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Lloyd Mexico Economic Report December 2003

Table of Contents

100 PESO COINS IN CIRCULATION
MULTIPLE SERVICE CONTRACTS
GOVERNMENT WEBSITES PLACE NINTH
HOW MUCH DO EXECUTIVES EARN?
BUSINESS SCHOOL EXCELLENCE
SURFING AT THE GAS STATION
TOP TELECOMMUNICATIONS COMPANY
NEW POWER STATION
METAL PRICES SPUR INVESTMENTS
JVC CENTER AND SOCCER STADIUM
SOARING VALUE OF REMITTANCES
TOURISM REVENUES UP THIS YEAR
THE NAUTICAL STAIRCASE PROJECT
CONSULTATION OVER CRUISES
ELEKTRA BUYS CIGNA INSURANCE
MEGA-BOTTLING PLANT

100 PESO COINS IN CIRCULATION

The Bank of Mexico has issued the nation's first 100-peso coins. They are circulating alongside bills of the same denomination. The new coins are bi-metallic, with a bronze-aluminum outer ring and silver center. The issue commemorates the 180th anniversary of the establishment of the Federation of Mexican states in 1823.

The first two designs released feature the states of Zacatecas and Yucatan; similar 100-peso coins depicting other states and the Federal District will follow at regular intervals. A second stage of the commemoration is scheduled for 2005 when the Bank releases two gold and silver coins for collectors.


MULTIPLE SERVICE CONTRACTS

The Cuenca de Burgos in northeastern Mexico is one of the nation's vital oil and gas assets, thought to contain 23% of the country's total natural gas reserves. Between 1997 and 2000, 2.4 billion dollars was invested in exploring the opportunities for gas production in the region. Now, the production stage is well under way. In all, seven blocks will be concessioned.

Petroleos Mexicanos (Pemex) awarded the contract for the first block to Spain's Repsol YPF. Repsol bid 2.44 billion dollars for the 20-year contract. The second block was awarded to D&S Petroleum, a joint venture of Grupo Diavaz (Mexico) with Petrobras (Brazil) and Teikoku Oil (Japan) for 260 million dollars.

Even when these blocks are in full production, Mexico still faces a deficit of natural gas production of the order of 1 billion cubic feet a day; this amount is imported in order to meet demand.


GOVERNMENT WEBSITES PLACE NINTH

Mexican government websites came ninth in an international survey conducted by the United Nations, assessing the websites of 191 governments. In Mexico's case, the technical aspects of the pages are as high as any country's, but only a relatively small number of citizens have access to the Internet.

Several other countries have followed Mexico's lead in publishing the details of upcoming government contracts on a special website (compranet.gob.mx) which speeds up the tender process and helps to ensure transparency in the awarding of concessions and purchase orders.


HOW MUCH DO EXECUTIVES EARN?

Executive salaries are higher in Mexico than in any other Latin American country according to Mercer Human Resource Consulting. A survey of 169 firms found that Mexican executives make, on average, 93,000 dollars a year, 77% of the salary level of their U.S. counterparts. This is a considerably higher ratio than executives in Argentina (32%), Brazil (55%) and Chile (45%).

This makes it relatively expensive to set up any business in Mexico that requires lots of executives! The most dynamic sectors in terms of executive salaries in Mexico are the telecommunications, chemical and pharmaceutical industries.


BUSINESS SCHOOL EXCELLENCE

Only two Latin American MBA (Masters in Business Administration) programs made the annual list compiled by the Financial Times of the 75 best MBA programs worldwide. One was in Argentina. The other was the MEDEX program, an MBA for "executives with work experience" offered by IPADE (Instituto Panamericano de Alta Dirección de Empresa).

More than 1,300 students have graduated since 1991 from IPADE's MBA programs taught in Mexico City, Monterrey and Guadalajara. Graduates this year had an average age of 33, and 10 years experience in the work place, 45% in small and mid-sized companies, prior to entering the program.

Surveys of alumni show that three years after completing an IPADE MBA, an average graduate of the program earns 101,000 dollars a year.


SURFING AT THE GAS STATION

Frustrated at the valuable business time you waste refilling your vehicle? If so, look for a Grupo Hidrosina gas station. Hidrosina is now linking all 80 stations in its nationwide network, using satellite technology, not only to facilitate internal operations, but also to provide value-added services to its clients.

From early next year, while your vehicle is being refilled and having its oil and tires checked, you will be able to shop in a mini supermarket, buy tickets for shows, pay bills for services, cash checks, buy cell phone time or even surf the Internet.

At present, the firm's policy is to increase the value of sales per station before it expands the number of stations in its chain.


TOP TELECOMMUNICATIONS COMPANY

In a decision that might surprise some consumers, the magazine Global Finance has chosen Teléfonos Mexicanos (Telmex) for the third year running as Latin America's best telecommunications company. Among other factors, the decision was based on technology, administrative success, crisis control, innovation, profitability, stock value and social responsibility (Telmex's non-profit Fundación Telmex is active in health care and education).

In related news, the Mexican telephone giant has agreed to buy the assets of AT&T Latin America Corp., a subsidiary of U.S.-based AT&T Wireless, which provides data services in several Latin American nations and which was forced to declare bankruptcy earlier this year.

The Telmex offer, thought to be worth about 210 million dollars, will give the firm a big foothold in several major Latin American markets as it seeks to expand internationally.


NEW POWER STATION

The Federal Electricity Commission (Comisión Federal de Electricidad, CFE) has signed a contract with the Valladolid Generating Company (Compañía de Generación de Valladolid) to build a thermo-electric power plant, Valladolid III, on the Yucatan peninsula. The plant requires an investment of 265 million dollars and will add 525 megawatts to the national grid when it comes on line in mid-2006. Construction of the plant will generate 1,500 jobs.


METAL PRICES SPUR INVESTMENTS

At the XXV International Mining Convention (Convención Internacional de Minería), held in October in Acapulco, several mining companies confirmed investments totaling some 844 million dollars over the next 2 years. The renewed optimism in the sector stems from the big boost in international prices for precious metals and minerals.

Prices for several metals have risen sharply in dollar terms since October last year. Silver is 10% higher, zinc 35%, copper 29% and lead 21%, while gold is up 20% compared with its average price over the past 5 years.

Major investments underway include those by Teck Cominco in Los Filos, Zacatecas (246 million dollars); by Peñoles to raise copper production to 56,600 metric tons a year in Sonora (192 million dollars); by Gammon Lake/Bolnisi to produce up to 100,000 ounces of gold a year in Ocampo, Chihuahua (150 million dollars); by Minefinders (Canada) in Dolores, Chihuahua (100 million dollars); and by Glamis Gold in El Sauzal, Chihuahua (91 million dollars).


JVC CENTER AND SOCCER STADIUM

More details have been announced of the massive development known as the JVC center on the outskirts of the city of Guadalajara. The 600-million-dollar center is being built on a 240-hectare site by Grupo Omnilife (annual sales: 1.1 billion dollars) and includes a convention center, soccer stadium and wide range of retail businesses and services. It is expected to take 6 years to complete.

Grupo Omnilife, founded by entrepreneur Jorge Vergara, specializes in dietary supplements, but has diversified into such activities as movie-making, magazines and soccer teams. Omnilife hopes to unveil the new soccer stadium in 2006, to mark the centenary of the founding of the Guadalajara-based Chivas soccer team, owned by Vergara.


SOARING VALUE OF REMITTANCES

The value of remittances sent home by Mexican workers and their descendants in the U.S. to their families back in Mexico will soar to 14.5 billion dollars this year, according to a recent study by the Inter-American Development Bank (Banco Interamericano de Desarrollo, BID). This would make remittances the nation's second largest source of foreign exchange, behind oil revenues, but well ahead of tourism and direct foreign investment.

The BID study suggests that, on a per capita basis, Mexico receives more remittances than any other country in the world, with up to one in five residents receiving money from the U.S. on a regular basis. The BID study includes not only funds transferred using the services of banking and credit institutions but also incorporates an estimate of the amounts sent "unofficially" via friends or mail.

The study emphasizes that most of the money is spent on food, clothing and housing, but that a growing portion is being invested in education and small businesses.


TOURISM REVENUES UP THIS YEAR

Revenue from foreign tourists during the first nine months of this year reached 7.042 billion dollars, 7.1% more than the equivalent period a year earlier; by year-end this total is expected to exceed 9 billion dollars.

For the first nine months, the tourism "balance of payments" (i.e. the revenues gained from foreign tourism minus the expenditures of Mexican tourists traveling overseas) totaled 2.465 billion dollars, 17.2% higher than a year earlier.

In terms of numbers of tourists, 13.6 million visitors entered Mexico during the first nine months, 6.6% fewer than during 2002. Fortunately, the average spending per tourist (excluding air fares) has risen 4.9% to 653 dollars. Across the country, the average hotel occupancy rate so far this year has been about 56%, slightly higher than the figure for 2002.


THE NAUTICAL STAIRCASE PROJECT

The federal government has approved the expenditure of 125 million dollars (1.4 billion pesos) in building a network of 17 marinas for yachts and sailboats on either side of the Sea of Cortés (Gulf of California). In addition, 20 small airports and several new roads will be constructed.

Tourism officials hope the network, known as the "Nautical Ladder" or "Nautical Staircase" (Escalera Náutica) will attract up to 6,000 recreational vessels a year. The region is considered a prime eco-tourism area. Thousands of visitors each year watch the migration of whales and other marine mammals.

The plan, developed by the Federal Tourism Development agency, Fonatur, is the biggest tourism project of President Vicente Fox's administration. Officials hope that the project will attract private sector investments of up to a billion dollars.

The environment ministry considers the project is viable but has announced a number of conditions designed to limit adverse environmental impacts. Work is expected to get under way next year.


CONSULTATION OVER CRUISES

The Tourism Secretariat (Secretaría de Turismo) and Communications and Transportation Secretariat (Secretaría de Comunicaciones y Transportes) are holding public meetings prior to formulating a national Cruise Policy ("Política de cruceros en México"). The idea is to increase the competitiveness of this vital sector of the tourism industry.

The first public forum will be held in Cozumel (Quintana Roo) on December 9, followed by similar meetings in Huatulco (Oaxaca) on December 11 and Puerto Vallarta (Jalisco) on December 12.


ELEKTRA BUYS CIGNA INSURANCE

Grupo Elektra has been authorized by the federal Secretariat of Finance and Public Credit (SHCP) to proceed with its purchase of insurance firm Cigna Seguros, which will now be renamed Seguros Azteca.

It is probable that Elektra will merge the insurance company with its banking services, Banco Azteca. The firm will offer a variety of products including life insurance.

The potential rate of growth for insurance products in Mexico is very large, given that the penetration of the insurance industry (in terms of premiums paid) has reached only about 2% of GDP, one of the lowest figures in Latin America, well behind Argentina (3.9%) and Chile (4%). By way of comparison, the G7 member states average 9.2% and the U.S. and Canada 8.6%.

Elektra offers retail sales and services through its 900-strong network of Elektra, Salinas y Rocha and Bodega de Remates stores, in Mexico, Guatemala, Honduras and Peru.


MEGA-BOTTLING PLANT

Grupo Continental (Contal) is one of the largest Coca-Cola bottlers in Mexico, supplying 14.5% of the national market from plants in 7 states. Last year, Contal renewed its contracts with Coca-Cola for a further ten years.

The firm has invested 24 million dollars in constructing a mega-bottling plant in the city of Aguascalientes. The new plant replaces a smaller bottling factory built in 1972. Contal has also upgraded its distribution centers in Manzanillo (Colima), Rioverde (San Luis Potosí) and Guadalajara (Jalisco).




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.

2003 Operadora de Fondos Lloyd, S.A.
© 2003 Allen W. Lloyd, S.A. de C.V.

Published or Updated on: July 20, 2006
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