export. Quoting a company spokesperson, the Futura will be the "basis for up to 10 new products and 800,000 units of volume across the Ford, Lincoln and Mercury brands in the next several years". The expansion will create 2,000 permanent jobs at the plant, with a further 3,000 likely to be provided by the 19 related autoparts plants to be constructed on an adjacent industrial estate.
According to the Mexican Association of the Automotive Industry, vehicle manufacturers produced a combined total of 1.8 million units in 2002, so the Ford expansion will provide a substantial boost to the nation's vehicle manufacturing potential. Mexico is the world's tenth-largest carmaker.
The 24-billion-dollar worldwide market for organic crops is the fastest growing sector of the agricultural industry, with annual growth rates of 20% or more. Mexico is one of the world's largest producers of organic foods, yet about 90% of its organically grown crops are exported, according to an official from the Agriculture Secretariat, and the domestic market for organic produce is still in its infancy.
About 30,000 farmers use organic techniques on 120,000 hectares in the states of Chiapas, Oaxaca, Veracruz, Michoacán, Colima, Chihuahua, Sinaloa and Baja California. One incentive for farmers is that prices for organic products average 30% to 40% higher than those for their non-organic counterparts.
CEMEX SEEKS TO CEMENT ITS GROWTH
Several large corporations are taking advantage of favorable interest rates to issue securities to replace some of their existing higher-interest debt load. They include Cemex, the world's third largest cement manufacturer (quarterly sales in excess of 1.75 billion dollars), which has announced a secondary public offering of American Depositary Shares and share certificates worth up to 600 million dollars.
Even before the latest offering, Cemex's net debt load had fallen by 10% this year. In addition to a policy of debt reduction, Cemex is also seeking to boost overall production, both through internal "organic" growth and through acquisitions.
Last month, Cemex bought U.S. cement plant Dixon-Marquette, which serves the Chicago area, for 84 million dollars, increasing its installed capacity in the U.S. by 4% to 13.6 million metric tons, and bringing the firm's total installed capacity worldwide to 81 million metric tons.
Corporativo Fragua, the Guadalajara-based holding company for the drugstore chain Farmacias Guadalajara, is adding more than 30 new branches this year.
By year-end, the chain will have 306 outlets in 81 cities in 16 states. New additions to the chain include Orizaba (Veracruz), Toluca and San Mateo Atenco (both in the State of Mexico), San Luis Potosí, Puebla, Zacatecas and Veracruz.
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.
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2003 Operadora de Fondos Lloyd, S.A.
© 2003 Allen W. Lloyd, S.A. de C.V.