Business  |  See all articles tagged finance-economics finance-personal

Lloyd Mexico Economic Report - July 2000



At press time, the two leading candidates in the July 2 presidential elections are still running neck-and-neck in opinion polls. Results will be reported in next month's issue of Mexican Economic Report. Despite televised debates and massive advertising campaigns, neither Vicente Fox (running for the Partido Acción Nacional, PAN) nor Fernando Labastida (the Partido Revolucionario Institucional, PRI, candidate) has managed to become the clear favorite. PRI is the world's longest ruling party, having held the presidency continuously for over 70 years.


In that time, Mexico has grown to become the world's 11th largest economy, the 5th largest exporter and the fifth largest petroleum producer. Its highway network of 328,000 kilometers is the world's twelfth largest. Its number of commercial airports (47) places it fifth. The population has grown from 16.5 million people to close to 100 million. In 1930, 70% of Mexicans were illiterate; today 97% of children attend primary school. While life expectancy at birth was 37 years back in 1930, it is now 75 years and whereas only 20% of homes had electricity and running water then, 90% do now. Despite the progress, 44.2% of all workers currently earn less than 76 pesos a day, a figure which represents twice the minimum wage.


Mexico's Commerce Secretary, Herminio Blanco, is confident that a joint Mexico-U.S. panel will soon rule that Mexican freight trucks and passenger buses will be allowed to travel throughout the United States, according to the government news agency, Notimex. As part of the North American Free Trade Agreement (NAFTA), the trucks were to be permitted to do so beginning last January 1, but U.S. authorities have blocked full trans-border truck movement, citing safety concerns. At present, cross-border trucks can only operate within a narrow belt straddling the border.


Analysts believe that second quarter growth in Gross Domestic Product (GDP) will be likely to exceed 6%, with fixed investments up 11%, and wholesale activity up 5%. Meanwhile, revised figures from the Finance Secretariat show that industrial production rose 7.8% for the first four months of the year, with manufacturing up 8.3% and the construction industry up 7.0%. Consumer prices have also been rising, but at their lowest rate for many years. Central bank (Banxico) figures reveal that the consumer price index (INPC) rose only 0.37% in May, the lowest monthly increase for 28 years. The accumulated inflation for the first five months of the year is 3.78%.


The winning bid of 91 million dollars for the fifty-year concession to operate 13 airports, including Monterrey, the industrial hub of northern Mexico, and Acapulco, the Pacific Coast resort, was made by a consortium led by Mexico's largest construction firm, Empresas ICA. ICA's partners in the winning bid included two French companies: Aéroports de Paris and Société Générale d'Entreprises. The other airports in the group are three Pacific coast cities (Mazatlán, Zihuatanejo and Culiacán), four northern cities (Ciudad Juárez, Reynosa, Torreón and Chihuahua), three central highland cities (Zacatecas, San Luis Potosí and Durango) and a port city on the Gulf coast (Tampico). Between them, the airports handle about 10 million passenger-movements a year.

The consortium led by ICA will invest 62.3 million dollars over the next five years in upgrades and expansions. ICA is also interested in bidding for the rights to operate Mexico City's international airport, which handled more than 20 million passengers last year. The winner of that concession will be responsible for the construction of a second major Mexico City airport, likely to cost around 1 billion dollars, and needed to cope with growing demand. No final decision has yet been taken on the new airport's location.

RELATED NEWS Domestic airfares will be raised 2 to 3% this month, to reflect higher airport fees being charged to airlines, with a further hike likely later in the year.


Grupo Financiero Bancomer is to merge with Spanish bank Banco Bilbao Vizcaya (BBVA). The friendly merger will bring Bancomer fresh resources of about 2.5 billion dollars, including 1.4 billion dollars in cash and 450 million dollars in capital securities, which will enable the bank to meet the stricter capitalization rules due to apply in the year 2003. Bancomer shareholders will hold 67.8% of the shares, and BBVA shareholders the remainder. The merged bank, to be known as BBVA-Bancomer, will have total assets of about 32 billion dollars, with a credit portfolio of 23 billion dollars and a client base of 9 million, making it the largest in Mexico and one of the largest in Latin America. Its 30% share of total domestic deposits places it well ahead of Banamex (19%) and Serfin-Santander (16%). BBVA-Bancomer will be looking to expand into Central America and will also target the Hispanic market in the U.S..


An Associated Press report quotes a top executive of DaimlerChrysler México as saying that the company plans to invest 2 billion dollars over the next five years in expanding its Mexican plants. The company expects to build 450,000 cars, trucks and buses this year, almost 90% of them destined for export. The figure is almost twice the number of units built by the company during 1994, when the North American Free Trade Agreement first took effect. According to the report, DaimlerChrysler's expansion has been helped by recent upgrades in the nation's railroad system and improved port facilities. Nationwide, car and truck production rose to 1.4 million vehicles last year; it is expected to top the 2 million mark in 2005.


Most of the 210 million pairs of shoes manufactured in Mexico during 1999 came from factories in one of two states: Jalisco and Guanajuato. The shoe industry comprises 6,000 factories and workshops, which provide employment for 140,000 workers. The majority of production is focussed on the domestic market, where low-price shoes are the ones most in demand. Currently, about 11 million pairs of shoes a year are imported from China, but this figure may be about to grow.

Manufacturers' representatives are concerned that China's entry into the World Trade Organization (WTO) might unleash a flood of cheap Chinese shoes into Mexico. During the 1990s, Chinese shoe imports reached 50 million pairs a year prior to the Mexican government's imposition of a compensatory 35% tariff which will remain in effect until 2002. While domestic manufacturers want the tariff extended, Shen Yunao, the Chinese Ambassador to Mexico, has suggested that trade between the two nations would benefit from a mutual free trade agreement.


After two years of negotiations, Mexico and the U.S. have agreed on the precise location of their bilateral maritime border in the Gulf of Mexico. At issue were the rights to still-to-be-proven oil reserves that are likely to straddle the border. There is a high probability that the region, known in Mexico as the Polígono Occidental and in the U.S. as the Western Gap, contains oil, but Luis Tellez, the federal Energy Secretary, says that state-owned Petroleos Mexicanos (Pemex) will not exploit the area, which will require deep-drilling techniques, while it is more profitable to exploit existing shallower-water fields. The agreement gives Mexico the rights to 62% of the 17,190 square kilometer area.


Vitro, the Monterrey-based glass manufacturer, is investing 40 million dollars this year in expanding its production of automotive glass. This figure does not include the company's acquisition of U.S.-based Harding Glass, announced earlier this year. Vitro expects sales of auto glass to be 12-13% higher this year than in 1999.


Cemex, the world's third largest cement manufacturer, is still aggressively pursuing its policy of buying up smaller manufacturers worldwide, scouring the globe for possible new acquisitions. The firm is reportedly about to make an offer for Portuguese cement maker, Cimpor-Cimentos. Cimpor has a capacity of 18.5 million metric tons of cement a year, including 5.8 million in Brazil, a market Cemex is particularly anxious to break into. Cemex also intends to boost its share (currently 26%) in Indonesian firm PT Semen Gresik, as well as make a 100- million-dollar bid for 25% of Indian cement firm Jaiprakash Industries.


The nation's second largest movie-house operator, Cinemex, is expanding by purchasing five movie complexes (62 screens in total), which formerly belonged to General Cinema. Cinemex (1999 sales: 75 million dollars) will now have 324 screens in 29 movie complexes. It will no longer be exclusively focussed on the Mexico City metropolitan area, but also have a foothold in Guadalajara, León, Aguascalientes and Cuernavaca. The company's principal shareholders are the Australian company, Hoyts Cinemas (29%), JP Morgan (21%) and Chicago-based JMB (15%). The largest cinema operator in Mexico is Organización Ramírez, which has three chains: Gemelos, Multicinemas and Cinépolis, which together account for 35% of the market. The third main player in the movie market is Cinemark, which accounts for 15% of the market. Going to the movies is still much less expensive in Mexico than in most countries. Here, the average cost is about 2 dollars, compared with 3.5 dollars in Brazil, 6.2 in the U.K., and 9 in the U.S..


A recent article in LatinFinance highlights the progress made by mutual funds in Mexico. After the first fund was introduced in 1956, the industry grew only slowly until the mid 1980s. Since that date, ever tighter regulations, including mandatory ratings for credit quality and market risk, have ensured that more and more investors entrust their savings to mutual funds. The industry is highly concentrated with funds managed by major banks accounting for close to 90% of all assets, which currently total around 20 billion dollars. But independent mutual fund management companies are creating their own niche markets, based on superior service, efficiency and focus.

The leading independent firm continues to be Lloyd, which looks after more accounts, and has attracted more foreign investment, than any other mutual fund provider, even including the major banks.


Grupo Frisa has unveiled an ambitious 1.3-billion-dollar plan to develop a 715,000-square-meter zone in Tlalpan, in the south of Mexico City. The project would include a commercial and shopping zone as well as corporate offices and 1,800 homes. Half the area would be retained as green space, and several artificial lakes would be used to hold all rainwater. Estimated to require 12 years for completion, the construction phase would provide over 130,000 jobs.


Pollution in the San Diego-Tijuana area is likely to be reduced significantly in three years time when a natural gas pipeline is completed between El Paso, Texas, and Rosarito, Baja California. The pipeline will enable the thermoelectric power-generating plant near Rosarito to burn more natural gas, reducing emissions in the border zone. The pipeline is being built by a joint venture of U.S.-based Sempra Pacific Gas and Electric Corporation and Mexico-based Grupo Proxima. With an estimated cost of 230 million dollars, the 341-kilometer-long pipeline will have a capacity of 400 million cubic feet of gas a day.


Grupo Televisa, the world's largest Spanish-language media group, has launched its own web portal, The portal provides a range of services including news, music, concert and entertainment information. Televisa is betting that the number of Internet users in Mexico and Latin America will continue to grow faster than in any other region in the world.

Mirrored with permission from Lloyd S.A. de C.V.
See their Page on Mexico Connect.

© 2000 Operadora de Fondos Lloyd, S.A.
© 2000 Allen W. Lloyd, S.A. de C.V.

Published or Updated on: July 20, 2006
All Tags