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Lloyd Mexico Economic Report - May 2000

Lloyd Mexico Economic Report - MAY 2000

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

GOOD NEWS

According to the Commerce Secretary, Herminio Blanco, Mexico should receive foreign direct investment this year totalling 12.377 billion dollars, 7% more than during 1999. The estimate is based on a central bank (Banco de México) survey of 353 leading foreign companies which operate in Mexico. Investment from European Union (E.U.) countries is expected to grow sharply after the Mexico-E.U. free trade accord comes into effect July 1.

Meanwhile, the Finance Secretariat has released figures showing that the country's dependence on foreign investment has been greatly reduced in the last five years. The nation's internal savings rate is now equivalent to 21% of GDP. And there's even more good news. At the end of March, Mexico's foreign reserves stood at 34.010 billion dollars, a new record.

ZEDILLO - MAN OF THE YEAR

The U.S.-based magazine LatinFinance has chosen President Ernesto Zedillo as its "Man of the Year". Zedillo, described by the magazine as "the maker of modern Mexico", is praised for greatly improving both political and financial order, making Mexico an example for other Latin American nations to follow. According to LatinFinance, the country is "on the road to strong economic growth, political maturity and a more equal relationship with the U.S."

MORE DEMAND FOR NATURAL GAS

In the past five years, the output of natural gas has increased by 32%, but this figure is not keeping up with increasing demand, which, according to Petroleos Mexicanos (Pemex), will grow by 9% a year over the next five years. Much of the increase in demand will be utilized by projected new power plants. Since Pemex's short-term plans call for it to increase natural gas production capacity by only 66% over the next decade, imports will presumably have to make up any short-fall in gas supply.

Estimates of total natural gas reserves range from 30 to 80 trillion cubic feet, 79% of which are "wet", or associated with oil. Pemex plans to develop "dry" gas (i.e. not associated with oil) reserves in Macuspana (Tabasco-Chiapas), Veracruz, Tampico-Misantla and the southern part of the Burgos Basin in north-east Mexico, as well as in several offshore areas. According to Pemex, 42% of natural gas is currently consumed in Pemex's own processes, such as pneumatic pumping in oil fields, while 31% goes to private industry, 22% to the power industry and the remainder to small businesses and households.

OIL EXPORTS RISE

Last month, Mexico increased crude oil exports by a modest 150,000 barrels per day (b/d). The increase mirrored OPEC's decision to authorize a 1.45-million b/d increase in the crude production of its members, a move designed to stabilize oil prices and enable continued global economic growth. In 1999, 86% of Mexico's crude exports by volume went to the U.S..

MEXICO'S NAPA VALLEY?

The Guadalupe Valley, 80 kilometers south of San Diego, is rapidly gaining fame for its fine wines. Annual festivals and regular "tasting tours", including those offered to cruise-ship passengers who disembark in nearby Ensenada, have helped the region to promote its quality vintages. The Guadalupe Valley is a surprisingly fertile pocket of land on the western side of Baja California, with the perfect combination of soil, daytime heat and cool nights for excellent grapes.

Award-winning wines from the valley's wineries, which include Monte Xanic and Chateau Camou, are now served in upscale restaurants on both sides of the border. Elsewhere in Mexico, most grapes are used for making brandy or for wine best described as mediocre in quality.

Two years ago, the oldest Guadalupe Valley vintner, Bodegas de Santo Tomas, originally established in 1888, released its first cases of Duetto, a blend of 50% Mexican and 50% northern Californian grapes. Duetto goes on sale in the U.S. retail market for the first time later this year. While wine consumption is increasing among Mexican professionals, the annual consumption of wine in the country is still less than one-third of a liter per person per year, compared with comparable figures of 60 liters a year in France, 49 liters in Argentina and about 7 liters in the U.S. and Canada. The 10th Annual Vendimia (Grape Harvest) Fiesta will be held in Ensenada August 4-15.

REMITTANCES OUTPACE TOURISM

According to the central bank, remittances sent back to Mexico by Mexicans resident in the U.S. totalled 5.906 billion dollars last year, 60% more than in 1995. This makes remittances the nation's second largest source of foreign revenue, after petroleum and well ahead of net tourist revenue (the amount spent by foreign tourists in Mexico minus the amount spent by Mexicans abroad) which reached 2.86 billion dollars in 1999. The average remittance transaction was for 287 dollars, with most transfers (66%) being made by electronic means, followed by money orders (25%), cash (8%) and checks (1%).

It may soon become easier to send money home. Grupo Financiero Bancomer, which accounts for about 11% of the market for fund transfers to Mexico, currently services clients through a network of just 30 small branches in the U.S.. By the end of 2003, an investment of 30 million dollars will have expanded this network to 180 branches, mainly in California, Texas and Illinois. In addition, Bancomer is embarking on a pilot project with Harris Bank, the U.S. branch of Canada's Bank of Montreal (which owns 16% of Bancomer), to assess the demand for full-scale regular banking services in Spanish-speaking communities in the U.S..

FIRST FACTORY-DIRECT MALL

Real estate developer Grupo Gicsa, whose previous projects include Cancun's upmarket La Isla shopping center, is working on Mexico's first full-scale factory-direct retail mall. Such malls have become very popular in the U.S., attracting 3 out of every 10 brand-name shops. Factory-direct "outlet" malls offset lower prices and profit margins by higher sales volumes. Scheduled to open in December, the new 46-million-dollar mall, called Las Plazas Outlet Lerma, is under construction on a 170,000-square- meter site located mid-way between Mexico City and Toluca. The new mall will include 2 anchor department stores, 130 brand-name shops (mainly fashion-related), six specialty restaurants and a 10-screen movie complex.

BATTLE FOR B2B MARKET

On-line business-to-business (B2B) transactions can enable many smaller companies to optimize their administration, purchasing and retailing costs. The U.S.-based Gartner Group estimates that the B2B marketplace could be worth up to 7.3 trillion dollars within three years. However, while B2B is already flourishing in the U.S., it is still a relatively novel idea in Mexico. Now, several companies have announced they are entering this burgeoning field, with more competitors likely to join them in the near future.

One B2B proponent is Miami-based Asista.com, which also has offices in Monterrey, Buenos Aires (Argentina) and Sao Paolo (Brazil). Another is the joint venture between Grupo Financiero Banamex-Accival and Commerce One Inc., and a third is a joint initiative by Grupo Financiero Banorte and Hewlett-Packard. In addition, BusinessWare International launches its own virtual market-place later this month and Mexico's multinational cement manufacturer, Cemex, has announced an investment of 50 million dollars in PuntoCom Holdings.

Yet another newcomer, eAmigo.com, is focussing on the wholesale exporting of Made-in-Mexico goods to North America through on- line auctions, trade malls and industry exchanges. These developments should be of particular benefit to Mexico's small-scale businesses, including those that produce high-quality handicrafts in leather, textiles, silver and ceramics.

TOURISM TRADE FAIR

The 25th annual tourism "tianguis" in Acapulco last month was its usual huge success. About 1,300 buyers concluded deals worth an estimated 1.6 billion dollars with 350 exhibitors during the event. It's hard to imagine a more appropriate location for this trade fair, given that the first American Express (Amex) office outside the U.S. was opened in this port city as long ago as 1852, only two years after the company was founded by Messrs. Wells, Fargo and Butterfield. Amex remains the country's leading travel agency, with sales about 12 times higher than Carlson Wagonlit, its nearest rival.

CAMINO REAL HAS NEW OWNERS

Last month, the Bank Deposits Protection Institute (IPAB) completed the auction of the first package of hotels belonging to the luxury Camino Real chain, formerly owned by Banco Union. The winning bid of 252 million dollars, for Camino Real hotels in Mexico City, Cancun, Guadalajara, Puerto Vallarta, Acapulco and El Paso, Texas, was submitted by hospital operator Grupo Empresarial Angeles.

IPAB also announced that Texas-based Landmark Organization won the bidding for the Hotel Las Hadas marina and golf course in Manzanillo, with its offer of 15 million dollars. A second Camino Real package, consisting of hotels in Tuxtla Gutierrez and Mazatlan, and a majority stake in a hotel in Villahermosa, is scheduled to be auctioned off later this month.

PROPOSAL TO RETAIN COFFEE

Mexico, Colombia, and several other coffee-growing countries are attempting to agree on a common position with respect to Brazil's proposal to reduce world coffee supply and boost depressed international coffee prices. The price of coffee has fallen about 40% over the past three years. Brazil, which is responsible for about one-third of all coffee exports, has asked the 14-member Association of Coffee Producing Nations to retain up to 7 million 60-kilogram sacks from this season's harvest. A united Latin American coffee bloc would control more than half the world's coffee.

Growers in Mexico, which despite being the world's fifth biggest coffee producer is not a member of the Association, have traditionally supported limiting the flow of coffee to world markets but have been opposed to achieving this through retention. Alfredo Moises, president of the Mexican Coffee Producers Confederation, says that retention would be costly for his members and might be open to abuse. The Confederation expects that the 1999/2000 harvest will yield between 5 and 5.2 million sacks.

However, the Mexican Coffee Council is predicting a record harvest of over 6 million sacks. Last season, severe drought reduced the harvest to 4.8 million sacks, of which 4.1 million were exported.

NON-POLLUTING BUSES

Scania, the Swedish manufacturer of passenger buses and commercial vehicles, is optimistic that its ethanol-fueled OmniCity buses will be chosen to replace Mexico City's aging bus fleet. City authorities have announced a 10-year plan to replace 12,000 public transport buses and Scania has provided two passenger buses for five-month road trials to prove their suitability. Emissions from vehicles using ethanol do not contain carbon dioxide, one of the main "greenhouse gases" blamed for global warming. Scania is assembling OmniCity buses in its plant in San Luis Potosí and hopes to market 1,000 a year in Mexico.

SUPERMARKET SALES

The National Association of Supermarkets and Department Stores (Antad), which groups 100 retail chains, has released figures showing that total retail sales have been rising steadily this year. One of the chains doing particularly well is Walmart, which is having its best year since 1994. Its "same-store" February sales were 8.6% higher than a year earlier. Lower inflation is credited with boosting sales as store managers are better able to predict future prices. Consumer prices rose by 2.81% during the first quarter, well in line with the official goal of 10% inflation over the year.

Commercial Mexicana, Grupo Gigante and Soriana are also doing well. Soriana plans to add 11 new stores to its chain this year. One interesting development in northern Mexico is the success of San Antonio-based H.E. Butt Grocery Company which has opened 8 stores in border cities. Two more stores, in Reynosa and Nuevo Laredo, will be opening this summer. The strength of the peso has made prices for its line of "no-name" products so competitive that they now account for 20% of its total sales.

© 2000 Allen W. Lloyd, S.A. de C.V.

Published or Updated on: July 20, 2006
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