Lloyd Mexico Economic Report - March 2001
Table of Contents
REDUCTION OF SHORT-TERM DEBTCHEAP JOBS?
GUADALAJARA MEGAPROJECT
BILLION-DOLLAR PEMEX BOND
FERRIES CUT TRANSPORT TIME
CELL PHONE MANUFACTURERS MOVE IN
INDEPENDENT MUTUAL FUNDS GAIN GROUND
BEST PLACE TO INVEST
NETHERLANDS INVESTS IN MEXICO
SECOND MEXICO CITY AIRPORT?
MORE SHRIMP CAUGHT
RESTAURANT CHAIN EXPANDS
NAFTA PANEL RULES ON TRUCKS
CUTTING THE EXPENSE OF GOVERNMENT
REDUCTION OF SHORT-TERM DEBT
Figures in the World Bank's latest report on Global Financing for Development show that Mexico's external debt rose by 26.767 billion dollars between 1994 and 1999. At the end of 1999, the total external debt was 166.960 billion dollars, equivalent to 35% of GDP. However, the good news is that government-contracted debt actually fell over the period, while private sector debt increased. Besides the change in relative proportions of government and private debt, the other really significant change between 1994 and 1999 was that the nation's short-term debt obligations fell while long-term debt increased from 69% to 83% of the total.
CHEAP JOBS?
Last year, the economy grew 7% and 529,348 new jobs (equivalent to about 1.4% of the total workforce) were created. This year, the central bank forecasts the economy will grow between 4 and 4.5%, yet the Fox administration believes it can create more than a million new jobs. Can this be done and how much might it cost? The answer may depend on how the jobs are financed. An analysis of the jobs created by large-scale investments in the state of Jalisco during the period 1995-2000 suggests that one new job was created for every 44,600 dollars invested.
In contrast, the small-scale low-interest "Alternative Rural Financing System" (ARFS) created new permanent jobs in 15 municipalities for an average of only 2,600 dollars per job. Of the new ARFS enterprises, 34% are related to food crops, 25% to livestock, 21% are micro-industries, 13% are service-oriented, 7% involve the manufacture of handicrafts. 62% are run by women. Of course, the average productivity (the value of goods produced per hour of labor) of ARFS workers is very much lower than that of workers in industries based on large-scale investments.
GUADALAJARA MEGAPROJECT
Work began last month on a massive new Cultural, Convention and Business Center in the city of Guadalajara. Grupo Omnilife is investing 200 million dollars in the development of a 300-hectare site at the junction of Periférico Norte and Prolongación Vallarta on the western edge of the city. The JVC project, named for Omnilife's director, Jorge Vergara Cabrera, includes an auditorium, amphitheater, corporate offices, art and design museum, and hotel as well as a convention and business center with 33,000 square meters of exhibition space, a 73,000-square-meter commercial center, and a university for 3900 students.
The project involves 11 distinguished international architects including Mexican architects Enrique Norten and Teodoro González de León, as well as U.S. architects Thorn Mayne, Philip Johnson, Tod Williams and Billie Tsien, Japanese architect Toyo Ito, and German architect Daniel Libeskind.
BILLION-DOLLAR PEMEX BOND
Pemex has successfully placed a one billion dollar, 7-year bond offering on world markets. Proceeds from the issue, priced at 99.001 dollars yielding 8.639%, will help pay for various upgrading projects. For example, Pemex Gas y Petroquímica Básica plans to invest 600 million dollars over the next 6 years improving the transport and availability of LPG (liquid petroleum gas), for which demand is growing rapidly in central Mexico. This will require modifications to the central gas processing plant in Poza Rica, Veracruz, as well as increasing the capacity of the existing Santa Ana-Abasolo pipeline and upgrading the Salamanca-Guadalajara pipeline.
FERRIES CUT TRANSPORT TIME
An Associated Press report says that two new ferries, Bali Sea and Banda Sea, have come into service, reducing the time required to transport goods from the southern U.S. port of Mobile to Mexico City by 20 days. Previously, the route between the two cities was a marathon overland trip around the Gulf of Mexico, often taking 30 days as a result of delays at the congested Texas-Mexico border. The two 580-foot-long ships will carry railroad cars and dock in the port of Veracruz, spending just 3 days at sea, with 7 additional days being allowed for the overland travel.
CELL PHONE MANUFACTURERS MOVE IN
Nokia, the world's largest manufacturer of cell phones, announced last month that, to preserve its existing competitive cost advantages, it is moving some of its operations from its plant in Texas, to its plant in Reynosa in the northeastern border state of Tamaulipas. In January, another cell phone manufacturer, Motorola, announced its intention of closing its Harvard, Illinois, plant in order to transfer production from that manufacturing facility to a factory in Chihuahua.
INDEPENDENT MUTUAL FUNDS GAIN GROUND
At the end of last year, the combined assets held by the 307 mutual funds based in Mexico totaled 177.779 billion pesos, 3.5% less than a year previously. This decline in assets was due largely to the impact of the worldwide decline in technology and telecommunications stocks. In the final month of 2000, mutual fund assets increased by 4.69%. This reflects investors' confidence following the smooth transition of power in Mexico after 71 years of single-party rule.
Independent fund operators easily outperformed their banking-sector competitors last year. The combined assets under management of the 8 authorized independent mutual fund managers actually increased by 22.81% over the year to 8.225 billion pesos as of December 31, 2000. Operadora Lloyd, with more than 90,000 accounts, continues to manage more funds for non-Mexicans than any other company. It also has the lowest minimum amounts for opening an account.
BEST PLACE TO INVEST
At the recent World Economic Forum in Davos, Switzerland, President Fox told the assembled 3,200 politicians and executives that Mexico has entered a period of national renovation and is "the best place in the world to invest". Fox predicted that Mexico's recently ratified free trade agreement with Europe would help offset any adverse effects on the national economy resulting from the recession in the U.S. At the Forum, two Mexican businessmen were among the 100 young entrepreneurs receiving a "World Leader of Tomorrow" award. They are Enrique Gómez Junco, founding president of Celsol, a solar energy leader in Latin America and Francisco Martínez Staines, editorial chief of the business magazine Expansión.
NETHERLANDS INVESTS IN MEXICO
During the past decade, Dutch foreign investment in Mexico has grown by more than 800% and the Netherlands' share of total direct foreign investment (DFI) in Mexico has now overtaken that of Germany, the U.K. and all other countries, except the U.S. The Netherlands now accounts for 13% of the total DFI (11 billion dollars in 2000). The accumulated total of Dutch investment between 1990 and 2000 was 5.487 billion dollars.
More than 300 Dutch firms operate in Mexico. They are active in a variety of fields including research and development, technology, petrochemicals, financial services, construction materials and telecommunications. Mexico enjoys a favorable balance of bilateral trade with the Netherlands. Exports to the Netherlands grew at an average of 15% a year between 1990-2000 and are now worth 450 million dollars, while imports grew only 6% a year, and now total 350 million dollars.
SECOND MEXICO CITY AIRPORT?
A decision is expected shortly as to which of two alternative sites will be developed as the city's second major airport if the existing Mexico City international airport is not expanded. Proponents of enlarging the existing airport say that constructing 4 additional runways and a new satellite terminal building able to handle 100 aircraft two kilometers away from existing facilities would be far less expensive and have fewer adverse environmental consequences than building a brand-new airport elsewhere.
Of the two possible sites for a new airport, the first is Texcoco, relatively close to the existing airport, but the other is Tizayuca, about 40 kilometers north of Mexico City, on the highway towards Pachuca in the state of Hidalgo. Initial reports are that Tizayuca may be preferred because of its surrounding topography, the large area available for future expansion and its distance from major volcanoes. The proposed site is currently an agricultural area.
Support for Tizayuca also comes from environmentalists who argue that developing the Texcoco site would be very costly due to its geology (unconsolidated former lakebed sediments) and would reverse decades of government-supported work to restore a natural wetland habitat for migratory birds. Wherever the new airport is located, its construction is likely to cost between 2.5 and 5 billion dollars and take five years to complete.
MORE SHRIMP CAUGHT
According to the F.A.O., Mexico's fishing catch in 2000 (about 1.4 million metric tons) was the 16th largest in the world. About 60% of the catch comes from the northwestern states of Baja California, Baja California Sur, Sonora and Sinaloa. Shrimp is the single most valuable component of the catch. According to the National Fisheries and Fishfarming Chamber, the total shrimp production was about 95,000 tons last year.
This total masks a significant change in the source of shrimp. The high-seas catch has declined from 70,000 tons in 1995 to about 66,000 tons last year, while fish-farmed shrimp has more than made up the difference, increasing, over the same period, from 16,000 to 29,000 tons.
Roughly a third of the nation's total annual shrimp catch comes from the specialist shrimping fleet based in the port of Mazatlán. Over the past decade, the number of registered shrimp boats has steadily declined from 2,387 nationwide to just under 2,000. The fleet faces numerous problems. Catches are meager, averaging between 80 and 100 kilos of shrimp per boat each fishing day.
Last year, the start of the shrimp fishing season was delayed by severe October storms. Fishermen also have to cope with a severe shortage of credit for repairs and gasoline purchases. In addition, they claim that stocks are being overfished, allegedly due to clandestine fishing by non-authorized boats, and that coastal waters are becoming increasingly polluted as a direct result of the agricultural chemicals applied on the fertile irrigated farmland of the coastal plains.
RESTAURANT CHAIN EXPANDS
Corporación Mexicana de Restaurantes, which manages several restaurant chains including Little Caesars, Wings, Chilis and Café del Bosque, is expanding. In the first half of this year, the company will invest 60 million dollars in opening 15 new Little Caesars pizza outlets in Mexico City, doubling the existing number.
In the second half of the year, the company plans to franchise its pizza operations throughout the country with the intention of having 200 pizza outlets within 5 years, 40% of them as franchises, increasing its share of the pizza market from its current 5% to over 10%. By the end of this year, the company will also be operating 51 Wings restaurants and 9 Chilis. Next on the company's agenda, beginning in 2002, is likely to be a chain of Italian restaurants, under the name "Macarronis".
NAFTA PANEL RULES ON TRUCKS
Under the terms of NAFTA, all restrictions on Mexican trucks operating in the U.S. were to have been lifted by January 1, 2000, but, since that date, the U.S., citing safety concerns, has continued to prevent Mexican trucks from operating beyond a 20-mile border zone. While it is true that Mexico's 375,000 trucks have an average age of more than 15 years, older than their U.S. counterparts, according to the president of the National Freight Transport Chamber, several trucking firms have invested in state-of-the-art fleets.
Now, a NAFTA panel has ruled unanimously that the U.S. must either allow Mexican trucking companies to operate throughout the U.S. or pay compensation to the Mexican government for continuing to deny them access. The ruling should lead to decreased shipping costs for many Mexican manufacturers.
CUTTING THE EXPENSE OF GOVERNMENT
President Fox has announced his administration's intention to slash the cost of running the government by 30% before the end of his six-year term. Fox described the public sector as "overweight with many weaknesses", but did not elaborate on precisely how or where government expenses would be pruned. The federal government employs about 835,000 people with a further 686,000 working in a wide variety of public-sector entities.
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.