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Lloyd Mexico Economic Report - August 2001

Table of Contents

NEW TELEPHONE AREA CODES
DESALINATION PLANT
CUTTING RED-TAPE
CAPACITY FOR MORE BEER
MEXIBOR - NEW INDEX
RECORD NUMBER OF TOURISTS
BUSINESS OR SCENIC VIEWS?
MORE FOREIGN SUPERMARKETS?
NATIONAL MICRO-CREDIT PROGRAM
SPANISH LANGUAGE INTERNET PROVISION
SAME-DAY COURIER SERVICE
IUSACELL V.S. TELCEL
ICA WINS POWER CONTRACT

NEW TELEPHONE AREA CODES

The president of the Federal Telecommunications Commission, Cofetel, has announced that all area codes are changing, as of November 10 this year. Phone numbers (area code plus local number) currently have 8 digits; as of November, every area code will have an additional two digits. The change will affect all long-distance calls, whether dialed from within Mexico or from overseas.

The change is the last stage of the plan begun in 1996 to guarantee an adequate supply of new numbers for the next 30 to 40 years. Mexico has 12.8 million fixed phone lines installed. Nationwide, 36.2% of all households now have phone service. Investments in the telecommunications sector, which accounts for about 3% of GDP, are likely to total 5.483 billion dollars this year.


DESALINATION PLANT

A joint venture headed by Spanish power company Uni¢n Fenosa has won the contract to build a salt-water desalination plant in north-west Mexico. The 254.3-million-dollar contract includes a 20-year concession to operate the plant; when the concession expires, ownership of the plant reverts to the state. Fenosa's partners are a Spanish construction firm, Cobra, and Ide Technologies, an Israeli engineering company.

By the end of the project's first phase, the plant will supply 1,500 liters of fresh water a second via a 100-kilometer pipeline to the ever- thirsty city of Hermosillo. The plant's capacity will eventually reach 2,500 liters a second.

RELATED NEWS
Fenosa has also expressed its interest in bidding to build and manage the new Mexico City international airport. The bidding process is expected to begin later this year, once one of two alternative sites - Texcoco and Tizayuca - has been selected.


CUTTING RED-TAPE

For years, the costs of starting up a new business venture, and of continuing to comply fully with all government regulations once in operation, have been significantly greater in Mexico than in the U.S. or Canada. This, of course, has helped the informal sector flourish. But times have changed and the simplification of business formalities is now under way. In June, President Vicente Fox signed an executive decree ordering a swift deregulation and simplification of business formalities during the present year.

The Federal Regulatory Improvement Commission (Cofemer), created last year, is in charge of supervising the process and is also setting out to establish the parameters for small low-risk businesses to complete all their registration requirements within a single day. Already, more than 20% of all business formalities currently listed in the Federal Register of Formalities and Services have been earmarked for elimination or simplification.

Government departments have to set time limits for processing most requests; businesses which have received no reply by the deadline will be allowed to assume a favorable reply. Full details of Cofemer's proposals, complete with links for comment and feedback, are available at www.cofemer.gob.mx


CAPACITY FOR MORE BEER

Analysts predict that the volume of beer produced by the nation's two principal brewers may increase by as much as 40% over the next 5 years, to 99.4 million hectoliters (a hectoliter is 1,000 liters). Grupo Modelo, which holds the larger share (55.2%) of the national market, is comfortably ahead of its arch rival Fomento Econ¢mico Mexicano (Femsa), responsible for the remaining 44.8%. Modelo (leading brands: Corona Extra, Modelo Especial, Negra Modelo, Modelo Light) has breweries in Mexico City, Mazatlán, Guadalajara, Ciudad Obregón (Sonora), Torreón (Coahuila), Mérida, Tuxtepec (Oaxaca) and Zacatecas, with an installed capacity of 39.5 million hectoliters of beer a year.

Its Zacatecas brewery, the final phase of which was inaugurated recently, has a capacity of 15 million hectoliters, making it Latin America's largest. However, the Tuxtepec brewery will be even larger, once its current expansion is completed. Modelo's 2000 sales were 4.13% higher than 1999. The company exports about 28% of production, supplying markets in 150 countries. Femsa, based in Monterrey, is reported to be concerned that the long-term future of beer production in Mexico may hinge on finding additional water supplies. Most of Mexico's breweries are located in northern and central Mexico, regions where water supplies are already greatly stressed.


MEXIBOR NEW INDEX

For the first time in Mexico, there is a new index in which neither the government nor Banco de Mexico participate. Starting July 2, 2001, a new index called MEXIBOR which is an average of the interest rates charged by the Mexican banks will be calculated by 12 banks: Banamex, BBVA-Bancomer, Banco Invex, Bital, Santander Mexicano, Citibank, Bank of America, Deutsche Bank, Bank of Boston, JP Morgan Bank, Banorte and ScotiaBank Inverlat.

The new index will be calculated daily using the average of 3 months term operations, but at the end of the year it will be calculated for 6, 9 and 12 month terms. It is expected that Banco de Mexico will approve, before the end of the year, the usage of MEXIBOR index as a reference for all bank transactions.


RECORD NUMBER OF TOURISTS

In the first quarter of the year, more than 5.45 million tourists visited Mexico, resulting in tourism revenue reaching a record 2.49 billion dollars, an 8.3% increase over the same period of 2000. It was recently announced that the Spanish hotel chain, NH Hoteles, has bought 58.6% of Chartwell. This will mean that 5 of Chartwell's 14 hotels - the Hilton Guadalajara, Krystal Cancún, Krystal Zona Rosa, Krystal Express Coatzacoalcos and Krystal Express Lázaro Cárdenas - will be renamed shortly as NH hotels.

NH Hoteles owns or operates hotels in 16 countries and, according to a company spokesman, intends to invest about 200 million dollars annually in Mexico to add three or four hotels a year to its portfolio.

Meanwhile, in southern Mexico, at Xcarel, on the Caribbean coast, Spanish firm Sol Melia's plan to construct a resort hotel in a marine turtle sanctuary has been temporarily suspended pending further environmental-impact studies.


BUSINESS OR SCENIC VIEWS?

At Cabo San Lucas, on the southern tip of the Baja California peninsula, supporters of a proposal to construct a deep-water docking facility for cruise ships claim that it would inject an additional 20 million dollars a year into the local economy. About 200 cruise ships visit Cabo San Lucas each year but any passengers wanting to set foot ashore have to be ferried in on small 30-person boats.

The new dock sounds like a great idea, but three local business associations, including the Los Cabos Realtors and Developers, are fighting the project, on the grounds that it would actually reduce the area's appeal to visitors. Much of the region's allure, they argue, is due to its spectacular natural setting, with crashing waves, rocky headlands and a spectacular natural rock arch.

The group would prefer the dock to be built elsewhere, avoiding this ecologically sensitive part of the bay, which includes two-kilometer deep submarine canyons and unique sand waterfalls. However, at least one local developer is praying that the original proposal does go ahead, since a sizeable multi-million dollar shopping mall is already under construction close to where the cruise ships would dock!


MORE FOREIGN SUPERMARKETS?

Several major supermarket firms are apparently hoping to emulate the success enjoyed by Wal-Mart since it entered Mexico less than a decade ago. Since that time, Wal-Mart has acquired a 40% share of supermarket sales across the country, well ahead of Comercial Mexicana, Gigante and Soriana. A Financial Times report suggests that both the Dutch group Ahold and the French supermarket giant, Carrefour, which already operates 20 hypermarkets in Mexico, may be interested in acquiring at least a minority holding in Comercial Mexicana.

Comercial is looking to invest 290 million dollars over the next two years expanding its distribution and sales systems. Meanwhile, H-E-B, the Texas-based supermarket chain, is reportedly trying to purchase the Guadalajara-based Gigante supermarket chain. H-E-B currently has 14 stores in Mexico. Howard Edward Butt III, the chain's director in Mexico, has reiterated his firm's commitment to open an additional 6 stores each year, at an annual cost of about 70 million dollars.


NATIONAL MICRO-CREDIT PROGRAM

Described by President Fox as "the basis of a new model of growth", a national micro-credit program has been officially launched by the government as part of its anti-poverty campaign. The program's coordinator is María del Carmen Díaz, who stresses that a special effort will be made to create micro-lending circles in indigenous communities where credit has previously been particularly hard to come by. A federal trust fund will help finance small credit circles.

The program is starting with a budget of almost 23 million dollars, most of which will be channeled initially through 25 existing micro-lending societies. The government's goal is for about 40,000 small loans to be made before the end of this year, in 640 municipalities, including many of the country's poorest. Individual loans will range from less than 60 to about 3,000 dollars. This would enable the purchase, for example, of equipment for a home sewing operation, repair shop or small bakery.

Roughly 50% of the workforce currently earns less than 10 dollars a day and has no access to conventional credit programs. Existing microcredit programs in Mexico are recording healthy 95% repayment rates.


SPANISH LANGUAGE INTERNET PROVISION

The Internet service company T1MSN, a partnership of Teléfonos de México (Telmex) and Microsoft, is increasing its lead in the provision of Spanish language services by acquiring Yupi Internet Inc, a Miami-based Internet portal. T1msn clients will now have access to a wide range of local, business and entertainment news in Spanish and will be offered Microsoft's new pay services (.NET) once their development is complete.

The .NET technology enables users of a variety of computer and telecommunications devices to track specified personal preferences. For example, it might notify you that your flight is delayed or that a particular stock has reached a preset level.


SAME-DAY COURIER SERVICE

The provision of same-day courier service, previously limited to only a few major Mexican cities, is now far more widely available, following a strategic alliance between two national companies: Multipack and Aeromexpress Cargo. Aeromexpress uses the 200 planes and 640 daily flights of airlines Mexicana, AeroMéxico and Aerolitoral to service more than 80 destinations. Multipack's fleet of 4,500 vehicles connects 35 distribution centers and 450 branches across the country.

Last month, they initiated "same-day" and "next day by 9:00 am" services for Guadalajara, Monterrey, Puebla, Tijuana, Cancún, Méida, San Luis Potosí Queréaro, Oaxaca, Hermosillo, Mexicali, Tampico, Toluca, Ciudad Juáez and Veracruz. Aeromexpress-Multipack anticipate that their new services, with competitive rates, will rapidly gain market share from competitors DHL, Fedex, UPS and Estafeta. The courier business in Mexico is worth about 660 million dollars a year.


IUSACELL V.S. TELCEL

At the beginning of this year, Vodafone took its first step in the Latin American cellular market by acquiring 34.5% of the Iusacell stock for 973.4 million dollars. Iusacell has 35% of the cellular phone market in Mexico with 2 million phones. The new Iusacell venture will invest during this year 229 million dollars to cover the nation's territory and to increase its participation to 40%. The national cellular market covers 12% of the population which is very low compared with Venezuela with 23% or the U.S.A. with 50%.


ICA WINS POWER CONTRACT

ICA Fluor Daniel has been awarded a contract worth around 158 million dollars to construct a 500-megawatt power plant, Termoelétrica Mexicali. The plant, located in Baja California, will be connected to the U.S. power grid via a 230,000-volt transmission line. Power generated at the natural gas-fired plant will help satisfy demand on both sides of the border.

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.

Published or Updated on: July 20, 2006
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