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Lloyd Mexico Economic Report January 2006

Table of Contents

The shape of ‘06
Mexican to head OECD
Promoting business in Texas
Snail trail to Europe
Cement makers reduce pollution
Prize-winning printing industry
Mexicana airline sold
Construction of City Santa Fe
Franchises booming
Honda invests

The shape of ‘06

Along with oil prices, the federal elections in July will be one of the major factors influencing the economy this year. Campaigning begins later this month, and analysts predict a tight three-way race between the National Action Party (PAN), the Institutional Revolutionary Party (PRI) and the Democratic Revolutionary Party (PRD).

For the fourth consecutive year, the current administration met its key economic targets, helped by buoyant exports and favorable oil prices. The economy grew more than 3% in 2005 and a multitude of indicators all demonstrate economic solidity. Wholesale and retail figures rose steadily in 2005, and the consumer confidence index remained high.

Total direct foreign investment (DFI) last year was between 17 and 18 billion dollars, according to preliminary figures. Business leaders say this figure could reach 25 billion dollars this year, as the rate of economic growth picks up. Key interest rates remain low, and the economy generated more than 750,000 new permanent jobs in 2005.

The Mexican Stock Market (Bolsa Mexicana de Valores, BMV) had an outstanding year, gaining more than 30% over the first eleven months. In mid-December, the nation's international reserves were close to 70 billion dollars, an all-time high.

The 2006 budget contains no surprises. It sets goals of 3.4% growth in GDP, with 3.6% inflation and an exchange rate of 11.30 pesos to the dollar by year-end.


Mexican to head OECD

The Secretary-General elect of the 30-member Organization for Economic Cooperation and Development (OECD) is José Ángel Gurría. Gurría will replace Donald Johnston who retires this June. Gurría's stated goal is to make the OECD, based in Paris, more influential and to "reposition it in the new era of globalization."

The organization, founded in 1961 to represent the world's major economies, promotes international dialogue but (unlike the International Monetary Fund (IMF) and World Bank) does not lend funds. Mexico, the only Latin American nation in the OECD, became a member in 1994.


Promoting business in Texas

The Economy Secretariat has opened a Technology Business Accelerator (TBA) office in Austin, Texas, as part of its program to promote small and mid-sized Mexican technology firms. The program assists existing firms thought to have a high potential for export success. The first TBA office was opened last February in the heart of Silicon Valley, California.


Snail trail to Europe

Helix de México, founded less than three years ago, now supplies four metric tons of edible Petit-gris snails each week to buyers in Italy and Spain. The young firm was founded by a group of friends who realized when vacationing in Europe that demand for escargot exceeded local supply. With support from the Finance Secretariat, they converted 5,000 square meters of land near Cordoba, in the state of Veracruz, into a modern snail farm.

The Petit-gris snail is the most sought after variety worldwide. This year, Helix is looking to expand into markets in Greece, Belgium and China.


Cement makers reduce pollution

Between them, the leading cement manufacturers (Cemex, Holcim Apasco, Cementos Moctezuma, Cementos Cruz Azul, Cementos Chihuahua and Lafarge) have invested a billion dollars over the past five years to increase capacity and update plants. About 15% of the total investment has been directed at reducing atmospheric contamination. Figures show that emissions have fallen by 6% over that time.


Prize-winning printing industry

The printing business in Mexico is worth about 2.8 billion dollars a year and involves more than 170,000 different firms, many of which are quite small. The top firms are world-ranking. Analysts estimate that the printing sector has invested more than a billion dollars over the past 5 years in acquiring and installing the very latest in printing technology.

The investments are paying off, with several Mexican companies winning major prizes at the international 2005 Premier Print Awards Competition. For instance, Offset Multicolor won a "Benny", the industry equivalent of an Oscar, for its outstanding work on the Spanish language edition of National Geographic's "The 100 Best Classic Photographs". The national printing industry picked up 362 prizes in total at the awards, a clear indication of its world class status.


Mexicana airline sold

Grupo Posadas, a leading national hotel group, is buying Mexicana de Aviación from Cintra in a deal worth about 1.456 billion dollars. The acquisition includes Click, Mexicana's budget airline subsidiary.

Grupo Posadas operates 92 hotels, with a total of 17,300 rooms, in Mexico, the U.S. and South America, with annual sales of 420 million dollars.

The sale of Aeromexico, also currently owned by Cintra, a government holding company, has been postponed until later this year.


Construction of City Santa Fe

Grupo Inmobiliario Gicsa, founded in 1989, specializes in large-scale real estate developments like shopping centers, residential complexes and industrial parks. Its previous projects include Residencial Lomas I and II in Mexico City, Maralaga in Acapulco and the Isla Shopping Center in Cancún.

Its latest project is its largest mixed-use (residential-commercial) development to date. When complete in 2012, City Santa Fe, located on 42,000 square meters behind the corporate headquarters of DaimlerChrysler in the western Mexico City district of Santa Fe, will house several thousand families in eleven tower blocks.

The first three towers, with up to 36 stories, housing 460 apartments, are due to open in 2007. Apartments will range from 80 to 240 square meters in size, at an average price of 2,000 dollars a square meter. The mini-city will have a full spa, business center, gym, pools and extensive gardens, as well as a commercial zone.


Franchises booming

The franchise industry continues to do very well. It is now the world's 8th largest, responsible for about 5% of GDP and accounting for 15% of all consumer purchases. Last year, total franchise revenues nationwide topped 85 billion pesos, 17% more than in 2004, according to Roberto Ramos Weckmann, president of the Mexican Franchise Association.

Nationwide, there are some 830 registered franchises, with 50,000 points-of-sale. Franchises provide 570,000 direct jobs.


Honda invests

The Mexican subsidiary of Honda, the Japanese automaker, has announced investments of 30 million dollars this year to expand its plant in the industrial park of El Salto, close to Guadalajara. The plant, established in 1985, now employs 1,400 workers and turns out 22,000 Honda Accords a year for markets in Mexico, U.S. and South America, in addition to 23,000 motorcycles, mostly for the domestic market.





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.

© 2006 Operadora de Fondos Lloyd, S.A.
© 2006 Allen W. Lloyd, S.A. de C.V.

Published or Updated on: July 20, 2006
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