MexConnect
Business  |  See all articles tagged finance-economics geography social-issues

Lloyd Mexico Economic Report June 2004

Table of Contents

Strong economy
Encouraging tourism numbers
City express hotels
Smaller families
Cleaner gasoline
Revised consumer protection law
Security for investors
Siefores can invest in stocks
Companies return from China
Is poverty urban or rural?
Hydro dam on schedule
New porcelanite plant
Support for bullet train
National infrastructure council
The Fenix project
More movie screens

Strong economy

The Mexican economy is doing well, according to the latest report from the OECD (Organization for Economic Co-operation and Development) examining the financial perspectives of its 30 member states. The OECD, which groups the world's principal economies, predicts that Mexico's GDP will rise by 3.5% this year, and roar ahead a further 4.2% in 2005.

The report says that the current domestic situation in Mexico, coupled with the clear signs of growth in the U.S. manufacturing sector, favor continued investment and growth. The economy has benefitted recently from higher than expected oil prices which have kept the public accounts deficit well within government targets.


Encouraging tourism numbers

Mexico's sun, sand and sights have enabled it to become the world's 8th most important destination in terms of numbers of tourists and 10th most important in tourist revenues. The latest numbers from the industry make for encouraging reading.

In the first quarter of this year, Mexico received 5.2 million international tourists, 14.6% more than during the same period a year earlier, and revenues from tourism jumped 18% to 2.938 billion dollars, according to the Tourism Secretariat. The figure for March (1.051 billion dollars) was the highest monthly figure recorded since the current system of record keeping was initiated in 1993.

The first quarter "balance of tourism" (the result obtained by taking revenues from foreign tourists and subtracting expenditures by Mexicans traveling abroad) registered a healthy surplus of 1.373 billion dollars, 18% higher than a year earlier. This was helped by a continued rise in the average expenditures of those visitors who spend at least one night in Mexico, from 690 dollars a year ago to an all-time record 724 dollars now.

Analysts expect Mexico to have welcomed more than 20 million tourists by the end of the year.


City express hotels

City Express Hotels is a Mexican-owned chain started in 2002. It offers mid-price hotels, with high standards of service, comfort and technology, and targets frequent business travelers in cities that have a growing industrial sector.

The firm is expanding rapidly, investing 90 million dollars this year to add 8 new locations - Puebla, Irapuato, Nuevo Laredo, Reynosa, Tampico, Cd. Juárez, Tepatitlán (Jalisco), Torreón and Mexico City - to its 5 existing hotels in Saltillo, San Luis Potosí, León, Querétaro and Monterrey.


Smaller families

The percentage of the population under 15 years old fell from 46% of the total in 1970 to 33% in 2000 and is predicted to drop to 15% by 2050. About 33 million children are currently under 15 years old, approximately the same number as the total population of Canada.

Among those states with a high proportion of children are Guerrero (38.9% of total population), Chiapas (38%) and Oaxaca (37.8%).

At the other end of the spectrum, areas with a relatively low proportion of children include Mexico City (26.1%), Baja California (30.4%) and Colima (30.9%).

Why is the percentage of young people falling? The main reason is the considerable drop in the nation's fertility rate. According to figures from the National Population Council, families in 1970 had an average of 7 children, compared with 2.16 in 2003.

The inevitable consequence has been a steady rise in the average age of the population. This population shift, away from youth and towards older people, has wide-ranging implications for a number of economic areas, including employment, taxation, health care, education, and public spending.


Cleaner gasoline

Distribution began in mid April of a new, cleaner formulation of Premium gasoline. The new version has a reduced sulfur content, down from 500 to 300 parts per million. The octane level (92) and price remain unchanged.

The reformulation is a key step in Petroleos Mexicanos's ongoing Fuel Quality Improvement Program. Reducing the sulfur content in gasoline improves the efficiency and effectiveness of catalytic converters and results in lower tailpipe emissions of several critical pollutants including nitrogen oxides, carbon monoxide, sulfur dioxide and fine particulates. It has no negative impact on performance or mileage.


Revised consumer protection law

Modifications to the Consumer Protection Law came into effect last month. The changes include greater protection for those engaging in real estate transactions, clearer regulations concerning privacy and data confidentiality issues, and the opening of Consumer Protection offices in major commercial centers. Another welcome development is that complaints to the Agency no longer necessarily have to be made in person but can be made by telephone, fax or e-mail.


Security for investors

The Mexican Senate has ratified an accord with the U.S. which provides a series of guarantees to U.S. investors who are planning 2.327 billion dollars in direct foreign investment in Mexico between now and the end of 2005. The agreement authorizes a U.S. agency, the Overseas Private Investment Corporation(OPIC) to back projects in Mexico.

OPIC grants foreign investment financing to U.S. companies through debt investment, social capital participation, investment guarantees and insurance against non-commercial risks. The investments cover 32 different projects in a variety of sectors, ranging from energy, telecommunications, housing and tourism to airports, glass manufacturing, language learning and fishing.


Siefores can invest in stocks

Retirement Fund Operators (Siefores) now manage a total portfolio in their Retirement Funds worth more than 37 billion dollars on behalf of their clients. This figure is growing by between 7 and 8 billion dollars a year. The National Retirement Savings Commission has announced a significant change in the regulations governing Siefores which will now allow them to hold up to 15% of their portfolios in stock market securities.

Many analysts expect Siefores to become among the larger investors in the market, with most interest focused on "blue chip" stocks like Wal-Mart, América Móvil, Cemex and Telmex.

Related News: The Mexican Stock Market continues to broaden the global scope of its offerings. Its latest innovation is to include trading in the Nasdaq-100 Tracking Stock (known internationally as QQQ) among the many possibilities open to investors.


Companies return from China

Last year, Wal-Mart chose Mexico over China for a major international distribution center. Now, according to the latest reports, several major corporations that moved part or all of their Mexico-based operations to China are returning. Attracted to China initially by lower production costs, their return is an acknowledgment of the tremendous importance of easy access to the huge North American market.

Besides proximity to the U.S., Mexico's other advantages include its economic and political stability and its well-educated and skilled workforce.

The companies mentioned in the latest reports include Sara Lee, Procter & Gamble, Xerox, Nissan, Samsung, Daewoo, Nike and Motorola.


Is poverty urban or rural?

Nationwide, urban areas continue to grow by about 600 people a day as the result of a combination of natural increase together with continued in-migration from rural areas.

The rapid pace of urbanization in Mexico has led to a radical change in the spatial distribution of poverty in the country, with urban poor now outnumbering rural poor for the first time, according to data released by the Social Development Secretariat. As a result, Sedesol is including 5 million families residing in the larger cities such as Guadalajara, Puebla, Monterrey and Mexico City in its Oportunidades program.


Hydro dam on schedule

Due to be completed in early 2007, a few months after President Fox leaves office, the 750-million-dollar El Cajón project, near Santa María del Oro, in Nayarit, is well under way.

The River Santiago has been diverted into two 14-meter diameter tunnels, while the project's 186 meter high dam is built by a consortium called Constructora Internacional, led by Mexican construction company ICA.

The resulting lake will cover an area of 39.82 square kilometers (15.4 square miles), and have a storage capacity of 2.4 billion cubic meters (84 billion cubic feet) of water. Work is now commencing on the underground operating, turbine and generator rooms.

Mexico's 74 hydro plants supply about 15% of the nation's electicity; El Cajón will add another 2% (750 megawatts). The Fox administration is planning two more hydro plants, both larger than El Cajón, involving investments of around 1.8 billion dollars, in La Parota (Guerrero) and La Yesca (Nayarit).


New porcelanite plant

Grupo Porcelanite is one of the three largest manufacturers in the world of decorative ceramic tiles for walls and floors, with an annual production of close to 100 million square meters a year. The company, founded in 1959, already operates ten plants in Mexico, in the states of México, Tlaxcala, Querétaro and Guanajuato. Its environmentally-aware plants incorporate innovative co-generation energy and heat recovery systems.

Now, it is investing 45 million dollars to build a new plant near Opodepe (Sonora), which is scheduled to open in November with an annual production capacity of 9.8 million square meters of tiles. Porcelanite plans to expand it over the next five years into the world's biggest plant of its kind.


Support for bullet train

President Vicente Fox has confirmed federal support for the proposed bullet train linking the nation's two biggest cities: Mexico City and Guadalajara. According to preliminary estimates from the Communications and Transportation Secretariat, construction will cost 5 billion dollars and take several years to complete.

As proposed, the high speed bullet train would reach speeds of up to 250 kilometers an hour. Travel between the two cities would take about 2.5 hours, with an estimated one-way ticket cost of 90 dollars, which compares favorably with the existing alternatives of bus (6.5 hours, 50 dollars) and air (55 minutes, 140 dollars).

Likely stops for the bullet train include Querétaro, Celaya, and León, where it would connect with the planned Guanajuato inter-urban train system linking León to Silao, Irapuato, Salamanca and Celaya.

An article in a recent edition of The Economist, described the city of Querétaro as "Mexico's new boomtown", citing a Consulta Mitofsky study that selected the city of Querétaro as "the best place to live and do business in Mexico".


National infrastructure council

A National Infrastructure Council has been created to promote joint public- private-sector investments. The Council's members include the federal Secretaries of Finance (Francisco Gil Díaz), Energy (Felipe Calderón), Economy (Fernando Canales Clariond) and Communications and Transportation (Pedro Cerisola), together with representatives of the Mexican Chamber of the Construction Industry.

The construction sector is an important indicator of overall economic activity. About 55% of all federal contracts for infrastructure construction and maintenance in 2003 were won by domestic firms.


The Fenix project

The petrochemical division of state-owned oil giant Petroleos Mexicanos (Pemex) is negotiating with several major corporations before choosing who will partner it later this year as it begins its massive 2-billion-dollar Fenix project.

The project, likely to take at least 3 years to complete, involves constructing several new petrochemicals plants at a location still be to determined. Likely contenders for the location include Coatzacoalcos (Veracruz) and Altamira (Tamaulipas).


More movie screens

Grupo Cinemex is investing 90 million dollars over the next two years to add 140 more movie screens to its chain. Cinemex began operations in Mexico City in 1995 and has since grown to become the nation's second largest cinema chain.

Its latest plans include a 25-screen movie complex in Mexico City's "Historic Center", due to open in 2005, as well as other multi-screen projects in Guadalajara, San Miguel de Allende, San Juan del Río, Monterrey and Puebla. Total ticket sales in Mexican movie houses (3,200 screens) during 2003 were worth about 500 million dollars.

Behind the screens, the Mexican dubbing industry is likely to see greater competition following the surprise decision by media giant Televisa to sell its dubbing service, Audio Master. The dubbing market is worth an estimated 25 million dollars a year, with an average cost, in 2003, of around 700 dollars for dubbing a 30-minute show.





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
All Tags