Lloyd Mexico Economic Report - July 1999
- PROMOTING MEXICO IN ASIA
- WORST DROUGHT EVER?
- DIRECT FOREIGN INVESTMENT
- CRUDE EXPORTS
- NEW CCE PRESIDENT
- BIG MARKET FOR DIAPERS
- PACIFIC COAST HIGHWAY
- WHOSE OIL IS IT ANYWAY?
- DUAL-FUEL VEHICLES
- WEB PAGE DIRECTORY
- CHANGING EMPLOYMENT PATTERN
- MORE DEPARTMENT STORES
- THE GROWTH OF E-COMMERCE
- RETIREMENT SAVINGS PLANS
- ADDITIONAL GENERATING CAPACITY
- DAIMLER-CHRYSLER INVESTS
The Foreign Trade Bank (Banco de Comercio Exterior, Bancomext) recently sponsored a series of exhibits and meetings in Asia, highlighting investment opportunities in Mexico. Representatives of several states, including Sinaloa, Sonora, Tamaulipas, Nuevo León, Jalisco, Guanajuato, Aguascalientes and Querétaro, were on hand. The meetings are already having positive results. For example, one Hong Kong-based company, China World Best, has announced it will invest 25 million dollars in a 400-worker cotton-thread plant in Ciudad Obregón, in Sonora, and is also considering opening an assembly and distribution plant for tractors and light agricultural machinery. More than 1000 members of the Asian business community attended "Asia-Mexico '99" events. The highest attendances were in Hong Kong and Shanghai. The main focus of Bancomext's presentations was that Mexico is the ideal gateway for firms wanting to expand into North, Central and South America.
Some rain has finally fallen in parts of northern Mexico which have suffered widespread drought as a result of four consecutive years of low precipitation. Meteorologists at the National Water Commission (Comisión Nacional del Agua, CNA), blamed "La Niña" and said that the drought is one of the worst the country has ever experienced. Reservoirs in most of the north are at less than 20% of their capacity. Ten northern states have been officially declared "disaster areas", making them eligible for federal relief programs. Agriculture officials are predicting that the grain crop during the fall-winter cycle will be reduced by up to 30%. More than 10,000 livestock farmers are also affected and in one state alone - Coahuila - the cattle herd has been reduced by more than 650,000, to 40% of its normal level.
Consumer prices for many food items such as grains, beans, rice, soy and some fruits are all likely to rise. A recent CNA publication argues that Mexico needs to invest at least 600 million dollars a year in irrigation and water-related projects if farmers are to be able to keep up with the predicted future demand for food. The study presupposes that food imports remain relatively static and estimates that 83% of all the water used in Mexico is used by farmers. Crops grown in irrigation districts supply 55% of national food production and 70% of all agricultural exports. The adoption of more efficient irrigation systems is clearly one of the keys to ensuring an adequate water supply in the future.
Figures from Banco de México, the central bank, show that Mexico attracted direct foreign investment totalling 2.598 billion dollars during the first quarter of this year. While this would appear to be in line with the government's estimate of 10 billion dollars for the year, most analysts believe that the year-end figure will be closer to 9 billion dollars. By way of comparison, direct foreign investment in 1998 totalled 10.24 billion dollars.
Earlier this year, Mexico and the Organization of Petroleum Exporting Countries (OPEC) agreed to cut oil production in an effort to encourage higher international prices. Oil prices rose slightly more than anticipated during the first five months of the year, meaning that Mexico's oil exports, while reduced in volume, generated 264 million dollars more than had been forecast. Exports of crude during that period, at an average price of 10.96 dollars a barrel, brought in 2.6 billion dollars.
Mexico's most important grouping of private sector businesses, the Business Coordination Council (Consejo Coordinador Empresarial, CCE) has a new president: Jorge Marín Santillán. The CCE comprises representatives of seven major business groups: the Mexican Businessmen's Council (CMHN), the National Confederation of Chambers of Industry (Concamín), the Mexican Confederation of Business Owners (Coparmex), the National Confederation of Chambers of Commerce (Concanaco), the Mexican Association of Insurance Institutions (AMIS), the National Council of Agribusiness and Cattlemen (CNA) and the Council for Financial Coordination (CCF).
Doting Mexican parents purchase more disposal diapers for their infant offspring each year than any other country besides the U.S. and Japan, according to Pablo González, a Kimberly Clark de México marketing manager. Even though disposable diapers are used in only about 30% of all diaper changes, 50 million dollars worth of them are sold each month, and the market is growing. González expects sales to increase by 8% this year, similar to the amount of increase registered in 1998. Besides Kimberly Clark, the other major suppliers of disposable diapers in Mexico are Procter & Gamble and Chicolastic.
Responding to criticism about the amount of landfill space required for the disposal of disposables, a Kimberly Clark spokesperson said that diapers now account for less than 1% of all waste, and that 40% of their "components" are 100% biodegradable.
A report in Mexico City daily El Financiero says that Spanish investors are considering financing a new multi-lane coastal highway in the states of Guerrero and Michoacán. The existing route is slow and tortuous. The highway would link the Pacific coast resort of Acapulco with Ixtapa-Zihuatanejo and Lázaro Cárdenas, the major industrial center and port. A faster, safer highway along this beautiful stretch of coastline would inevitably act as a catalyst for future tourist and commercial development.
Still unresolved is the delicate problem of delineating the precise boundary between the U.S. and Mexico in the oil-rich waters of the Gulf of Mexico. At the heart of the problem is an underwater reservoir of oil and gas known as the Hoyo de Dona, believed to contain between 5 and 22 billion barrels of crude as well as about 45 billion cubic feet of natural gas. Talks began in 1997 but the two countries remain far apart, partly because the U.S. is not a signatory to the 1979 Ocean Treaty, which established exclusive maritime territory stretching up to 200 nautical miles from the coast.
Even before the maritime border is clearly defined, several private oil companies including Amoco, Mobil and Texaco have started drilling exploratory wells in the region. One of Mexico's proposals allows for financial compensation in the event that either country extracts hydrocarbons from the other's reserves.
The state of Mexico now has 132 "dual-fuel" vehicles for its program of environmental protection. The vehicles, Chevrolet Cavaliers built by General Motors, use compressed natural gas (CNG) as their primary source of energy but switch automatically to a back-up tank of gasoline if their natural gas runs out. The use of CNG significantly reduces harmful emissions. Compared with gasoline, CNG-fuelled engines emit 40% less carbon monoxide, 30% less nitrogen oxide, 90% fewer reactive hydrocarbons, 30% less carbon dioxide and no lead or benzene.
Furthermore, CNG is more economical than gasoline and also reduces vehicle maintenance costs. A fleet of similar dual-fuel vehicles was acquired by Mexico City's public security services in 1998. The drawback? At present, there is only one CNG filling station in the valley of Mexico. Fortunately, several additional CNG stations are due to be opened later this year.
Grupo Multivisión plans to invest 84 million dollars in expanding its Internet page-search and advertising service, Adnet, throughout Latin America. According to one of its executives, Adnet (www.adnet.com.mx) is the largest on-line directory of Mexican web pages in the world, with more than 8,000 pages and a data-bank of 217,000 businesses in 3,500 categories. Adnet claims to capture 70% of all Mexican publicity on the Internet and says it receives more than 7 million hits a month, six times more than its nearest rival.
Whereas 50 years ago, 45% of Mexicans worked in rural (primary) activities, 28% in manufacturing and 27% in services, the preliminary results of the 1999 Economic Census, recently published by INEGI (Instituto Nacional de Estadística, Geografía e Informática), show that only 20% now work in primary activities with 27% in manufacturing and 53% in services. Mexico's economically-active population totals 40.5 million people.
Interestingly, only about 5% of Mexicans now work in the public sector, compared with comparable figures of 15% in the U.S. and Germany, 20% in Canada, 25% in France and 32% in Sweden. From February 7-18 next year, INEGI will carry out its decadal Population Census. The Census will include questions about housing and migration.
The department store company, Liverpool, has been given the go- ahead by the Federal Monopolies Commission (Comisión Federal de Competencia, CFC) to buy 11 former Salinas y Rocha stores, currently owned by Grupo Elektra. Elektra acquired the stores last March as part of its 78-million-dollar buy-out of Salinas y Rocha, but considered the 11 stores surplus to its requirements. Liverpool, which offered 27 million dollars for the 11 stores, is to invest a further 7 million in remodelling them.
Electronic Internet commerce (e-commerce) is growing at an incredible rate, not only in the U.S. but also in Mexico. Around the globe, an estimated 140 million people are now connected to the Internet and industry insiders predict that sales via the net will explode from their 1998 level of 13 billion dollars to more than 800 billion dollars by 2003. In terms of computers and Internet access, Mexico still lags well behind the U.S.; its 92 million people share fewer than 4 million computers, 30% of which are Internet-linked.
Even so, sales via the Internet are increasing rapidly. Worth 30 million dollars in 1998, they are likely to top 3 billion dollars by 2003, according to most estimates. By that time, more than 11.5 million Mexicans are expected to be connected to the Internet.
Since the 1997 privatization of pension funds, 14.463 million mandatory retirement savings plan (or Afore) accounts have been opened, according to the National Retirement Savings System Commission (Comisión Nacional del Sistema de Ahorro para el Retiro, Consar). Combined, the accounts hold 7.62 billion dollars.
More than half of all workers are affiliated to one or other of four plans. Bancomer has captured 15.89% of the market, Santander-Mexicano 13.89%, Profuturo-GNP 13.65% and Banamex-Aegeon 11.53%. Workers' confidence in the new system is shown by the fact that voluntary contributions to the plans have also increased greatly, more than doubling since April 1998. Consar reports that, over the last year, the average net gain for Afores was 8.65% above inflation.
The Federal Electricity Commission (Comisión Federal de Electricidad, CFE) has announced that seven new electricity generating plants will soon come into operation, increasing installed capacity by 2,500 megawatts. The seven plants are Rosarito, Saltillo, Bajío, Tuxpan, Hermosillo, Monterrey and Río Bravo. The 281-million-dollar, 450-megawatt Tuxpan plant will be built by Mitsubishi. The CFE is already studying the feasibility of a second thermoelectric plant in the Gulf coast port of Altamira, one of Mexico's fastest-growing industrial areas.
Even though additional CFE projects this year will bring the total projected increase in installed capacity to 4,000 megawatts, this still barely keeps pace with Mexico's rate of economic growth. RELATED NEWS The CFE has awarded the 44-million-dollar contract for constructing 14 substations in north-western Mexico to the Spanish firm Elecnor. The substations are due to come on line in December next year.
Daimler-Chrysler is planning to spend more than 1.5 billion dollars over the next five years in modernizing its vehicle assembly plants in Mexico. This figure does not include the cost of completing the company's new 25-story office block in Mexico City, due to be opened in January next year.