Lloyd Mexico Economic Report - May 2001
Table of Contents
TRANSPARENCY FOR CAPITALRELATED NEWS
CAREERS OF THE PAST
FACTORY FOR AEROSPACE PARTS
MEGA-BYPASS FOR GUADALAJARA?
INCREASED BBVA PARTICIPATION
COMMERCIAL CENTERS IN U.S.
FREE TRADE FROM ALASKA TO ARGENTINA?
GOODYEAR CLOSING MEXICO PLANT
HIGH TECH WINTER PRODUCE
POWER BILLS AND SUBSIDIES
TAX REFORM BILL
INFLATION SUCCESS
GIANT CHEMICAL PROJECT IN ALTAMIRA
TRANSPARENCY FOR CAPITAL
The international consultancy, Price, Waterhouse, Coopers, is developing a worldwide "Opacity Index" for capital markets. The company defines "opacity" as "the lack of clear, accurate, formal, easily discernible and widely accepted practices". The Index takes account of government policies, accounting standards, the legal system and the regulatory regime and provides a measure of "the adverse effects on the cost and availability of capital" for different countries.
Values range from 0 for "complete transparency" to 150 for "complete opacity". The first Opacity report, covering 35 countries, gives the best (lowest) score to Singapore (29), followed by the U.S. (36), Chile (36) and the U.K. (38). Mexico (48) did very well, taking 5th place, comfortably ahead of Israel (53) and numerous countries scoring 60 or more, such as Argentina, Brazil, India, Taiwan, Japan and South Africa.
Another recent survey, commissioned by FleetBoston Financial, considered the views of 125 senior executives of U.S.-based multinational corporations. More than half the executives considered Mexico to be the top choice in Latin America as a place to invest. They cited increased fiscal discipline and improved monetary stability as the main reasons for their choice.
RELATED NEWS
At the end of March, the Mexican Businessmen's Council (MBC), representing the country's most powerful business leaders, announced that its members plan to invest 8.6 billion dollars this year, about 9% more than they did last year. The MBC expects exports of goods and services from its members to bring in about 12.4 billion dollars, 10% more than last year.
CAREERS OF THE PAST
According to a report from the general coordinator of the Technological Universities division of the Education Secretariat, universities are already adjusting to the big shifts projected for the labor market towards new technology. The report's list of declining or endangered careers includes insurance and real estate agents, stock brokers, car distributors, book and magazine publishers, executive secretaries and orthodontists.
On the other hand, the report says, the future looks bright for software developers, and for emerging interdisciplinary fields like electro medical biology (combining ceramics, plastics and biotechnology), transplant technology, GM crops, electronic engineers and e-commerce. There is still a huge demand for university places in certain subjects, according to the National Association of Universities and Institutes of Higher Education. For the most popular undergraduate courses, such as law, accounting, business administration, industrial engineering and medicine, up to 8000 applicants vie for every 100 places available.
The need for more university places has attracted the attention of U.S.-based Sylvan Learning Centers, SLC. SLC recently bought the 14-campus Universidad del Valle de M éxico. The company will retain the existing administrators but invest 50 million dollars to expand the university's enrollment from 45,000 students to 80,000 over the next decade.
FACTORY FOR AEROSPACE PARTS
The U.S. firm Precision Castparts Corporation (PCC) is constructing a new plant for aerospace parts in the city of Merida, Yucatan. The 50-million-dollar facility will consist of two buildings, each with a floor space exceeding 1 million square feet. The plant will employ 10,000 workers when fully operational in five years time. PCC produces high-tech parts for commercial jets and rockets, as well as specialist precision instruments used for medical, oil and gas applications. The Merida plant will complement existing PCC plants in the U.S., Canada and Europe.
MEGA-BYPASS FOR GUADALAJARA
Francisco Ramírez Acuña, governor of the state of Jalisco, has announced his administration's plans to begin constructing a major highway bypass for the city of Guadalajara, the state capital. The bypass would enable inter-city vehicles from several states, including Colima, Nayarit, Michoacán, Zacatecas, Guanajuato and Jalisco, to completely avoid Guadalajara and its ever-increasing traffic congestion.
INCREASED BBVA PARTICIPATION
Spain's second largest bank, Banco Bilbao Vizcaya Argentaria (BBVA) is increasing its share of Bancomer stock to 49% by buying the 9% (812 million "Series O" shares) currently held by Bank of Montreal for 548 million dollars. BBVA Bancomer is the leading private banking group in Latin America, holding deposits of about 31.1 billion dollars on behalf of 8.3 million clients at the end of 2000. It has a 30.4% share of domestic deposits and a network of more than 2,000 bank branches across the country.
TRADE CENTERS IN U.S
Juan Hernández, head of the President's Office on Mexicans Abroad, has announced plans to open three trade centers - in Chicago, Dallas and New York - in a move to provide additional business opportunities in the U.S. for small and medium-scale Mexican companies. All three offices are scheduled to open before the end of the year. The program is an extension of the model adopted by President Fox, when he was Governor of Guanajuato state, for promoting that state's products in the U.S. through a network of trade offices across the country.
AMERICAS-WIDE FREE TRADE
Trade ministers from every country in the Americas except Cuba have agreed on December 31, 2005, as the deadline for establishing a free-trade area stretching from Alaska to Chile. If it comes to fruition, the area would become the world's largest free-trade area, a 13-trillion-dollar market, home to 800 million consumers. Despite the agreement over the deadline, the details of the final accord may be very difficult to finalize.
The U.S. is reluctant to end farm subsidies or change its stance on dumping, while several countries, including Brazil, prefer to exclude worker and environmental protection from the agreement. Whatever the details, stiff opposition is also likely to come from various environmental and labor groups in the region.
GOODYEAR CLOSING TIRE PLANT
Goodyear Tire & Rubber Co. has announced it is closing its tire manufacturing facility in Tultitlán in the state of Mexico, with the loss of more than 1,500 jobs. A spokesman said the decision was because the company had "been unable to reduce costs substantially." The plant opened in 1941.
Goodyear will now supply the Mexican market with imports from its plants elsewhere in Latin America and from Europe.
The falling demand for new vehicles in the U.S. has caused Delphi Automotive Systems Corp., one of Mexico's largest private sector employers with 73,000 workers, to reduce its workforce by about 7,000 over the past six months.
HIGH TECH FARM PRODUCE
A recent article in the Arizona Daily Star focuses on how Mexican farmers are now supplying an ever-higher proportion of the total market in the U.S. for fresh winter produce. Last year, according to the article, Mexico supplied more than half of the U.S. demand for cucumber, eggplant, Roma and cherry tomatoes, peppers and squash.
About 65% of the winter produce enters the U.S. through Nogales, but one significant trend in the transport of produce is that three Texas entry points - Laredo, Pharr and McAllen - are becoming more popular, as Mexican growers supply more customers further east.
Why is Mexican produce gaining so much ground in the U.S.? The Daily Star attributes the success of growers to their use of the latest technology, fewer pesticides (Mexico allows the use of less than a third of the 800 pesticides registered and permitted in the U.S.) and scrupulous sanitation practices. Tomato growers, for example, have invested heavily in every stage of the process from planting advanced seeds that double yields and triple shelf life to new state-of-the-art greenhouses to computer-assisted sorting and powerful advertising campaigns promoting their product: fashionable "vine-ripened" tomatoes.
Other growers are looking to supply smaller niche markets for unusual vegetables such as orange plum tomatoes and squared-off orange and red bell peppers.
POWER BILLS AND SUBSIDIES
The Energy Secretariat, (Secretaría de Energía, Sener) has announced that, as of July 1, electricity bills will show consumers not only the amount they owe, but also how much that amount has been subsidized. The Secretariat's objective is to make people aware of the real cost of the power they consume prior to a gradual reduction or elimination of subsidies. Energy Secretary Ernesto Martens says that the nation's power supplies are guaranteed through the year 2004 but that, since 1995, electricity rates have fallen further behind the costs of generating and distributing power, meaning that subsidies have been increasing. Last year, electricity subsidies were estimated to be worth 5.5 billion dollars.
According to Sener, domestic users pay only about 40%, and agricultural users only about 30%, of the true cost of the electricity they consume. Sener officials want the poorest consumers to be shielded from the effects of eliminating subsidies.
The Secretariat is also launching a campaign aimed at persuading all users to reduce any unnecessary "wastage" of power. In related news, the government is proposing changing laws governing the energy sector. The changes will promote competition in the power industry and provide incentives for private operators but will not allow for the privatization of any existing state-owned assets.
Incentives will also be provided for energy savings and for developing renewable energy sources.
TAX REFORM BILL
The Fox administration has submitted its tax reform bill to Congress. The bill contains several key measures aimed at strengthening the nation's financial system.
If the measures are approved by Congress and the Senate, they will improve stock market liquidity, strengthen the rights of minority shareholders and ensure greater transparency in the disclosure of company information.
Other reforms aim to promote voluntary retirement savings contributions and to make mortgages tradable instruments. The proposal most likely to generate heated discussion is the one to charge 15% value-added tax (IVA) on a variety of items that have previously been exempt, including foods, medicines, books and school tuition fees.
The additional revenue, estimated at 14 billion dollars a year, would allow the government to boost social expenditures on health, housing, highways and schools, as well as keep the economy on course to grow at an annual rate of 7% by 2006. The tax reform package edges Mexico closer to its long-sought promotion to investment grade by Standard & Poor's ratings agency.
INFLATION SUCCESS
The central bank governor, Guillermo Ortiz, says the nation is still on course to meet its inflation goal for 2001 of 6.5%. Last year, inflation was 8.6%, comfortably beating original estimates made at the end of 1999 of 9.9%. Much of the success of Mexico's anti-inflation policy has been as a result of regular "cortos" or withdrawals of money from circulation to reduce the money supply.
At last month's Mexican Bankers' Association convention in Acapulco, Ortiz said that first-quarter inflows of foreign capital reached 10 billion dollars, well on track to meet or exceed the administration's year-end goal of 20 billion dollars. Convention delegates renewed their call for the government to simplify banking regulations, saying that regulatory costs add an average of 3 percentage points to the interest rate of every loan.
At present, the financial services sector is overseen by several different regulatory agencies, including the National Banking and Securities Commission, the National Insurance Commission and the Pension Fund Commission. Bankers believe that merging all these existing bodies into a single regulatory agency would greatly reduce administrative costs while simultaneously strengthening the level of supervision.
GIANT CHEMICAL PROJECT IN ALTAMIRA
Construction is expected to get under way shortly of a massive petrochemical complex to be known as New Altamira. The project is located close to the port and petrochemical center of Altamira in the north-eastern state of Tamaulipas. Grupo Serbo, a construction firm, is spearheading the project, which includes ten petrochemical plants, a catalytic cracker for polypropylene (olefin), and a 90-megawatt power plant as well as 2,500 houses, a shopping mall and schools. The estimated cost of the entire project is 4.5 billion dollars.
Mirrored with permission from
Lloyd S.A. de C.V.
See their Page on Mexico Connect.
2001 Operadora de Fondos Lloyd, S.A.
© 2001 Allen W. Lloyd, S.A. de C.V.