Lloyd Mexico Economic Report - March 2000
CONTENTS:
- ECONOMISTS BUOYANT
- RECORD FOREIGN INVESTMENT
- ON-LINE STOCK TRADING
- SILICON VALLEY EXPANDS
- PETROLEUM PRODUCTION
- RAILROAD IMPROVEMENTS
- FLOWER POWER
- NEEDED - NEW HIGHWAYS
- ORANGE EXPORTS
- SANBORNS BUYS COMPUSA
- SPORTS CITY
- INSTITUTIONAL INVESTMENT
- LABOR COSTS AND REQUIREMENTS
- LESS MILK IMPORTED
- PROFILE OF INTERNET USERS
- MORE TOURISTS BUT LESS REVENUE
ECONOMISTS BUOYANT
The latest survey of 30 private sector economists by Banxico, the nation's central bank, reveals increasing confidence in a sustained growth in Gross Domestic Product (GDP) and a further reduction in inflation during this year, despite some concerns about the "political uncertainty" accompanying this year's federal elections. Taking the average of the 30 replies, the economists expect the year to end with a 4.33% growth in GDP, inflation at 10.62%, the peso at a rate of 10.66 to the dollar, and interest rates on benchmark 28-day Cetes (Treasury bills) at 16.09%. They predict that total direct foreign investment for 2000 will reach 10.587 billion dollars, approximately the same as the 1999 figure.
RECORD FOREIGN INVESTMENT
Foreign investment in the Mexican Stock Market (Bolsa Mexicana de Valores, BMV) totaled 68.867 billion dollars at the end of last year, an all-time record, 97.03% higher than a year earlier. The breakdown by category was 20.626 billion dollars (29.95% of the total) in Free Subscription Stock, 4.493 billion (6.52%) in Fondo Neutro, 41.505 billion (60.27%) in American Depositary Receipts, 2.188 billion (3.18%) in Money Market funds and 54.6 million (0.08%) in Warrants.
ON-LINE STOCK TRADING
On-line (Internet-based) stock trading has arrived in Mexico, with several major brokerages now offering integrated stock investment services. Accitrade, accessed via the Banamex home page, was the first to be launched, quickly followed by the brokerage division of Grupo Bancomer, Mexico's leading financial services provider. On-line trading enables individual investors to access and trade a variety of mutual funds and any of the stocks quoted on the Mexican Stock Exchange (Bolsa Mexicana de Valores, BMV). BMV regulations require a minimum investment of 50,000 pesos. Grupo Banamex, which has a 9.24% share of BMV operations by value at present, hopes its new service will attract up to 100,000 new accounts while a Bancomer spokesperson said that the group anticipates doubling its stock-trading client base within eight months.
SILICON VALLEY EXPANDS
The city of Guadalajara continues to build on its reputation as Mexico's "Silicon Valley". Singapore-based Spindex Industries Limited, one of the principal suppliers of high-tech electronics circuits to computer manufacturer Hewlett Packard, is the latest firm to relocate part of its production to the city, providing 90 new jobs. In a related development, Promotora Ochoa, in partnership with Development Company of Americas, has announced the construction of a 160-million-dollar industrial park for electronics companies in Zapopan, a suburb of Guadalajara. The 200-hectare park will include manufacturing plants, offices and a business-class hotel.
PETROLEUM PRODUCTION
State-owned oil giant, Petróleos Mexicanos (Pemex) has released production figures that show the extent to which higher oil prices in the second half of last year more than offset reduced production levels. With the equivalent figures for December 1998 given in parentheses, liquid hydrocarbon production in barrels per day (b/d) during December 1999 was 3.211 billion (1998: 3.554), crude production was 2.793 b/d (3.107) and crude exports 1.548 b/d (1.818). Natural gas production fell from 4.913 to 4.744 billion cubic feet per day.
The average price per barrel of crude rose from 7.89 dollars in December 1998 to 22.11 dollars in December last year. The current agreement between Mexico and several key OPEC members to restrict production in order to foster higher oil prices expires at the end of this month. About one-third of Mexico's fiscal revenue still comes from Pemex and its products, although petroleum exports now account for less than 2% of GDP. Last month, Pemex successfully raised 950 million dollars from Mexico's first-ever Internet-only bond offering. The proceeds of the offering will be used to finance priority investment projects.
RAILROAD IMPROVEMENTS
In the past three years, all Mexico's major railroads, formerly state-owned, have been privatized. By the end of this year, the new owners will have spent some 1.4 billion dollars on modernizing track, stock and equipment. On the Ferrocarril del Noreste, new owners Transportación Ferroviaria Mexicana (TFM) will have spent 530 million dollars on improvements, including a state-of-the-art intermodal terminal for international cargo traffic in Nuevo León. The terminal, which opened last month, has an initial capacity of 250 40-foot containers a day.
Other significant investments include the 490 million dollars spent on the Ferrocarril Pacífico-Norte and Ojinaga-Topolobampo by Ferrocarril Mexicano and the 76 million dollars invested by Frisco on the Ferrocarril del Sureste.
FLOWER POWER
The forthcoming free trade agreement with the European Union will greatly stimulate activity among Mexican flower-growers, according to Ricardo Degollado Gutiérrez, president of the Mexican Flower Council (Consejo Mexicana de la Flor, CMF). At present, about 14,000 hectares of agricultural land are devoted to flowers, with growers concentrating on 50 different varieties, the most important of which are gladioli, roses, chrysanthemums, carnations, nards and birds-of-paradise. Mexico is ideally suited for commercial floriculture, given its diversity of climates and immensely varied natural flora. Despite these advantages, several Latin American countries have overshadowed Mexico in recent years.
Of the current nationwide production worth about 1 billion dollars, only 4% is exported, mainly to the U.S. The internal market is severely constricted by a lack of space in Mexico City's wholesale market; the resulting congestion results in an estimated 20% of all the fresh flowers arriving daily at the market having to be destroyed. While Mexican flower exports are currently worth some 50 million dollars, exports from Columbia are worth 550 million dollars and those from Ecuador and Costa Rica about 150 million.
However, the CMF predicts that Mexico's exports to Europe could rise dramatically within a few years as increased investment, the free trade agreement and the country's relative proximity to European markets combine to make flower exports more profitable. The leading states for floriculture are Morelos, Mexico, Puebla, Guerrero, Michoacán and Querétaro.
NEEDED - NEW HIGHWAYS
The construction of new highways during the present administration has barely kept pace with the ever-increasing demand for faster routes between major cities. Several new links to the extensive network of federal highways are urgently needed. Among highway projects that may be initiated this year, but will probably have to be completed during the next administration, is a 24-kilometer, 35-million-dollar by-pass for the northern city of Zacatecas. Several new highways are needed in the Mexico City region in order to expedite traffic flow.
For example, an 80-kilometer link between Atizapán and Atlocomulco would ensure speedy access from Mexico City to the main highway to Morelia and Guadalajara. Similarly, a planned 22-kilometer link between La Venta and Colegio Militar would enable traffic between Toluca and Cuernavaca to by-pass Mexico City, while, on the northern side of the city, a much longer, 140-kilometer bypass would provide a direct link between the very busy Querétaro and Puebla highways.
ORANGE EXPORTS
Orange growers in the northern state of Sonora are having to seek new export markets for this year's crop, which is estimated to exceed 100,000 metric tons. In previous years, the growers, responsible for 70% of Mexico´s exports of oranges, have sold most of their fresh fruit and pasteurized juice to the U.S., but this year U.S. prices have plummeted. As a result, Sonoran orange growers are focussing their export efforts this year on Japan and New Zealand.
SANBORNS BUYS COMPUSA
Grupo Sanborns, a subsidiary of Grupo Carso, has announced its intention of buying 85% of CompUSA, the largest chain of computer stores in the U.S., for an estimated 800 million dollars. Sanborns, which already holds 14.8% of CompUSA indirectly, is likely to ask other corporations including Telefónos de México (Telmex), Microsoft, SBC and Prodigy to take minority positions.
RELATED NEWS In 1999, Telmex had a net profit of 25,128 million pesos, 36.4% more than for 1998. By the end of last year, the company had installed 951,000 additional lines. Telmex's revenue from international calls was up 18.9% and its revenue from national long-distance calls was 5.4% higher than during 1998. Its Prodigy Internet service had been expanded to serve 117 cities and 402,000 users.
SPORTS CITY
Grupo Marti and Consorcio Inmobiliario Lomas have signed an agreement to construct a Sports City, in the Bosque Real megaproject, near Huixquilucan outside Mexico City. Scheduled to open by the end of the year, Sports City, which will cover an area of 2.5 hectares and cost 20 million dollars, will include a sporting goods superstore, jogging tracks, swimming pools and tennis courts.
INSTITUTIONAL INVESTMENT
Standard & Poor's expects pension funds (Afores) to become the largest institutional investors in Mexico in the mid and long term and to completely change the pattern of domestic savings. The corporation anticipates that the total value of Afores will reach 20 billion dollars by the end of this year, double their value last year, due both to increased contributions and to revalued investments.
LABOR COSTS AND REQUIREMENTS
A recent article in Mexico City daily El Financiero highlights some of the characteristics of the domestic job market. According to the survey, two out of every ten job offers are for professionals under the age of 24, with 73% of companies preferring those under 35. One-third of the companies surveyed said they prefer male applicants to female. One in five jobs requires "100%" English, and more than half want more than "80% fluency" in the language. More than half the jobs on offer do not require any previous experience.
One thing that most job offers have in common is that they offer salaries substantially lower than for similar positions in the U.S. and Canada. Figures published by the Latin American Economic Commission (Comisión Económica para América Latina, Cepal) show that this comparative advantage of labor costs in Mexico has increased over the past five years. According to Cepal, semiskilled Mexican laborers currently earn an average of 0.84 dollars an hour, compared with 1.51 dollars an hour five years ago.
By way of comparison, similar workers in the U.S. make about 17 dollars an hour and those in Canada 16 dollars an hour. The International Labor Organization places Mexican workers as the third cheapest in Latin America, after Uruguay and Bolivia. According to ILO figures, more than 1.2 million workers in manufacturing plants in Mexico presently earn less than 6.5 dollars per shift.
LESS MILK IMPORTED
Preliminary figures from the Agriculture Secretariat indicate that milk production rose 3.6% last year to reach 8.6 billion liters. The leading milk-producing states are Jalisco (15.1% of the national total), Durango (9.9%), Coahuila (9.5%), Chihuahua (8.4%) and Guanajuato (7.3%). The increased domestic production enabled a further reduction in milk exports, which have been gradually falling since 1990. Over the same period, economic constraints have caused milk consumption on a per capita basis to slip from 110 liters a year to 99 liters a year. The leading milk producer is Grupo Lala, which supplies 26% of the domestic market.
PROFILE OF INTERNET USERS
In Mexico, only about 2.3% of the population has Internet access, compared with 26% in the U.S.; these numbers are expected to rise rapidly to around 8% and 60% respectively by 2003. Equally significant is the fact that more and more people are using their computers to make on-line purchases. Last year, for example, 20.5% of users in Mexico claim to have bought products via the net. The same survey found that 64% of Mexico's 2.2 million Internet users are male, though this figure is falling. The average age of users, now 25, is also declining. Roughly 50% of users access the net from home and one-third from work, with the remainder using school or Cyber-cafe computers.
MORE TOURISTS BUT LESS REVENUE
A report from the World Tourism Organization (WTO) reveals that Mexico climbed from 13th position to 10th last year in the world league table of tourism revenue, even though tourist-related income fell slightly, from 7,897 to 7,850 million dollars. The number of visitors staying more than 24 hours was up 2% last year, compared with the year before. Interestingly, the WTO figures show that 80% of Mexico's tourism revenue in 1999 came from national tourists, rather than international tourists.
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© 2000 Operadora de Fondos Lloyd, S.A.
© 2000 Allen W. Lloyd, S.A. de C.V.