Lloyd Mexico Economic Report December 2005
Table of Contents
Budget surplusCable and telephone firms to compete
Retirement savings plans
Reduction in tax
New fuels cut pollution
World bank money for clean air
Interjet buying planes
Massive real estate investment
Best employers in Latin America
Tax refunds for tourists
Budget surplus
A firm policy of fiscal discipline in recent years has led to the strong likelihood of a budgetary surplus next year. Over the past few years, the rate of internal savings has increased, and the fiscal deficit has been reduced from 1.1% of GDP in the year 2000 to 0.2% this year. The reduced budget deficit has contributed to keeping inflation under tight control.
Most analysts believe that a budget surplus of around 0.3% of GDP would further stimulate economic growth, ushering in more prosperous times. In October, consumer confidence, as measured by the National Statistics Institute (INEGI) was at its highest level for seven months.
Cable and telephone firms to compete
The Federal Competition Commission (CFC) has urged the government to allow cable companies such as Cablevisión to offer phone services, via their existing networks, in direct competition with specialist telephone firms such as Telmex. The suggestion has been supported by the Procuraduría Federal del Consumidor (Profeco). Such competition would undoubtedly reduce prices, to the benefit of consumers and businesses.
The CFC also proposed that telecommunications firms be granted licenses to offer video services. Telmex recently announced the launch of a video-conferencing service for its residential customers who also have its broadband Internet service and a web-cam.
Retirement savings plans
Eight years after they were launched, Retirement Savings Fund Operators (Afores) now manage 34 million individual accounts and administer a total of 51 billion dollars. This amount is growing 20% a year.
Competition among Afores has become much more intense, and by the end of next year, workers will be able to choose between 18 different providers. Increased competition has resulted in commissions falling by as much as 40%. Over the past three years, Afores have posted an average annual return of 7.5%.
Reduction in tax
A substantial reduction in the rates of income tax (ISR) during this administration has encouraged more people to comply with their fiscal obligations, according to the Secretaría de Hacienda y Crédito Público (SCHP). The top rate of ISR for businesses and individuals has dropped from 40% in 2001 to 30% this year, with plans for further reductions to 28% by 2007.
Analysts believe that the reduction is already stimulating investment and helping to boost economic growth. This trend is further strengthened now that mortgage interest and medical insurance premiums can be considered deductible expenses.
New fuels cut pollution
Starting next year, Mexico is introducing low-sulfur gasoline and diesel fuel as part of its strategy to improve air quality for the 12 million residents along its northern border. The improvement in fuel quality is expected to have significant beneficial effects on overall health and productivity by reducing lost work days due to asthma and smog-related health issues.
The new fuels should also reduce U.S. concerns about Mexican trucks operating within the U.S. The U.S. Supreme Court ruled last year that NAFTA regulations did not permit the U.S. to restrict Mexican trucks to a 20-mile zone inside the border.
The upgraded diesel fuel has a sulfur content of no more than 15 parts per million, the same standard as the U.S. is adopting in 2006.
World bank money for clean air
Earlier this year, Mexico City authorities introduced the Metrobus, a low-pollution bus line along Avenida Insurgentes. It is already credited with significantly reducing pollution, ferrying 15,000 former car drivers to and from work, and replacing more than 260 microbuses. Additional Metrobus routes are now being introduced, including one along Avenida Reforma.
The success of Metrobus has led the World Bank to award the city 2.5 million dollars over the next decade for the construction of bike paths and other eco-projects aimed at further reducing carbon dioxide emissions.
Interjet buying planes
Interjet, a subsidiary of ABC airlines, is the latest addition to Mexico's growing list of low-cost airlines. Based at Toluca airport, some 60 kilometers west of Mexico City, its first flights took off in October. At present, its fleet consists of seven A320 aircraft. Now, it has announced a 1.2-billion-dollar contract to buy ten A320 planes direct from Airbus, the manufacturers, with an option to purchase ten more. The first of the new planes, each configured to seat 150 passengers, will be delivered in the second half of 2007.
Massive real estate investment
The world's largest property firm, GE Commercial Finance Real Estate, is reported to be shopping for Mexican properties worth 3 billion dollars to further diversify its global portfolio. The group, which owns property worth around 35 billion dollars worldwide, is part of GE Finance, the banking division of GE. The group specializes in commercial apartments, offices and tourist accommodations.
Best employers in Latin America
The 2005 annual survey of the Best Employers in Latin America, organized by Hewitt Associates and the magazine América Economía, is dominated by Mexican firms. No fewer than eight Mexican companies make the top 25: Ritz Carlton Cancún, Federal Express México, Microsoft, Las Haciendas, McDonald`s México, Financiera Compartamos, Telmex and Grote Industries de México.
The survey looked at 200 companies across the region, ranking them on such criteria as best human resources practices, remuneration, leadership, incentives, benefits and career opportunities. The top companies all offered superior opportunities for professional development and enjoyed direct financial benefits from having a loyal workforce.
Tax refunds for tourists
A change in tax regulations will allow tourists to claim a refund of federal value-added tax (IVA), beginning July 1 next year. The measure, strongly supported by the Tourism Secretariat, offers refunds only to visitors arriving by sea or air, who spend at least 1,200 pesos (about 110 dollars) on products they subsequently take out of Mexico. Many countries already operate similar schemes, and report that tourist expenditures are much higher as a result.
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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Lloyd S.A. de C.V.
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2005 Operadora de Fondos Lloyd, S.A.
© 2005 Allen W. Lloyd, S.A. de C.V.