Lloyd Mexico Economic Report August 2004
Table of Contents
Income per capitaPetroleum reserves and production
Unemployment reduced
Public phones and Internet
Joint venture to build highways
Personal credit ratings
Expanding fast food giants
Internet root nameserver
The next stages of E-México
Maquiladora update
Making ports more efficient
Investing in Tijuana
Not all oranges are orange
Power station contract
New plant for Big Cola
Tropical auto-testing track
Income per capita
President Vicente Fox said recently that Mexicans now enjoy a per capita income of 6,250 dollars a year, the highest in Latin America. The President has also pointed out that World Bank figures show that the incidence of poverty in Mexico has fallen by 16% since 2000, due to inflation control, rises in the minimum wage and poverty alleviation programs.
Poverty alleviation has been helped by a continued rise in the remittances sent home by Mexicans resident in the U.S. Remittances totaled 6.325 billion dollars in the first 5 months of this year, 25.8% higher than the same period a year ago, according to Banco de México, the nation's central bank. The value of the average remittance was 322.33 dollars.
Remittances are believed to benefit one in four households principally those in the states of Michoacán, Guanajuato, Zacatecas and Jalisco.
Petroleum reserves and production
According to Petróleos Mexicanos (Pemex), Mexico is currently the world's 8th largest producer of oil and has the world's 13th largest proven oil reserves. So far this year, oil exports have averaged 1.8 million barrels a day at an average price of 28.40 dollars a barrel (3.70 dollars a barrel higher than in 2003), resulting in a favorable trade surplus for Pemex of 7.107 billion dollars for the first five months of this year.
Total exports of crude, petroleum products, natural gas and petrochemicals brought in 8.939 million dollars, while imports were down 6.1% to 1.832 million dollars.
Mexico may have plenty of crude oil, but is still deficient in supplies of natural gas. Reserves of natural gas are known to top 28 trillion cubic feet, but a 2003 report from the U.S. Energy Department claimed that Mexico probably has natural gas reserves of around 140 trillion cubic feet.
Mexico's natural gas production is insufficient to meet growing domestic demand, and overcoming the production deficit is one of the most important challenges facing Pemex over the next decade. If Pemex is successful, exports of natural gas could become a significant revenue-earner in the future.
Unemployment reduced
At the end of the first quarter of 2004, the nation's total population was estimated at 103.7 million; almost 43 million are economically active. Figures released by the National Statistics Institute (INEGI) show that the rate of Open Unemployment (ROU) in May fell, for the third consecutive month, to 3.48% of the economically active workforce.
The trend towards more people working is also evident from the 200,000 increase in the number of workers inscribed in the Mexican Social Security Institute (IMSS) over the first five months of this year.
The fall in ROU is encouraging, but disguises the fact that there are still around 495,000 more people unemployed today than there were four years ago.
The highest ROU among large cities was registered in Saltillo (5.5%), followed by Mexico City (4.2%), Pachuca, Puebla and Querétaro (each 4.0%) and Tuxtla Gutiérrez (3.9%).
INEGI surveys show that small businesses are becoming proportionately more important as sources of employment. In May 2004, for every 1000 workers, 455 worked for firms with five or fewer employees, whereas twelve months ago, the comparable figure was 428.
Public phones and Internet
Avantel has begun offering public phone and Internet service at rates about 20% lower than telecommunications giant Telmex. The service is called Accesa Avantel and is expanding through franchises located in high traffic areas such as shopping malls, department stores and pharmacies, as well as in cybercafes.
Avantel expects to have 500 Accesa Avantel locations active within 12 months. Local calls are about 8 cents and calls to the U.S. are 40 cents a minute. Internet access is 1.60 dollars an hour. Franchises cost as little as 2,200 dollars and it is anticipated that purchasers will recuperate set-up costs within a year.
Joint venture to build highways
ICA, a major Mexican construction firm, has joined forces with Spanish infrastructure management specialists Itinere de Infraestructuras to consider making joint bids to build and manage new highways. The federal Transportation Secretariat (SCT) said last year that it intends to award as many as 9 new concessions in the next 3 years for 795 kilometers of new highways, including San Blas-Escuinapa, Morelia-Salamanca, Monterrey-Saltillo, and a northern relief road for Mexico City.
Personal credit ratings
At the end of 2003, the Credit Bureau had 43.5 million listings for individuals, 8.4% more than a year earlier. Company listings had risen to 3.3 million, 43% higher than in 2002.
By law, the Credit Bureau is obliged to provide a credit history once a year on request for no charge. Credit histories can be accessed via Internet, fax, phone, mail or directly in the Bureau's offices. Since December 2003, more than 500,000 free reports have been issued. Credit data is kept for between 5 and 7 years.
Expanding fast food giants
The world's two largest hamburger chains, McDonalds and Burger King, are both undertaking ambitious expansions in Mexico.
McDonalds currently has 280 outlets and is adding another 20 restaurants to its chain each year. The company claims a 40% share of the fast food market in Mexico and according to press reports, Mexico is now the 17th most important country for the corporation in terms of revenues.
Its main rival, Burger King, has announced plans to invest 30 million dollars in opening an additional 40 restaurants across the country. Its 200th outlet recently opened in the city of Monterrey. Burger King's 2003 sales in Mexico topped 167 million dollars, a 23% rise over 2002.
Internet root nameserver
Root Nameservers play a critical role in virtually any Internet service, from web-browsing to e-mail. Somewhat similar in concept to gigantic computerized telephone directories, they ensure that a request for a particular domain name (such as lloyd.com.mx) is matched to that name's corresponding numerical IP Internet address.
The Internet relies on 13 Root Nameservers around the world, designated A through M. To guarantee reliability, reduce potential problems and boost Internet response times, the Internet Systems Consortium (ISC) has deployed 22 duplicate sites around the globe which mirror the "F"-Root Nameserver (located in California).
Earlier this year, one was installed in the Prodigy Data Center in Monterrey, the major industrial center in northern Mexico. Companies cooperating to make this possible included NIC-México, Prodigy, Avantel and Alestra.
The next stages of E-México
E-México is the government's ambitious plan to ensure that the entire country has on-line access to services such as education and government departments. The primary network of e-México, linking 3,200 communities, began operating in June 2003.
The Communications Secretariat (SCT) recently awarded the concession to provide the land-based infrastructure for the secondary and tertiary networks of e-México to Teléfonos de México (Telmex). Under the terms of the concession, Telmex must install an additional 4,000 points of digital satellite connectivity within 48 months in "Digital Community Centers", most of which will be in public buildings such as schools, libraries and health centers in small settlements and remote areas. The costs of the satellite bandwidth required are being covered by SCT.
Maquiladora update
Daniel Romero, the president of the National Council for Maquiladora and Export Industries, predicts that direct foreign investment in maquiladoras will double in the second half of this year, compared with the same period in 2003, to around 4 billion dollars. The industries most likely to benefit from new investments include vehicles, electronics, plastics and medical equipment.
During the first four months of this year, the nation's 2,800 maquiladora firms exported goods worth 13.700 billion dollars, 47% of the value of all exports. As of April this year, the maquiladora sector employed 1.1 million workers.
Making ports more efficient
New security regulations came into effect last month that ensure Mexican ports meet international standards of quality and security. All of the nation's major ports have already been certified as meeting the International Maritime Organization's International Code for the Protection of Ships and Port Facilities.
In related news, the world's fourth largest port terminal operator, Stevedoring Services of America (SSA), is investing 90 million dollars this year in remodeling its facilities in Manzanillo, Veracruz, Acapulco, Cozumel and Progreso. Since the firm first entered Mexico in 1995, it has invested 360 million dollars in port improvements.
SSA has earmarked 65 million dollars to boost the flow of containers through Manzanillo, a port which handled 709,209 container movements last year, and which has the capacity to move 38 containers per hour per crane.
Another of SSA's priorities is to reduce storage times at the dockside. On average, containers entering or leaving Mexico spend 12-13 days at the dockside, twice as long as the normal time in most major international ports.
Investing in Tijuana
Tijuana continues to be the focus of new investments. Among the 25 firms that are investing a total of 292 million dollars in creating more than 15,000 jobs in the city this year are the Japanese electronics firm Kyocera, which will manufacture solar panels and cell phones, and Hunter, a U.S.-based specialist in irrigation systems for gardens and golf courses. Other firms announcing investments in the city include Sharp Electronics, Samsung, JVC, Hitachi and Panasonic.
Not all oranges are orange
Revised regulations in the Codex Alimentarius of the Food and Agriculture Organization (FAO), mean that the quality of oranges will no longer be determined solely by color, but also by juice content. The revisions come after 10 years of discussions and favor nations such as Mexico, Brazil and Cuba, where, for climatic and altitude reasons, oranges may remain green in color even when ripe.
Power station contract
The Spanish electricity company, Iberdrola, has won the largest contract yet awarded to an independent electricity producer. The contract, worth 500 million dollars, is for the construction and operation of a 1.14 megawatt capacity combined-cycle thermal power station in Tamazunchale, in the state of San Luis Potosí. The station is due to open in June 2007, and Iberdrola has a 25-year contract to sell power to the Comisión Federal de Electricidad (CFE).
Iberdrola is already operating, or building, several other generating plants in Mexico, with a total capacity of 5.94 megawatts. A subsidiary of Iberdrola, Iberinco, has been awarded a CFE contract worth 32 million dollars to build 217 kilometers of 400-kilovolt transmission line and two 230-kilovolt substations in Coahuila and Durango.
New plant for Big Cola
The success of Ajemex, a subsidiary of Peruvian firm Cola Real, in bottling and marketing Big Cola in Mexico has convinced the parent company to move its headquarters to Mexico to oversee operations throughout Latin America.
Ajemex entered Mexico in 2002, and its Big Cola brand has captured about 5% of the huge domestic market for soft drinks, which is dominated by Coca Cola (70%) and PepsiCo (15%). Mexico's soft drinks market is the second largest in the world in terms of volume, and the largest in terms of per capita consumption (110 liters a year).
Ajemex expects Big Cola to hold a 10% market share by 2009. The firm's success has resulted in plans for a second bottling plant, with three northern cities considered front runners for its location: Monterrey, Durango and Saltillo. To keep pace with likely demand, the plant, with an annual capacity of 50 million cases, must be operational by early next year.
In the next phase of its growth, Ajemex is planning to introduce its own brands of low-priced isotonic sports drinks and bottled water.
Tropical auto-testing track
General Motors de México is building a special extreme-weather testing track for automobile research and development in the state of Michoacán. The 35-million-dollar track is located in the municipality of Cupuán del Río, close to Highway 37, which links the city of Uruapan to the major industrial port of Lázaro Cárdenas. The 5.5-kilometer oval track is the first of its kind in Mexico, and the only one in Latin America that will be used all year.
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.
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2004 Operadora de Fondos Lloyd, S.A.
© 2004 Allen W. Lloyd, S.A. de C.V.