Mexico Economic Updates July 2006
This issue went to press just days before the July 2 federal elections. Watch this space for an updated paragraph in the middle of the month covering the basic results, together with some analysis of their implications for the economy.
Central Bank maintains benchmark rates
Banxico, the central bank, has kept its benchmark 28-day CETE interest rate steady at about 7% in the run-up to the presidential elections. The bank believes this will help to reduce any market speculation and volatility stemming from a presidential contest which, at press time, looks too close to call.
The latest opinion polls appear to show a very slender lead for PRD candidate Manual Lopez Obrador over his PAN rival Felipe Calderon who had led the race (according to many polls) for the past couple of months.
Pre-payment of debt shows economic strength
Mexico has pre-paid 7 billion dollars worth of foreign debt to the World Bank and the Interamerican Development Bank, saving an estimated 60 million dollars in interest charges.
President Fox emphasized that the decision underlined the strength of the domestic economy, even at a crucial election time.
Mexico's remaining foreign debt totals about 50 billion dollars; the nation's foreign currency reserves reached new record levels last month of 77.3 billion dollars.
Record natural gas production
Petróleos Mexicanos (Pemex) reports that production of natural gas from its Burgos field has risen to 1.34 billion cubic feet a day, 25% of the national output, also a new high, of 5.28 billion cubic feet a day. The excellent results derive from higher investments and the application of new technologies in Pemex gas fields.
The Burgos field was brought on stream in 1945 and its output was declining prior to a major re-evaluation effort and up-to-date feasibility studies in the 1990s. Ample reserves are believed to exist in the field for the next decade at least.
Teacher's strike in Oaxaca
An extended teacher's strike in the state of Oaxaca has had grave effects on the local tourist industry, according to the president of the state's Chamber of Restaurant Operators, Javier Pérez Chavarría. He claims that as many as 2,000 workers in the sector have lost their jobs as a result of lower tourist numbers. Visitors to the state capital in recent weeks have had to contend with regular protest marches and massed meetings.
The central bank, Banxico, has introduced several coins into circulation that commemorate the Federal District. They are the latest in a series of new coins in honor of the 180th anniversary of the Union of the States of Mexico.
The bimetallic 100 peso coins (silver surrounded by bronze) are designed for general circulation.
Limited edition gold and silver coins for collectors have also been released. The silver coin sells for 400 pesos, and the combined silver and gold coin for 3,500 pesos.
Railroad Merger rejected
After months of negotiation and debate, the Federal Monopolies Commission has decided to reject the proposed merger of two major railroads.
Grupo Mexico, which has copper and railroad interests, acquired Ferrosur, a firm which operates rail tracks in southern Mexico, last year, and had hoped to merge all its railway operations for maximum efficiency.
Kansas City Southern Industries, which owns the third of Mexico's major railroad networks, had complained that the merger would result in unfair competition.
More Lego in Mexico
Lego, the Danish manufacturer of every boy's favorite building blocks is slashing the workforce at its plants in the U.S. and Denmark and moving most of its production to Kladno in the Czech Republic and to Mexico. The company's restructuring will take several years to complete.
The federal Communications and Transportation Secretariat has awarded a contract to widen 93 kilometers of the 108-kilometer non-toll Querétaro-Irapuato highway to the construction company ICA. ICA had previously been awarded the concession for upgrading the Irapuato-La Piedad section of the same highway. The contract, worth around 128 million dollars, allows ICA to manage the widened highway for a 20-year period.
Numerous other highway concessions are pending, including: Necaxa Tihuatlán (State of Mexico); Tapachula Talismán (Chiapas); Nueva Italia Apatzingán (Michoacán), Río Verde Ciudad Valles (San Luis Potosí) and Zacatecas Saltillo.
2011 Pan American Games
Now that the city of Guadalajara has been awarded the 2011 Pan American Games, the city's furniture manufacturers and other businessmen are hoping for some lucrative contracts.
First out of the blocks was the Association of Furniture Manufacturers of the state of Jalisco, whose president, Jorge Arturo Torres Carlos, said that he hopes organizers will use only locally-made furniture and fittings in all the athletes' villas.
Aircraft manufacturing within 5 years?
It may only be another five years before Mexico begins to make 50- to 80-seat aircraft suitable for regional use. According to a spokesperson from the Economy Secretariat, Bombardier, the Canadian transportation manufacturers, have already expressed interest in expanding their operations in the city of Querétaro over that time frame in order to make it all possible. By the end of this year, Bombardier should be making its first fuselages in Mexico.
The Economy Secretariat also reports that several Mexican universities are involved in a plan to begin the manufacture of aircraft turbines in the city of Chihuahua.
Televisa fails to acquire Univisión
After weeks of negotiations, offers and counter-offers, Televisa has failed in its bid to acquire Los Angles-based Spanish-language broadcaster Univision.
Televisa had bid 12 billion dollars for the firm, but a rival offer from a consortium including Texas Pacific Group was accepted by Univision at the end of last month. Most analysts, who had argued that Univision was a particularly good fit with Televisa, were taken by surprise.
Lala opens new plant
Mexico's principal dairy products firm, Grupo Lala, has opened a new plant in Tecate, Baja California. The plant has the capacity to process 150,000 liters a day of locally-produced milk for distribution in the states of Baja California and Baja California Sur.
Grupo Lala has eight processing plants, 128 distribution centers and more than 3,500 sales routes serving 200,000 wholesale and retail outlets. Lala produces 4 million liters of milk a day (98% of it from dairy farms in Mexico), about 20% of the national total milk production.
Grupo Lala is investing 120 million dollars this year, as it prepares a listing on the Mexican stock exchange, and is looking to expand its operations into Central America.
Volkswagen, which employs more than 13,000 workers at its plant in Puebla, is now operating at 85% of its installed capacity. In first five months of this year, the firm produced 148,676 cars and trucks, 82% of them for export markets.
Nortel to open a Center for Excellence in Mexico
As part of its latest restructuring, Nortel, the Canadian telecommunications firm, is opening a high-tech Center for Excellence in Mexico. Nortel, which already has manufacturing and assembly operations in the country, says the decision is based on Mexico's abundant skilled labor and competitive costs.
The text of this report was not submitted to any Federal Mexican Authorities or approved by them prior to publication. It is based on sources we believe to be reliable, but its accuracy is not guaranteed.