Lloyd Mexico Economic Report - February 2000
FEBRUARY, 2000
With permission from Lloyd S.A. de C.V.
See their Page on Mexico Connect.
CONTENTS:
- REGIONAL DEVELOPMENT PLAN
- NEW BONDS
- TUNA PROSPECTS
- MEXICO CITY HOTEL
- MONTERREY BEST FOR BUSINESS
- TELEVISA REDUCING DEBT
- LARGE SCREENS FOR TVS
- COMPETITION AMONG CEMENT PRODUCERS
- CARSO'S RETAILING EXPANSION
- TRUCKING DISPUTE TO ARBITRATION
- VEHICLE MANUFACTURING RECORD
- DECLINING FERTILITY
- TEQUILA PRICE RISES
REGIONAL DEVELOPMENT PLAN
Over the past twenty years, an ever-increasing proportion of Mexico's economic activity has become concentrated in either the Mexico City region or in the northern border states, leaving the development of the center-west region lagging behind. Now, the authorities in nine politically-diverse center-west states (Aguascalientes, Guanajuato, Jalisco, Querétaro, Nayarit, Zacatecas, Colima, Michoacán and San Luis Potosí) have banded together in a concerted effort to present a joint long-term development plan.
Together, the nine states cover 350,000 square kilometers and are home to 21.3 million people, whose average income is 20% lower than the national average. The new plan, expected to focus on how the region can capitalize on its favorable position on the Pacific Rim, is a landmark development in Mexican regional planning and should be completed later this year. State officials hope that its key proposals will become part of the next federal administration's National Development Plan.
NEW BONDS
The Bank Savings Protection Institute (IPAB) has announced that, beginning next month, it will begin issuing between 100 and 200 million dollars worth of bonds weekly. Interest paid on the 3-year notes will be based on the Finance Secretariat's Treasury Certificates (Cetes).
TUNA PROSPECTS
The tuna catch was 15% higher in volume during 1999, as a result of the La Niña meteorological event but is expected to fall back this year. With 71 vessels, the nation's tuna fleet is Latin America's largest. Preliminary figures show that the 1999 catch was 150,000 tons, but tuna exporters have struggled to overcome market restrictions in the U.S. and have been hit by the weakness of the major Asian economies. As a result, 135,000 tons of the catch went to the domestic market, with the remainder going to Japan and Europe. Even though a nine-year U.S. embargo against tuna caught by boats from five Latin American nations (Mexico, Costa Rica, Panama, Colombia and Venezuela) was finally lifted last April, it took a further eight months before the regulations for resuming tuna imports to the US were finalized.
Starting this month, tuna exporters certified by the U.S. Trade Department as being in compliance with the International Dolphin Protection Program (and labelled "Dolphin-Safe") will be resumed. The U.S. is the largest export market for tuna and Mexico's National Fishing Chamber expects exports to the U.S. to reach 15,000 tons this year. The U.S. market, which consumes 600,000 tons of tuna a year, is dominated by multinationals like Bumble Bee, Starkist and Chicken of the Sea. Mexican exporters hope to gain a foothold in the niche market among Mexican migrants by focussing their first exports on California, Texas and Illinois.
MEXICO CITY HOTEL PROJECT
The new 365-room Sheraton Historical District Hotel & Convention Center is under construction on Avenida Juarez in downtown Mexico City. The 20-story building, expected to cost around 54 million dollars, is scheduled to open in the summer of 2001. The new project is a joint venture between Grupo Excell's real estate division, Grupo Dahnos (design and construction) and Sheraton Hotels & Resorts. The hotel will provide 64,600 square feet (6,000 square meters) of convention and meeting space, and will use a system of hydraulic pillars, extending 110 feet (35 meters) below street level, to ensure it is earthquake-proof.
City authorities are optimistic that the project will act as a catalyst for further revitalization of the downtown area. Mexico's hotel capacity nationwide is expected to increase by about 10,000 rooms, a similar number to last year's increase, when 20% of all the additional rooms built were located in the resort city of Cancún.
RELATED NEWS
The Camino Real luxury hotel chain is being auctioned off by IPAB. The chain's assets have been divided into several different packages, the first of which includes Camino Real hotels in Cancún, Guadalajara, Puerto Vallarta, Acapulco, and El Paso, Texas. The second package comprises the Las Hadas hotel in Manzanillo, complete with golf course and marina. Subsequent sales will feature hotels in Mazatlan and Villahermosa, as well as real estate in Cancún, Cozumel and Manzanillo.
MONTERREY BEST FOR BUSINESS
Monterrey is the most important city in Latin America for business, according to a poll recently published in Fortune magazine. Mexico City came second in the poll, followed by Buenos Aires (Argentina), Santiago (Chile) and San José (Costa Rica). The Fortune poll found that Monterrey was an excellent starting place for any company wishing to extend its operations further into Latin America. Why did Monterrey beat out Mexico City? The main reasons cited were the city's lack of congestion, its superior transportation system, and the high level of education found throughout its labor force.
TELEVISA REDUCING DEBT
As part of a debt-reduction program, Grupo Televicentro plans to raise about 950 million dollars by selling a stake in Grupo Televisa, the world's largest Spanish-language media group. Televicentro, which holds a controlling 43% in Televisa, intends to sell 13.92 million American Depositary Receipts, representing 9.1% of Televisa's stock. Most of the proceeds from the secondary share sale, to be managed by Merrill Lynch & Co., will be used to repay loans from commercial banks.
RELATED NEWS
Following months of speculation about its Internet intentions, Televisa has announced it will launch its own independent 80-million-dollar Web portal in July this year.
LARGE SCREENS FOR TVS
Thomson Multimedia has announced that its Mexican subsidiary, Thomson Displays Mexicana, is opening a new factory in Mexicali to manufacture large screen color TV picture tubes. The 200- million-dollar plant, for screens in excess of 31 inches, is expected to begin operations in 2001 and will have an eventual capacity of 4,000 units a day. The screens will be marketed to several different assembly plants in North America. Thomson, which also has plants in Ciudad Juárez, Torreón and Mexico City, is a world leader in big screen production, accounting for about 21% of the total market.
COMPETITION AMONG CEMENT PRODUCERS
Competition among cement producers in Mexico is not likely to slow down this year. The largest producer, supplying 55% of the domestic market, is Cemex (Cementos Mexicanos), the world's third largest cement-maker. In recent years, Cemex has expanded by aggressive acquisitions overseas. The second largest domestic supplier is Apasco (25% of the market), a subsidiary of the world's largest cement company, Switzerland's Holderbank. Apasco has also diversified its market by acquiring cement-makers in Honduras and El Salvador.
Apasco produced 8.9 million tons of cement in 1999 and is investing 40 million dollars this year in modernization and expansion. Various smaller cement producers, including Cooperativa Cruz Azul, Cementos Chihuahua, Cementos Portland Blanco and Cementos Moctezuma, also share the domestic market. Now, Cementos Portland Blanco has been bought by France's Lafarge, the world's second largest cement-maker. The acquisition, for about 32 million dollars, gives Lafarge its first foothold in Mexico. The domestic market is expected to grow strongly this year, with industry analysts estimating that cement demand could reach 29 million metric tons in 2000, up from 26.7 million in 1999.
CARSO'S RETAILING EXPANSION
Grupo Sanborns, one of the retailing subsidiaries of Grupo Carso, is investing 45 million dollars a year over the next five years to expand its sales floor area. Some existing Sanborns stores will be remodelled and an average of 8 new stores will be added each year to the 104 currently in the chain. Even with remodelling, same-store sales at Sanborns are expected to grow only 2.8% over the year, considerably less than the anticipated retail sector average of 4%. Another Carso subsidiary, Sears de México, is continuing to remodel many of its stores and plans to expand its chain of 42 by one or two new stores a year. Recently-remodelled Sears stores have performed well, registering a 40% increase in sales within three months of remodelling. Besides Sanborns and Sears, Grupo Carso also owns Mixup, Discolandia and El Globo.
TRUCKING DISPUTE TO ARBITRATION
Under the NAFTA accord, the U.S. should have opened its borders last month to Mexican trucks carrying international cargo. However, the Department of Transportation has announced that Mexican trucks will not be allowed to cross into the U.S. unless they are in compliance with U.S. safety regulations. A NAFTA arbitration panel has now been established to try to resolve the issue.
Whatever the outcome, Mexican companies will find it difficult to compete with their U.S. counterparts, since Mexico's truck fleet has an average age of about 15 years, compared with a U.S. figure of 5 years. The U.S. fleet is also much larger, with an estimated 1.8 million vehicles, compared to about 100,000 in Mexico. Mexican truckers estimate it will take them at least a decade to upgrade their fleets. Even so, they want their vehicles to be allowed to operate north of the border without hindrance as soon as possible, as do the owners of passenger transport vehicles (long-distance and tourist buses), whose vehicles easily meet U.S. safety and comfort norms.
VEHICLE MANUFACTURING RECORD
Figures released by the Mexican Automotive Industry Association show that 1999 was a record year for vehicle manufacturers. Domestic sales of all vehicles reached 708,316, 5.6% more than a year earlier. Of the total, about 26,000 were heavy vehicles, tractors and buses. Exports also broke all previous records, reaching 1,075,215 vehicles. In total, 1,476,639 vehicles were produced in Mexico last year, 3.4% more than during 1998.
DECLINING FERTILITY
The results of the XII General Population Census, to be carried out later this month, will no doubt reflect the fact that the fertility rate (average number of children born per woman of childbearing age) has fallen from 7.2 to just 2.5 in little more than a generation. It is worth noting that if the rate had remained unchanged, the national population would have ballooned to 142.5 million people, 45% more than its actual figure of about 99 million. Assisting and monitoring the change was the National Population Council (NPC), formed in 1974 to encourage family planning.
The NPC says this year marks the start of a 30-year period in which more Mexicans will be contributing to the economy than will be receiving education or relying on social security services. The NPC believes that the slower rate of growth of the population must be accompanied by a better distribution of services and resources if some areas are not to be further marginalized. This is partly because 70% of all urban dwellers live in one of just 24 large cities. The infrastructure of medium-sized cities (like Toluca, Aguascalientes, San Luis Potosí and Querétaro) needs improving to attract future migrants.
TEQUILA PRICE RISES
The long campaign which culminated in Mexico's national drink, tequila, being awarded "denomination of origin" status worldwide a few years ago, has paid off handsomely for producers. Prior to the campaign, tequila was strictly for the low-income masses. Now, after shrewd marketing, many brands have positioned themselves alongside fine cognacs and whiskeys. The number of brands has proliferated from less than 20 a decade ago to more than 250 today. The more expensive are presented in hand-blown, artist-designed bottles.
Industry experts say that retail prices of tequila have doubled since 1996 and that last year the popularity of tequila caused a 20% drop in the combined sales of all other spirits in Mexico. The annual production of tequila reached almost 40 million liters last year, of which almost one-third was for export. Even though this boom for producers may not last for ever, tequila may continue to become more expensive. Genuine tequila is made from blue agave, a plant that requires 6 years to reach maturity. There are already some indications that existing plantings of blue agave will soon prove insufficient to maintain the rapid increase in tequila production.
© 1999 Operadora de Fondos Lloyd, S.A.
© 1999 Allen W. Lloyd, S.A. de C.V.