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Mexico Economic Updates August 2006

Tony Burton

Election results

Despite calls from PRD candidate Andrés Manuel López Obrador and his supporters for a complete recount, it looks almost certain that the Federal Electoral Institute will confirm very shortly that the presidential election was won by PAN candidate Felipe Calderón Hinojosa. The new president will take office on December 1.


Country Risk Rating

The nation's "country risk rating" for long term debt in foreign currency has improved dramatically over the past few years. Reflecting the differential between the returns of Mexico's sovereign bonds and those of U.S. Treasury Bonds, the rating fell to an historic low of 95 basis points at the end of February, before rising slightly to 116 points last month. This rating compares very favorably with Argentina and Brazil, who have ratings of 377 and 243 points respectively.


The eleventh most populous country

Mexico is currently the world's eleventh most populous country, with an estimated 103.3 million inhabitants at the end of 2005. This is more than double the number of inhabitants in 1970, and 7.6 times the population recorded in 1900.

The good news is that the rate of growth has slowed significantly, from 3.4% during the 1960s to about 1% today. In fact it has slowed so much that demographers are warning about the consequences of a rapidly aging population, which has serious implications for government policy.

The National Population Council (Consejo Nacional de Población) says that education levels have improved, with a 42% entry rate into senior high schools (preparatorias), compared with only 8.1% in 1970.


Ryanair enters Mexico

If you can't beat them, join them. Long distance bus operators in Mexico are facing increased competition from low cost airlines. IAMSA, a Mexican corporation which groups various long distance bus lines including Flecha Amarilla, ETN and Ómnibus de México, is taking this old business adage to its logical conclusion. IAMSO currently moves 260 million passengers a year with its fleet of 8,000 buses, but is now partnering with Ryanair (the Irish low-cost carrier) to start VivaAeroBus, its own "no frills" airline.

Ryanair is among the most dynamic of all European low price carriers, and has regularly offered sensationally low fares in its efforts to attract customers and force competitors to rethink their pricing strategies.

VivaAeroBus will be based in Monterrey and use Boeing 737 300 jets. It is expected to begin flights in late October or early November. The new carrier will create about 1,100 new jobs, and will eventually serve 25 destinations.

Other low cost airlines in Mexico include A Volar, Interjet, Volaris and Click. In related news, Delta Air Lines plans to begin 10 new routes into Mexico, including Atlanta-Bajío and Los Angeles-Puerto Vallarta.


More toll highways take credit cards

Among the latest toll highways to accept card payments (Visa, MasterCard, prepaid and debit cards) are the México Puebla and México Querétaro highways. The change reflects increased concern about security, as well as a drive to modernize the technology in use.


Mega tourist development in Nayarit

Two Spanish companies, Turística Iberostar and Fadesa (real estate) are combining to start building five hotel complexes on a 120-hectare site on the Pacific coast. They will also construct seven residential subdivisions and a shopping center. The project is part of a government plan to build a major tourism growth pole in Nayarit over the next 15 years.

The Federal National Trust Fund for Tourism (FONATUR) says that the new destination, some 50 kilometers (30 miles) north of Puerto Vallarta, will eventually cover 890 hectares (2,200 acres) between Sayulita and Punta Raza. As in previous FONTUR developments such as Ixtapa and Huatulco, the emphasis is on high-end tourism, seeking to appeal to those who seek sea, sand, sun, ecotourism and golf.

The golf course, designed by Greg Norman, is already under construction, as is a desalinization plant and a wastewater treatment plant.

The master plan claims the resort will have a low environmental impact, with an average of 12 rooms per hectare. When the plan is complete, there will be 11,000 hotel rooms, a 150-boat marina, three golf courses, a marine theme park, 34,000 homes and condos, and an airport.

It is anticipated that by 2025, 1.2 million tourists will visit each year, bringing revenues of around 968 million dollars.


Shopping Center Investments

The strength of Mexico's retail sector has led several investment fund managers to specialize in the acquisition and development of shopping centers. For example, Mexico Retail Properties (MRP), a joint venture of the Black Creek Group and Equity International Properties, has an existing portfolio of 10 developments across the country, but is looking to invest a further 600 million dollars in shopping centers in the next four years.

Possible locations for projects involving mid-sized supermarkets alongside other stores, movie houses and gymnasiums, include Ixtapaluca, Ayotla and Villa Nicolás Romero (all in the state of Mexico), Ciudad Juárez (Chihuahua), Culiacán (Sinaloa), San José del Cabo (Baja California Sur), Tepeji del Río (Hidalgo)and Xalapa and Coatzacoalcos (both in Veracruz).


Strong retail sales

According to the National Association of Supermarkets and Department Stores, retail sales rose almost 15% during the first half of the year. The Association reports that supermarkets in the south-west of the country did particularly well, with stores in the north doing less well than expected. The largest increases were reported for sales of clothing (up 27.4%), while pharmacy items rose 18.7% and food sales only 7.4%.


More hotels in Guadalajara

Five new hotels are due to open in Guadalajara before the end of the year, adding over 1000 additional rooms to the city's capacity. They are the Victoria Express Ejecutivo (250 rooms, at the intersection of López Mateos and Lázaro Cárdenas); the Camino Real Ejecutivo (210; Mariano Otero and Las Rosas); the Fiesta Americana Country Club (200; Avenida Américas); and the Ibis and City Express hotels (150 each, on Mariano Otero). In addition, construction is about to start of a 120-room NH Hotel.


Pemex reduces acid rain emissions

Petróleos Mexicanos (Pemex) has announced plans to reduce its emissions of sulfur dioxide (and other oxides?), one of the main causes of acid rain, which can adversely affect environmental and public health conditions in areas hundreds or even thousands of kilometers away.

In 2005, Pemex produced 517,000 metric tons of sulfur oxides, 7% less than in 2004. Pemex is upgrading the sulfur recovery plants at its refineries at Salamanca and Tula in order to reduce emissions still further, in compliance with federal standards.


Multipack in Querétaro

Multipack, a provider of logistics solutions for the transportation of primary materials and finished products, is opening a new distribution center in the city of Querétaro. The center is part of 100 million dollars in investments over 5 years.

Querétaro is a prime location for such a center given its rapid growth (more than 5% annually) in industry and services over the past few years. Multipack operates 400 branches across Mexico, employing its own fleet of aircraft and trucks.


Mine reopens

Mining has resumed at the Cananea copper mine following the end of a 46-day strike. The mine, which produces ore containing 150,000 metric tons of copper a year, is owned by Grupo México, the world's third largest copper miner. Cananea accounts for half of Grupo México's total copper production. The strike contributed to reducing world stocks of copper, and to record high international prices.

The miners had walked out because the government refused to recognize Napoleón Gómez Urrutia, under investigation for fraud, as their union leader.

Recent press reports claim that Grupo México may be about to acquire Phelps Dodge Corp., another of the world's largest copper producers.


Corn imports

Mexico may be the place where corn was first cultivated successfully, and may still be the world's leading producer of white corn, but its production is insufficient to meet total national demand of 29.3 million metric tons. To make up the shortfall, the nation will import about 8.2 million tons of yellow corn this year


Laptop sales take off

Sales of laptops in Mexico rose 48% in 2005, and are expected to rise by 74% during this year. The 2006 sales are likely to be around 993 million dollars. The average price of a laptop in Mexico is 1,500 dollars, compared with 1,200 dollars in the U.S.


More hurricanes? Depends where you are

The Civil Protection department of the Internal Affairs Secretariat issued a warning that hurricane activity in the Gulf of Mexico and the Caribbean is expected to be 55% greater than normal this year. Seventeen hurricanes are predicted and two tropical depressions.

On the other hand, there are expected to be fewer hurricanes (tropical cyclones) on the Pacific coast than usual, with only 11 named storms forecast.


The text of this report was not submitted to any Federal Mexican Authorities or approved by them prior to publication. It is based on sources we believe to be reliable, but its accuracy is not guaranteed.

Published or Updated on: August 1, 2006 by Tony Burton © 2006
Contact Tony Burton

Author of Western Mexico, A Traveler's Treasury (4th edition, Sombrero Books, 2013) and "Lake Chapala Through the Ages; an anthology of travellers' tales" (Sombrero Books, 2008), available from sombrerobooks.com, all good book stores, and Amazon.com. Co-author of "Geo-Mexico, the geography and dynamics of modern Mexico" (Sombrero Books, 2010, geo-mexico.com).

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