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Lloyd Mexico Economic Report January 2004

Table of Contents

The shape of 2004
No change at the Bank of Mexico
New stock market index
Canadian ambassador expresses confidence
Oil war in the Gulf of Mexico?
Another satellite soon
Cement firm invests
Denomination of origin for sotol
New life for old mines
Airline accord
Float glass plant
Hotel investments
Lotus arrives in Mexico
Pacific coast container ports

The shape of 2004

President Vicente Fox is now in the fourth year of his six-year term; his personal approval rating remains undiminished at 57%. Despite this, his proposals for reforms, ranging from fiscal matters to labor law, have so far met with only limited success in Congress, where opposition parties enjoy an overall majority.

The largest single political party in Congress is the Institutional Revolutionary Party (PRI), which has its own problems to resolve. At the end of 2003, the PRI's Political Commission voted to replace Esther Gordillo as the legislative leader of the party by Emilio Chuayffet. It remains to be seen whether Chuayffet will succeed in reuniting the sparring factions.

The good news is that Mexico's economy remains strong. The economy did not grow as much as official predictions last year but macroeconomic stability has been a cornerstone of recent economic policy and the major economic indicators indicate that solid progress is being made.

Inflation and interest rates both remain low; foreign reserves are at a record high. The Labor Secretary, Carlos Abascal, forecasts that 250,000 new jobs will be created this year. Mexican firms quoted on overseas markets continue to enjoy the highest ratings for anticipated returns on investment. Together with China, Poland, India and Brazil, Mexico is increasingly regarded by analysts as one of the five global giants of the emerging world.


No change at the Bank of Mexico

Guillermo Ortiz, the incumbent governor of the nation's central bank, Banco de México, has been confirmed by the Senate Financial Affairs Committee for a second six-year term, ending in 2009. Despite the political wheeling and dealing that has slowed the progress of economic reforms, Ortiz enjoys broad cross-party support.


New stock market index

The Mexican Stock Market (Bolsa Mexicana de Valores, BMV) is becoming more global in outlook and offering more choices for investors. The BMV began its global diversification program by commencing trading in thirty Dow Jones stocks including AT&T, 3M, Coca-Cola, Walt Disney, American Express, General Electric and General Motors.

Now, it is trading the high liquidity government bonds known as UMS (United Mexican States). These bonds, backed by the federal government, were previously available only on foreign markets.

In addition, the BMV's new "Stock 50" index quotes the 50 leading Euro-denominated issues from European corporations such as France Telecom, Danone, Deutsche Bank, Daimler Chrysler, Unilever Cert, BBVA, Alcatel, Carrefour, Lafarge, Bayer, Siemens, and Volkswagen.


Canadian ambassador expresses confidence

As last year came to an end, Gaëtan Lavertu, the Canadian ambassador to Mexico, reflected on the continued success of Canadian companies in doing business in Mexico and was optimistic about future growth prospects. Several Canadian companies received a special mention.

Transalta, in association with the Federal Electricity Commission, has added 500 megawatts of power to Mexico's generating capacity.

Precision Drilling, Canada's largest oil sector contractor, has been granted a 300-million-dollar extension to its contract with Pemex to drill wells in the Burgos Basin gas field in northern Mexico.

Bombardier, the transportation firm, won a joint 450-million-dollar contract (with Spanish firm CAF) to supply 450 carriages for the Mexico City Metro system.

Mexico City's Torre Mayor, built by Toronto-based Reichmann International, was inaugurated last June; the building is the largest office building in Latin America.

Lavertu also mentioned the 200-million-dollar acquisition last June of Cinemex, Mexico's second largest cinema operator (32 theaters, 361 screens), by another Toronto-based corporation, Onex Corp., in partnership with Oaktree Capital Management.


Oil war in the Gulf of Mexico?

Some federal officials and academics are voicing concern about oil reserves in the Gulf of Mexico that straddle the maritime boundary between Mexico and the U.S.

In a recent book, Jorge Palacios Treviño, the director of International Studies of the Iberoamerican University, warns that U.S. companies could exploit the underwater reserves, and suck oil and gas that lies under Mexican waters into wells on the U.S. side.

In June 2000, the two countries signed an agreement delimiting the continental shelf in the zone in the center of the Gulf known as the Donut Hole. The treaty established that neither country could attempt to exploit any reserves located within 1.5 nautical miles of the dividing line during the next 10 years.

However, the agreement only covers the Donut Hole and not other parts of the extensive marine boundary. Palacios argues that Mexico should not only seek to reach an agreement over the remainder of its maritime boundary with the U.S., but also over reserves close to its other boundaries (maritime or land) with Cuba, Guatemala, Belize and Honduras.


Another satellite soon

Satélites Mexicanos (Satmex) has 3 satellites in orbit at present: Morelos 2 (launched in 1985 and now nearing the end of its useful life), Solidaridad 2 (1994) and Satmex 5 (1998). A fourth satellite, Satmex 6 is due to be launched later this year by French aerospace company Arianespace from Kourou in French Guiana.

Built by Space Systems Loral for a cost of 145 million dollars, Satmex 6 will be the most powerful and sophisticated satellite in Latin America, with a footprint extending from the southern U.S. across all of Central and South America to Argentina.

It will be placed in a geostationary orbit 36,000 kilometers above the earth's surface at 109.2 degrees west and will have 60 36-megahertz transponders providing 36 C-band channels and 24 Ku-band channels, more than sufficient for the provision of high-speed data transmission, Internet, TV, radio and telephone links and distance education, video conferencing and a host of other commercial applications.


Cement firm invests

Corporación Moctezuma is building a second production line at its Cerritos cement plant in the state of San Luis Potosí. The expansion will require an investment of 90 million dollars and will raise the plant's annual production capacity for grey cement to 1.25 million metric tons by the end of the year. The additional output will be used to meet growing demand in central and northern Mexico.

RELATED NEWS. The Mexican Cement and Concrete Institute and the Mexican Association of Ready Mix Concrete are sponsoring a major trade show, World of Concrete México 2004, to be held June 16-18 in Mexico City. The event will enable international exhibitors to showcase products and technologies not currently offered in the Mexican market and will promote the increased use of concrete as the ideal construction material for Mexico.


Denomination of origin for sotol

Last month, the Mexican Institute of Industrial Protection granted the coveted "denomination of origin" status to sotol, a drink resembling tequila. Both drinks are derived from native agave plants.

The status gives sotol a degree of both national and international protection. From now on, genuine sotol can be produced only within a limited geographical area: the states of Chihuahua, Durango and Coahuila.

To facilitate compliance with the new regulations, which also cover distillation procedures, IMPI has opened an office in the city of Chihuahua to compile a registry of sotol brands and sotol-related patents. IMPI has also begun working towards granting denomination of origin status to several other products made in Chihuahua, including "Mennonite" cheese, chile chipotle and the ceramics of Mata Ortiz.


New life for old mines

The main pollinators of the agave plants from which sotol is distilled are thought to be long-nosed bats and other nectar eating bat species. Before long, these bats may be equally valued for another product: fertilizers made from their excrement (bat guano).

The Zacatecas Institute of Ecology and the Environment is examining the merits of a project based in the Mazapil municipality in the north of the state. The proposal, supported by the non-profit Bat Conservation International, would "harvest" bat guano from seven abandoned mine shafts near Nuevo Mercurio, providing a much-needed alternative source of employment and revenue for local residents. The semi-arid region offers few alternative job possibilities and has a high rate of out-migration.

An integral part of the project is the establishment of a sanctuary for the hundreds of thousands of bats that have made their home in local caves and old mines. Preliminary samples of the guano reveal it contains 42% nitrogen, 15% phosphorus and 1.7% potassium, an excellent basis for fertilizer production.


Airline accord

Aeroméxico and Continental Airlines have signed a code-sharing agreement for routes between Mexico and the U.S. The agreement takes effect in March and will last for 10 years. Customers of both airlines will benefit from more opportunities to amass mileage points and more choice of flight times and connections.

Aeroméxico serves 40 cities in Mexico and 22 destinations in the U.S., Europe and South America. Continental is the world's seventh largest airline, flying on 127 domestic routes in the U.S. and 96 international routes, including 23 to Mexico.

The code-sharing agreement is in addition to Aeroméxico's existing accord with its Sky Team partner Delta Airlines.

RELATED NEWS Aeroliteral, the regional subsidiary of Aeroméxico, has announced plans to add 5 new 50-seat Embraer ERJ145 LR jets to its fleet this year.


Float glass plant

In association with AFG Industries, a subsidiary of Japan's Asahi Glass Company, Vitro, Mexico's leading glass-maker, has opened a plant in Mexicali (Baja California) manufacturing float glass. It becomes the largest of Vitro's four plants in the Republic, with a daily capacity of 550 metric tons of the high quality, virtually distortion free glass, in a range of thicknesses from 2 to 8 millimeters.

Float glass is formed by allowing molten glass to flow as a continuous ribbon into a bath of molten tin. Glass produced at the plant will be marketed throughout North America.

The main fuel for the 100-million-dollar state-of-the-art facility comes from the residues left over after Pemex has refined crude oil. Fuel costs account for 18% of Vitro's operating costs and this "alternative" fuel reduces the risks associated with the high volatility of oil and gas prices, saving the company about 30% of its total fuel bill. Other Vitro furnaces are being converted to use the same system.


Hotel investments

Total hotel capacity, as measured by the number of available rooms, is increasing at about 7% a year. Numerous hotel operators have already announced expansion plans for this year.

Mayan Resorts is adding 500 suites to its hotels and timeshares in Acapulco, Nuevo Vallarta and Cancún.

Grupo Fratur, is adding 6 new hotels to its two existing chains (Howard Johnson and Casa Inn).

Spain's largest hotel firm, Sol Meliá Hotels & Resorts is investing 72 million dollars in remodeling and expanding its chain of 11 hotels; the company's prime project is a new 500-room hotel in the Riviera Maya.

Fairmont Hotels & Resorts, based in Canada, is continuing upgrades to its luxury Acapulco Princess and Pierre Marqués hotels in Acapulco, confident that Acapulco will soon attract more direct flights from Europe and the U.S.. The company is also investing 30 million dollars in two joint projects with Mexican hoteliers, in Puerto Vallarta and the Riviera Maya.


Lotus arrives in Mexico

Deportivos Británicos de México are the exclusive representatives in Mexico of U.K.-based Lotus high performance sports cars. Look for the first Elise models on the streets in the coming weeks, but don't expect to win a race away from a stop light since they can reach 100 kilometers an hour in just 5 seconds!


Pacific coast container ports

While Mexico accounts for about 60% of all foreign trade in Latin America, its share of ocean-going container traffic is small. That may change as several Mexican ports gear up to offer advanced handling systems for containers.

Last November, LC Terminal Portuaria de Contenedores (LCTPC), a joint venture of Hutchison Ports México and Controladora y Operadora de Terminales (COTSA), began operating a container terminal, with a capacity of 200,000 containers a year, in the port of Lázaro Cárdenas. LCTPC will invest more than 200 million dollars over the next decade in building a brand new terminal, capable of handling up to a million containers a year.

Further north, Transportación Marítima Mexicana is hoping ocean going vessels will prefer its terminal, also being upgraded, in the port of Manzanillo.





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.

© 2004 Operadora de Fondos Lloyd, S.A.
© 2004 Allen W. Lloyd, S.A. de C.V.

Published or Updated on: July 20, 2006
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