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Lloyd Mexico Economic Report August 2005

Table of Contents

Stock market record
More competitive mortgages
Consumer price index falls
Aging population
Pemex upgrades
Delayed rainy season
Natural gas pipeline
Refrigerator plant
More credit card terminals
National insurance registry
Consumer preferences
Bulk tequila exports
Ostrich meat
Ice cream chain

Stock market record

The Mexican Stock Market reached a record high in early July, when the market's main index, the IPC (Índice de Precios y Cotizaciones), passed the 14,000 point barrier for the first time. The excellent performance underlies the strength of Mexico's leading corporations and the solidity of the economy.


More competitive mortgages

Santander Serfin's latest product is likely to initiate another round of lower rates in the domestic mortgage market. The new product, known as SuperCasa, carries an interest rate of 9.72%, assuming payments are made on time. The client makes 11 monthly payments each year, with the bank covering the twelfth.

After 3 years, the client receives an amount equivalent to six months of payments which can either be put towards the mortgage, or used for other purposes such as education or medical expenses.


Consumer price index falls

The consumer price index (Índice Nacional de Precios al Consumidor) fell 0.10% in June, compared with the previous month, according to the central bank, Banco de México. The drop, due to the seasonal fall in price of produce such as tomatoes and chiles, brought the accumulated inflation over the first half of the year to just 0.80%, well in line with official targets. The comparable figure for 2004 was 1.63%.


Aging population

A recent report from the National Population Council (NPC) says that the nation's population will rise by 1.02% to 107 million during 2005. The NPC report estimates that population growth will slow to 0.59% a year by 2030, and the population will begin to decline around 2050.

Life expectancy at birth is currently around 73 years for males and 77.9 for females.

By 2050, Mexico will have to confront all the problems of a rapidly aging population. If present trends continue, more than 36% of the total population in 2050 will be of retirement age, placing a serious strain on health services and pension systems.


Pemex upgrades

Pemex is investing 12 billion dollars over the next three years in infrastructure maintenance to prevent potential problems and reduce pollution. The firm has experienced a series of accidents, some serious, in the main oil-producing areas of Tabasco and Veracruz over the past twelve months.

In related news, Pemex hopes that several foreign firms, including Nova Chemicals, IDESA and Indelpro, will invest in upgrades at two petrochemical complexes: La Cangrejera and Morelos.

According to Fortune magazine, Pemex's 2004 revenues of 63.691 billion dollars make it the 51st largest firm in the world, and the largest in Latin America. Its production of crude averaged 1.87 million barrels a day in 2004.


Delayed rainy season

This year's start to the rainy season came too late for some farmers, and brought severe flooding for others. The National Water Commission reports that the nation's reservoirs stored, on average, 75% of their capacity in mid-July, though this figure disguises shortages in some northern states.

Erratic rainfall patterns have become more frequent in recent decades, leading some researchers to speculate that they are linked to the effects of global warming, and that the economic costs of coping with uncertain rainfall will only increase over the next twenty to thirty years.


Natural gas pipeline

The construction of a pipeline for natural gas between Manzanillo and Guadalajara will act as a catalyst for further industrial development, according to Silverio Cavazos Ceballos, the governor of the state of Colima.

Manzanillo has been chosen as the site for a gas terminal where liquefied natural gas, imported by ocean-going tanker from Australia, is stored and re-converted to its gaseous state for distribution inland. The new source of natural gas will help to lower prices for the fuel in the Guadalajara region.


Refrigerator plant

The Swedish firm Electrolux has opened a 100-million-dollar refrigerator manufacturing plant in Ciudad Juárez, Chihuahua. Electrolux (2004 sales: 16.5 billion dollars; main brands: Electrolux, Frigidaire, Eureka, Zanussi, AEG and Husqvarna) is the world's largest manufacturer of domestic appliances.

The new plant will employ up to 3,000 workers and produce up to a million refrigerators a year. The facility is an integral part of the firm's decision to improve its global competitiveness by relocating manufacturing plants currently located in Western Europe and North America to Asia, Eastern Europe and Mexico.

The Ciudad Juárez factory will make annual purchases worth 60 million dollars from 200 local suppliers. An Electrolux official said that the plant is a symbol of the group's confidence in Mexico's economy, its workforce and its leadership in the Americas.


More credit card terminals

The major banks have agreed to invest 290 million dollars between them in order to increase the number of point-of-sale terminals, where credit and debit cards can be used, by 300,000 over the next three years. The program will provide card-readers free of charge to selected businesses, such as pharmacies, which will subsequently be charged a small commission on sales.

The rate of commission varies with the kind of business. For example, service stations will pay 1% on sales of gas and diesel.


National insurance registry

Condusef, which protects the rights of users of financial services, is working with other government agencies to develop a National Register of Insured Persons. This would make it much simpler for family members to check if a deceased relative held any valid insurance policy at the time of their death.

In the first phase, the database will contain the details of only life insurance policies, but sickness and invalidity policies would be added later. Eventually, the beneficiaries of banking and investment accounts would also be added to the register.


Consumer preferences

Is it true that most consumers prefer foreign-made items to their domestic equivalents?

Not according to a study carried out by Marketing Trends which found that 55% of adult females and 47% of males thought Mexican products were superior to foreign alternatives. Younger consumers viewed Made in Mexico items even more favorably: 72% of those aged 13 to 18 thought domestically-produced items were superior.

However, these figures mask the fact that an increasing number of apparently Mexican brands of food, clothing and household items are actually now owned by multinationals headquartered outside the country. Hence, determining which brands are truly Mexican has become almost impossibly difficult for the average consumer.


Bulk tequila exports

The Economy Secretariat has announced that it has agreed a memorandum of understanding with the U.S. and Canada to guarantee the quality and authenticity of bulk tequila exports which are bottled outside Mexico. The agreement should help to prevent the marketing of falsely labeled products, including those which violate tequila's denomination of origin status.

The Tequila Regulatory Council says that tequila production this year will reach a new record of 210 million liters, about 80% of which will be exported. About 32% of exports are bottled in Mexico, and 68% are bulk exports for bottling elsewhere.

The main markets for tequila are the U.S. (73% of exports), followed by the European Community (17%), Canada (7%), Asia and Latin America.


Ostrich meat

There are 800 registered ostrich farmers in Mexico, located in 14 states, ranging from Baja California, Nuevo León, Tamaulipas, Sonora, Chihuahua and San Luis Potosí in the north of the country, to Chiapas and Oaxaca in the south.

An adult ostrich weighs 120 to 130 kilograms, and yields 30 kilos of meat. The Mexican Council for Ostrich Meat, reports that its members produce 2 metric tons of ostrich meat a month, and that the meat is gaining wider acceptance in homes and restaurants. Supermarket sales account for around 65% of total sales.

Ostrich meat is a protein-rich red meat, similar in texture to beef, but very low in fat and cholesterol. Commercial by-products of ostrich farming include ostrich oil (used in soaps, creams and lotions) and ostrich leather.


Ice cream chain

Grupo Axo owns the franchise rights in several parts of Mexico for the U.S.-based ice-cream chain, Ben & Jerry's, and is opening 20 branches in the Mexico City region. Axo is reportedly investing 1.4 million dollars in the first phase of expansion, and also plans to open a Ben & Jerry's in Cancún before the end of this year.

The prospects for sales of premium brand ice-cream may be excellent in coming years as Mexico's economy continues to grow, since the average annual consumption of ice-cream nationwide is currently 1.5 liters a person, compared to 28 liters in the U.S.

 




The text of this report was not submitted to any Federal Mexican Authorities or approved by them prior to publication. In preparing it, we have done our own research, using sources we believe to be reliable. However, we do not guarantee its accuracy. Neither the information contained herein nor the opinions expressed, constitute a solicitation by us of the purchase of any security.

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

2005 Operadora de Fondos Lloyd, S.A.
© 2005 Allen W. Lloyd, S.A. de C.V.

Published or Updated on: July 20, 2006
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