Lloyd Mexico Economic Report - September 1999
CONTENTS:
- WORLD BANK PRICE
- HIGHER MOODY'S GRADE
- AIRPLANE ASSEMBLY PLANT
- WINE TRADE
- BISMUTH PRODUCTION
- PACIFIC AIRPORTS PRIVATIZED
- RECORD LEVEL OF EXPORTS
- FIRST EVER PRIMARY
- ICE CREAM CASUALITY
- HOME BUILDING
- SATELLITE COMMUNICATIONS
- OIL REFINERY RECONFIGURED
- POLLUTION RATINGS
- NEWSPRINT MONOPOLY
- TISSUE PAPER AND EXERCISE
- SOLAR-POWER HOUSEHOLDS
WORLD BANK PRICE
In an interview last month, Guillermo Perry, the chief Latin American economist for the World Bank, said that "Mexico is following the right monetary policy and the results are evident". Mexico's Gross Domestic Product (GDP) grew by 3% during the second quarter and is expected to grow by around 5% in 2000. Perry emphasized the need for future economic growth to be driven by the private sector. This requires, he said, not only direct foreign investment but also increases in domestic savings and fiscal revenues. Some analysts are predicting that domestic savings will amount to as much as 25% of GDP by the year 2010.
They say that savings will increase as the dependency ratio (the number of non-working people, primarily children and retired, per 100 of the working population) falls from its current level of 55 to 40, and as the consolidation of pensions and retirement plans takes effect. Higher efficiency in the collection of taxes would increase fiscal revenues without raising tax rates. The tax collection arm of the Finance Secretariat has already announced that an all-out attack on the non-tax-paying informal economy is one of its four major goals, alongside simplification, fighting corruption and strengthening the fiscal system.
HIGHER MOODY'S GRADE
Last month, Moody's improved the nation's risk rating from Ba2 to Ba1, only one step away from investment grade. The upgrade is favorable to both government and private debt, and immediately improved the credit rating of several banks and major corporations. The stock market also reacted very positively to the news.
AIRPLANE ASSEMBLY PLANT
Boeing, the U.S. aircraft manufacturer, is considering opening an assembly plant in Mexico. Boeing is currently negotiating with Cintra, the holding company for Aeroméxico and Mexicana, to supply the two airlines with 157 new aircraft, at a total cost of around 6.5. billion dollars. If a contract for upgrading the fleets is finalized, then having an assembly plant in Mexico would enable Boeing to supply the new craft more quickly as well as taking the company one step closer to future contracts elsewhere in Latin America.
WINE TRADE
The Baja California Association of Viticulturists is concerned that a Mexico-European Union free trade agreement may put a serious dent in their domestic sales. The association's president, Fernando Favela, argues that European wine producers benefit from several official subsidies; he would like some protection for domestic wine producers to be incorporated into any future free trade agreement. Some 1.2 million cases of wine were produced in Baja California last year. The industry now employs more than 4,000 workers and is growing at 6% a year. Baja California wines are exported to 21 different countries.
BISMUTH PRODUCTION
The world's largest producer of the metal bismuth, Grupo Peñoles, anticipates that its 1999 output will be about 600 tons, 40% less than last year. Bismuth has a wide variety of uses, from stomach remedies to metallic alloys and superconductors. It is increasingly used as a non-toxic substitute for lead in such items as plumbing fixtures, ceramic glazes and solders. Peñoles has also revised downwards its estimated production of silver (from 2,160 to 2,027 tons) and lead (from 170,900 to 149,800 tons). Most of the fall is attributed to the current depressed world prices for metals. Despite the prices, Peñoles is continuing with its plans to invest 250 million dollars between now and the end of next year in developing new sources of gold, silver and zinc.
One of the projects, Rey de Plata in the state of Guerrero, is being developed in association with two Japanese companies, Sowa and Sumitomo. The 40-million-dollar mine will begin to yield gold, silver, copper and lead next year. Another project, in Zacatecas state, will produce zinc, silver and lead when it comes on stream in 2001.
PACIFIC AIRPORTS PRIVATIZED
An unusual consortium has won the bidding for the Pacific Airports Group in the latest round of privatization. The winning bid, of 250 million dollars for 15% of the total stock, was submitted by Grupo Empresarial Angeles in association with three Spanish companies: Aena Servicios Aeronáuticos, Dragados and Fenosa, via its Mexican subsidiary Inversora Noroeste. Angeles is better known for health care provision but believes its service orientation provides a good basis for airport management. Aena is Spain's largest airport operator.
The consortium will invest an additional 140 million dollars over the next five years in expanding and updating terminal buildings, including those in Guadalajara, Tijuana and San José del Cabo. The remaining airports in the Pacific Group are Hermosillo, Los Mochis, Mexicali, Morelia, La Paz, Puerto Vallarta, Manzanillo, Aguascalientes, and the Bajío airport near León. Between them, the 12 airports in the group account for about 16 million passenger movements a year, 27% of Mexico's total. Grupo Angeles wants to bring all the terminal facilities up to European standards and is particularly focussed on increasing travelers' incidental expenditures. The average expenditure per passenger in European and U.S. airports is about 15 dollars, compared with just 50 cents in Mexico.
Next on the auction block are the airports in the Center-North group which includes Monterrey. The Mexico City airport will be privatized as a separate entity at a later date.
RECORD LEVEL OF EXPORTS
Exports reached 12 billion dollars in June, a new record, up 8.1% from May, or 16% compared with June 1998. Of these exports, 11.273 billion dollars corresponded to non-petroleum products. After imports for 12.352 billion dollars are taken into account, Mexico's trade deficit was 352 million dollars, bringing the accumulated deficit for the first half of the year to 2.08 billion dollars, 28.7% less than for the same period in 1998. There has been a sharp increase this year in the value of exports destined for Europe.
FIRST EVER PRIMARY
The ruling Institutional Revolutionary Party (Partido Revolucionario Institucional, PRI), which has been in power since 1929, launched its first-ever presidential primary campaign last month. Four politicians are seeking the party's candidacy for the July 2000 presidential election: Francisco Labastida (former Interior Secretary), Roberto Madrazo (former governor of Tabasco state), Manuel Bartlett (former governor of Puebla) and Humberto Roque (former PRI party president).
The party candidate will be chosen November 7 by an open vote. Meanwhile, eight opposition parties, including the National Action Party (Partido Acción Nacional, PAN) and the Revolutionary Democratic Party (Partido de la Revolución Democratica, PRD) have until early December to conclude discussions aimed at joining forces for the 2000 election. Recent opinion polls suggest that if the opposition does field a single, joint candidate, then it is highly likely to beat PRI in the forthcoming presidential election.
ICE CREAM CASUALITY
The Quan corporation, former owners of Bing ice-cream, has launched a new ice cream franchise, Dolphy, in direct competition with Bing, which is now controlled by the giant Anglo-Dutch food and beverage company Unilever. Dolphy hopes to have 65 outlets operating by the end of the year. Unilever has vowed to "develop the Mexican market and double per capita consumption in the next ten years." However, as part of Unilever's plan, the Bing ice-cream plant in Guadalajara has been closed as all production is concentrated in the city of Toluca.
This brings to an end an interesting chapter in Guadalajara's industrial history. Bing was originally founded in 1966 by a former U.S. Consul General, Adolph Horn, and quickly became the preferred ice cream of an entire generation. Not all Bing links with Guadalajara are to be cut; the city will remain the company's center for distribution, sales and training.
HOME BUILDING
The construction industry has shown considerable growth this year, with the value of activity in the first half of the year reaching 3.8 billion dollars, 14.1% higher than the equivalent period a year ago. Growth has been especially strong in the housing sector. Three home construction companies (Ara, Geo and Hogar) are quoted on the Mexican Stock Exchange. They all reported good results for the first half of the year. Over the past five years, economies of scale resulting from the increased number of units being built each year (mainly due to reforms in government programs for workers' housing), coupled with technological advances, have made building low-cost homes much more efficient, reducing the average cost of each home to less than 15,000 dollars. Geo, the largest of the three companies, is also constructing low-cost homes in Chile, Argentina and the southern U.S..
SATELLITE COMMUNICATIONS
The Communications and Transportation Secretariat has awarded the first concession to install and operate a public network of mobile satellite communications to Iridium de México. In April last year, Iridium won the concession for exploiting several satellite-linked frequency bands. Before long, Iridium should be offering voice and data links using its global network of 72 low altitude orbiting satellites.
OIL REFINERY RECONFIGURED
The task of reconfiguring the Francisco I. Madero refinery in the state of Tamaulipas will provide more than 8,000 jobs over the next 33 months, according to Adrián Lajous, Pemex's director general. The 1.2-billion-dollar reconfiguration, which began last month, will increase the refinery's capacity by 190,000 barrels a day and ensure a supply of higher grade petroleum products. The upgrade is part of a 5.7-billion-dollar overhaul of Mexico's principal refineries.
POLLUTION RATINGS
The federal Environmental Protection Agency, Profepa, is putting the final touches to a report quantifying soil, noise and waste pollution. The country's top 3,000 companies were graded on a scale from 0 (serious pollution) to 100 (no detrimental environmental impact). The data in this first report is organized only by industrial sector, but some of Profepa's follow-up reports will include the scores achieved by individual companies. Among sectors represented in the report are chemicals and petrochemicals, cellulose and paper, glass, metallurgy, food and beverage, automotive, cement and paints. Profepa hopes that the publication of the data will serve to raise public awareness of pollution and encourage voluntary compliance with environmental regulations.
NEWSPRINT MONOPOLY
Grupo Industrial Durango (Gidusa), one of Mexico's 25 largest corporations, is the largest manufacturer of paper in Latin America. Founded in 1976, Gidusa has acquired several former competitors in recent years, including Grupo Chihuahua in 1997 and the U.S. firm McKinley Paper Company in 1998. It also bought Pipsa (now Pipsamex) from the Mexican government in 1998. Pipsamex still holds a near monopoly position as regards the supply of newsprint to Mexican publications, supplying about 85% of all newsprint consumed in the country. Exports of newsprint have increased dramatically since Gidusa took control and now account for 18% of all Pipsamex sales.
TISSUE PAPER AND EXERCISE
Kimberly-Clark, Mexico's leading manufacturer of paper consumer products (napkins, toilet paper, facial tissues etc), is expanding its production capacity for tissue products by more than 15%. The company is also building two new plants to expand its portfolio of school and office materials, introducing new designs of Scribe-brand notebooks and a new line of notebooks aimed at college students. Kimberly-Clark holds 65% of the 150-million-dollar notebook market and is confident that its new products will compete successfully with imported items and further increase its market share to 73%. All in all, Kimberly-Clark, which operates 10 plants in Mexico, will invest 150 million dollars this year.
SOLAR-POWER HOUSEHOLDS
In a recent press release, the Federal Electricity Commission, CFE, reports that it has installed 42,000 small, single-dwelling, solar-power units in those parts of the country that are too remote to be linked to the national transmission system. The main states where CFE has installed solar power units are, in descending order of the number of units installed, Chiapas, Oaxaca, Hidalgo, Coahuila, Campeche and Nayarit.
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© 1999 Operadora de Fondos Lloyd, S.A.
© 1999 Allen W. Lloyd, S.A. de C.V.