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Lloyd Mexico Economic Report - June 2001

Table of Contents

LATIN AMERICA'S TALLEST BUILDING
VITRO ACQUIRES CRISTALGLASS
OPPOSITION TO TOURIST MEGAPROJECT?
NEW HOSPITAL
STREET MARKETS OR SUPERMARKETS?
SPANISH CARS ON SALE
STYROLUX PLANT FOR ALTAMIRA
SHOPPING CHANNEL
MORE HOLIDAY INNS
MAJOR U.N. CONFERENCE IN MONTERREY
HOME DEPOT ENTERS MEXICO
NEW MORTGAGE AGENCY
TRENDS IN THE VEHICLE INDUSTRY
ENERGY TASK FORCE CREATED
PALM PILOTS


 

LATIN AMERICA'S TALLEST BUILDING

Construction is now underway of the second stage of Torre Mayor, on Paseo de la Reforma in Mexico City. When completed, it will be Latin America's tallest building. Work began 18 months ago on the 6,800-square-meter site. The skyscraper is being built by ICA Reichmann at a cost of 200 million dollars and will have 55 floors in total, 43 of them devoted to office space.

The building incorporates the latest anti-seismic devices including a system of "shock absorbers" to reduce the amount the structure moves in the event of a quake. This technology, originally developed in Mexico, has already been used in more than 100 large buildings in seismically active areas in various parts of the world.


VITRO ACQUIRES CRISTALGLASS

The nation's largest glass manufacturer, Grupo Vitro, has acquired 60% of the stock of Spanish glass manufacturer Cristalglass Vidrio Aislante. The Spanish company has 300 workers, annual sales of around 60 million dollars and supplies 30% of the Spanish market for flat glass. Vitro, which now has glass-making plants and distribution centers in 8 different countries, is a major supplier of glass for use in the autoparts, construction and home appliance sectors. In addition, Vitro makes a wide variety of consumer glass products, ranging from wine bottles to cosmetics containers.


OPPOSITION TO TOURIST MEGAPROJECT?

The Tourism Secretariat is actively promoting a major 1.7 billion-dollar regional development plan for northwest Mexico called Escalera Náutica, which literally translates as "Nautical Ladder". The plan will create a linked series of 22 marinas from Ensenada, near San Diego, to as far south as Los Cabos on the Baja California peninsula and Mazatlan on the mainland.

Marinas will be located along the two sides of the Sea of Cortes (or Gulf of California) at intervals of under 200 kilometers. Alongside the marinas, a network of airports, luxury hotels, restaurants and other tourist facilities will be developed. The project will be supervised by the federal tourist development agency Fonatur. Fonatur's first project, begun thirty years ago, was a major success, transforming a small, little-known fishing village (called Cancún) into a world class tourist resort.

Subsequent Fonatur developments include the Pacific coast resorts of Ixtapa and Huatulco. According to Fonatur's director general, John McCarthy, the agency will invest 240 million dollars in developing the infrastructure required for Escalera Náutica and will also be seeking large-scale private investments. Once complete, Escalera Náutica will provide 23,000 boat berths and 10,550 additional hotel rooms along some 4,000 kilometers of coastline. The plan targets the 1.6 million boat owners north of the border in California and neighboring states. The long-term objective is to attract 5.2 million "boat people" a year, spending an average of 2,000 dollars each. However, not everyone thinks this plan is such a great idea.

Environmental groups have denounced the Escalera Náutica proposal as threatening one of the world's most important marine wildlife areas, home to dozens of important species including whales, sealions, dolphins and turtles. On the other hand, federal authorities say that the plan is vital to the future economic development of the area, since it is impossible to envisage alternative development strategies for this portion of the country.

Trying to reassure critics, Environment Secretary Victor Lichtinger said that all aspects of the project will be "low-impact", precisely because of the need to preserve "the world's richest sea in terms of biodiversity", and that the success of Escalera Náutica would guarantee sufficient funds to ensure proper protection for the area.


NEW HOSPITAL

One of Mexico City's top private hospitals, the American British Cowdray Medical Center (ABC), is expanding its services by building a second hospital in the city, in the rapidly growing Santa Fe district. The new hospital will cost more than 100 million dollars and construction will be in three stages. The first stage is due to be completed by the first half of 2003. The World Bank and the Interamerican Development Bank are providing some of the necessary financing for the project. The new hospital will eventually offer several specialist facilities including a cancer center and will have 600 doctors on staff.


STREET MARKETS OR SUPERMARKETS?

One current trend in the retailing sector is for sales to be increasingly concentrated in a reduced number of ever-larger supermarket chains. The trend is confirmed by a recent study from the market research firm ACNielsen which found that the five largest supermarket firms in the country (Wal-Mart, Gigante, Comercial Mexicana, Soriana and Chedraui) are now the happy recipients of a staggering 81% of all supermarket sales.

In line with what has happened in many countries, the big chains are gaining ground at the expense both of smaller supermarket chains and of traditional Mexican retailing outlets, such as small convenience stores and street markets. Street markets, which date back more than 500 years to pre-Columbian times, won't disappear overnight. Traditional outlets are still responsible for about half of the total value of retail sales throughout the country.


SPANISH CARS ON SALE

Earlier this year, the Spanish vehicle manufacturer, SEAT, now owned by Volkswagen, began selling four of its models (the Ibiza, León, Córdoba and Toledo) in Mexico. Aiming to have sold 7,500 vehicles by the end of the year, SEAT hopes to raise this number to 30,000 by 2006. The signing of a Free Trade Agreement between Mexico and the European Union prompted SEAT's entry into Mexico. The firm has only three distributors at present, two in Guadalajara and one in Mexico City.


STYROLUX PLANT FOR ALTAMIRA

The German chemical manufacturer Basf has begun constructing a major new plant in the petrochemical complex of Altamira, near the city of Tampico on the Gulf coast, to make Styrolux. Styrolux is a styrene butadiene copolymer which is both transparent and also impact-resistant. It is used for making food-wrapping films, disposable drinking cups and for packaging such food products as cheese, pasta and hamburgers, as well as for making disposable medical supplies and devices. The plant will come on line in 2003, with an installed annual capacity of 45,000 tons and will supply Styrolux to markets throughout North and South America.


SHOPPING CHANNEL

Home Shopping Network, the U.S.-based firm specializing in "direct television shopping" with sales of more than 2 billion dollars a year, has just launched a Spanish language TV shopping channel in Mexico, Home Shopping en Español (HSE). Initially, the channel will only be available to cable subscribers but HSE executives hope that it will gain a slot as a regular channel in due course. The company's call center is in Monterrey, in the state of Nuevo León. Its warehouse is in Mexico City.


MORE HOLIDAY INNS

Bass Hotels & Resorts, which controls the Holiday Inn and Crowne Plaza chains, has announced investments of 120 million dollars this year to expand the number of Holiday Inns in Mexico from 47 to 60, with a further 20 hotels to be added to the chain in the next four years. Additional Holiday Inns will soon be open for business in several cities including Reynosa, Querétaro, Nuevo Laredo, Guanajuato and Monterrey.


MAJOR U.N. CONFERENCE IN MONTERREY

The city of Monterrey has been chosen as the venue for the next United Nations forum on financing for development. The conference, scheduled to take place from March 18-22, 2002, is expected to draw high-level representatives from regional groups, intergovernmental organizations and world financial institutions. Among possible subjects being discussed as the conference theme are mobilizing domestic financial resources for development and increasing international financial cooperation.


HOME DEPOT ENTERS MEXICO

Mexico's home improvement market is worth an estimated 12.5 billion dollars a year. The largest "do-it-yourself" home improvement retailer is Home Mart, which currently operates 21 stores in the country and recently announced plans to build an additional 25 stores in Mexico City alone. The second biggest player is Total Home, which has only one store in Mexico City and three in Monterrey. Total Home's share of the market looks set to increase rapidly now that it has been sold, for an undisclosed sum, by the Monterrey-based industrial giant Grupo Alfa to the world's largest home improvement retailer,

U.S.-based Home Depot (2000 net sales: 45.7 billion dollars) operates more than 1,100 stores in the U.S. as well as 67 stores in Canada and 8 in South America. According to Anders Moberg, president of Home Depot's international division, expansion into Mexico was a logical step forward for the company, particularly since many of the firm's customers in the U.S. southwest are Mexican nationals. Home Depot also intends to source more products from Mexico.


NEW MORTGAGE AGENCY

For many years the provision of new homes has struggled to keep up with the ever increasing demand that stems from having a young and growing population. In addition, a major obstacle facing many prospective home owners has been a lack of suitable mortgages. This year, the government hopes that 333,000 homes will be constructed for lower-income families and has set a target of 750,000 homes a year by 2006.

As a first step, it has proposed the formation of a new mortgage agency, to be called Sociedad Hipotecaria Federal, to coordinate lending efforts to those with low incomes and to help create a mortgage-backed bond market. The proposal has already been passed by the Chamber of Deputies and is expected to be passed by the Senate later this year.


TRENDS IN THE VEHICLE INDUSTRY

This year, the auto industry is not expected to grow as strongly as previous years, owing to the economic slowdown in the U.S. which analysts predict will lead to an 8% fall in the demand for new vehicles. Export sales are a major component of the Mexican auto-manufacturing industry since more than 70% of all the vehicles produced in the country are destined for export.

In the first quarter, despite the concerns over U.S. sales, figures from the Mexican Auto Industry Association show that export production was up 6.2% in comparison with the same period in 2000. A recent report from BBVA-Bancomer suggests that one of the on-going trends in the vehicle industry is for a gradual shift in location away from central Mexico and towards the U.S. border. Moving closer to the border places firms closer to their key export market, helping to make them more competitive.

Meanwhile, in central Mexico, DaimlerChrysler has announced the closure of three plants even as it expands a fourth facility. Two of the plants being closed are in Toluca (for motors and transmissions) and the other one, in Mexico City, assembles light trucks. However, the company is investing 300 million dollars in its main Toluca plant to boost production of its PT hatchback Cruiser by 80,000 additional vehicles a year.


ENERGY TASK FORCE CREATED

The Federal Electricity Commission says that Mexico will continue to sell power to California. The power being sold represents the excess capacity from power plants in Baja California, an area which is entirely separate from Mexico's national network of transmission lines. At present, trans-border transmission capacity between Baja California and California is restricted to only 400 megawatts, but this figure will rise to 2000 megawatts by the end of next year, on the completion of new lines.

In related news, the leaders of Mexico, the U.S. and Canada have created a joint task force, the North American Energy Working Group, to examine ways of boosting the efficiency of energy trading in North America.


PALM PILOTS

América Móvil, the cell phone company, has announced a range of new services that will be introduced by the end of the year. The most significant development for the business community is the introduction of mobile Internet access, which will enable busy executives to use Palm Pilots to respond to e-mail, perform bank transactions and consult the latest news via their mobile phone accounts.

Mirrored with permission from Lloyd S.A. de C.V.
See their Page on Mexico Connect.

2001 Operadora de Fondos Lloyd, S.A.
© 2001 Allen W. Lloyd, S.A. de C.V.

Published or Updated on: July 20, 2001
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