Lloyd Mexico Economic Report - June 2000
CONTENTS:
- SUCCESSFUL FIRST QUARTER
- PRESIDENTIAL ELECTIONS
- THE BIG MAC INDEX
- BORDER BRIDGE SUCCESS
- WIRELESS LOCAL TELEPHONES
- SALES OF NEW VEHICLES UP
- STRONG CEMENT MARKET
- FOREIGN INVESTMENT
- ANOTHER FREE TRADE AGREEMENT
- POSSIBLE BANKING MEGA-MERGER
- BANCA SERFIN - SOLD!
- WAL-MART INCREASES STAKE
- MEDIA DEVELOPMENTS
- DECREASING INFLATION
- NEW INTERNET REGULATION
- LOAN TO BUILD POWER PLANT
- REMOTE OIL TERMINAL
- GIFT INDUSTRY ON SHOW
SUCCESSFUL FIRST QUARTER
Mexico's economy, the second largest in Latin America, grew at a rate of about 7% in the first quarter. Higher oil prices, which averaged 24.36 dollars a barrel, compared with 9.24 dollars for the first quarter last year, helped push the nation's fiscal surplus for the first quarter over 550 million dollars. In March, manufacturing output was 8.7% higher than a year earlier, with the construction industry up 5.6% and the mining sector up 3.2%.
PRESIDENTIAL ELECTIONS
Next month's presidential elections (July 2) look like being the most closely contested in recent history, with opinion polls divided as to the likely outcome. The two front runners are Francisco Labastida, representing the long-ruling Institutional Revolutionary Party (PRI), and Vicente Fox, standing for the National Action Party (PAN). Cuauhtemoc Cardenas, the candidate for the Democratic Revolutionary Party (PRD), is a distant third, followed by the other three presidential hopefuls, who, according to the polls, are unlikely to share more than 4% of the total vote between them. For the first time ever, an autonomous agency, the Federal Electoral Institute, is in charge of overseeing the voting at the country's 112,500 polling stations. On the night of the vote, results will be broadcast live on television and posted simultaneously on the Internet.
THE BIG MAC INDEX
The 14th annual "Big Mac" index, compiled by The Economist, suggests that the peso might be overvalued by about 11% in comparison with the dollar, though this is hardly cause for concern given the manner in which the index is compiled. The index is based on the comparative price, converted to dollars, of a McDonald's Big Mac in 120 different countries. The Economist reports that the average price of a Big Mac in the U.S. was 2.51 dollars, compared with 2.12 dollars in Mexico. The cheapest hamburger (and hence the most overvalued currency) was in Malaysia (1.19 dollars) while the most expensive (undervalued currency) was in Israel (3.58 dollars). The Economist acknowledges that its school of "burger-economics" is still insufficiently precise for accurate economic forecasting!
BORDER BRIDGE SUCCESS
Within months of opening, the new international bridge between Laredo, Texas, and Nuevo Laredo, Chihuahua, has had several positive effects on cross-border traffic. Even though two older downtown bridges remain open for cars and pedestrians, the 8-lane World Trade Bridge is now the only border crossing between the two cities for trucks and commercial vehicles. In the last three years, cross-border commercial traffic has grown 800%, according to the U.S. Transportation Department Secretary, Rodney Slater, with Laredo-Nuevo Laredo, located at the southern end of I-35, accounting for approximately 40% of all cross-border overland merchandise trade. The new bridge has eased traffic jams and speeded up trucking times. Laredo businessmen and city officials are now reported to be working towards a proposal for yet another international bridge, construction of which could begin in about 2005.
WIRELESS LOCAL TELEPHONES
The telephone company Axtel is to increase its investment in the city of Guadalajara this year to more than 210 million dollars, 20% more than originally projected. Axtel currently has 17,000 clients (60% residential, 40% commercial) and hopes to have 70,000 by year end. Axtel, which uses wireless technology to provide fixed station local service, intends to offer Internet access beginning later this month. Axtel, which already has 50,000 clients in Monterrey and 10,000 in Mexico City, plans to expand its coverage to 20 additional cities in the next 18 months, including Puebla, Toluca and León.
SALES OF NEW VEHICLES UP
Retail sales of vehicles were up 40.6% in March compared with a year earlier, according to the Mexican Association of Automotive Distributors. The 70,956 units sold in March were comprised of 46,821 automobiles, 21,542 commercial trucks and 2,593 heavy trucks. The March figures brought the cumulative total to 202,093 vehicles for the first quarter, 44.9% higher than during the same period in 1999. During the first quarter, the leading car manufacturers, by number of units sold, were General Motors (32.1%), followed by Nissan (26.6%), Volkswagen (26.1%), Ford (7.1%), Chrysler (5.7%) and Honda (1.4%), with the remaining 1% of sales split between Mercedes Benz, BMW and Audi.
STRONG CEMENT MARKET
The cement manufacturer Apasco is investing 100 million dollars this year to double the production capacity of its Ramos Arizpe plant in the state of Coahuila to 2.5 million metric tons a year. The additional output from the plant will help supply the growing demand in the center and northern zones of the country. Nationwide, cement demand is expected to rise between 5 and 6% a year over the next few years. Grupo Apasco's first quarter domestic sales were up 15% this year, compared with a year ago.
FOREIGN INVESTMENT
According to the Mexican Stock Market (Bolsa Mexicana de Valores), purchases of Mexican stock by foreign investors totaled 67.524 billion dollars as of the end of April this year, 1.27% higher than at the end of December 1999. The breakdown in billions of dollars: American Depository Receipts 42.481, Free Subscription Stock (Acciones de Libre Suscripción) 21.357, Fondo Neutro 3.644, with the remainder (41 million dollars) in Warrants.
ANOTHER FREE TRADE AGREEMENT
In its continued effort to expand its trading connections outside North America, Mexico has reached a free trade agreement with Guatemala, Honduras and El Salvador, which will eliminate tariffs on all industrial and agricultural goods over a 12-year period. Subject to government ratification, the agreement will begin on January 1, 2001. Bilateral trade between Mexico and the three Central American countries was worth 1.05 billion dollars in 1999, about 0.4% of all Mexico's international trade. Besides agreements with the U.S., Canada and the European Union, Mexico already has free trade agreements in place with Venezuela, Colombia, Ecuador, Chile, Israel, Costa Rica and Nicaragua and is scheduled to hold preliminary talks with Singapore later this year.
POSSIBLE BANKING MEGA-MERGER
The Spanish bank Banco Bilbao Vizcaya Argentaria (BBVA) may have to increase its previously reported 1.2-billion-dollar bid for control of Mexico's second largest bank, Bancomer, now that the nation's largest financial services group, Banamex-Accival, has made its own bid for that bank. The Banamex offer is worth about 2.4 billion dollars. Banamex acknowledges that merging Banamex and Bancomer (which currently have 55,000 employees and 2,000 branch offices between them) would inevitably result in some divesting of redundant assets, and also involve the loss of 15% of branches and 10% of staff over three years.
On the other hand, the new bank (with assets of 60 billion dollars) would have more than sufficient capitalization to compete in the global banking market, which is increasingly dominated by fewer, larger banks, such as Citibank, Scotiabank, HSBC, BBVA and Santander-Central Hispano. The combined bank would hold about 40% of the domestic market for deposits, credits, trusts and credit cards. The merger would have to be approved by Mexico's anti-monopoly watchdog, the Federal Competition Commission. The world's leading bank evaluation firm, Thompson Financial BankWatch, of New York, considers that the proposed Banamex-Bancomer merger would have "positive implications" for both institutions.
BANCA SERFIN - SOLD!
Banca Serfin has been acquired by Spanish bank Santander Central Hispano (BSCH) for 1.56 billion dollars, 1.6 times its book value. The sale includes the 20% share of Serfin previously held by U.K.-based banking giant, HSBC. Santander-Serfin becomes the third largest bank in Mexico, with 2.2 million clients and 927 branches, holding 16.2% of all bank deposits in the country.
WAL-MART INCREASES STAKE
U.S. retailing giant, Wal-Mart Stores Inc., has increased its ownership of Mexico's largest retailer, Wal-Mart de México (Wal- Mex) by 6% to almost 60%. To increase its stake, Wal-Mart bought 271 million of Wal-Mex's Class V common shares, for about 600 million dollars.
MEDIA DEVELOPMENTS
Televisa, Mexico's media giant, is trying to purchase Grupo Radio Centro, the country's largest radio broadcaster. Televisa already owns Radiopolis, the third biggest radio station, and its purchase of Radio Centro would consolidate the fragmented radio industry and boost its advertising revenues. Radio Centro currently operates 15 radio stations, 13 of which are in Mexico City, where it controls about a third of the advertising market. However, the Federal Competition Commission may still block the agreement on the grounds that Televisa already has an advertising dominance, given that it controls almost 80% of Mexico's television market. Meanwhile, Televisa's television rival, TV Azteca, has settled its three-year-long contractual dispute with U.S. network NBC.
A recent joint press release states that Azteca has agreed to pay NBC 46 million dollars compensation and that NBC has agreed to buy 26 million dollars worth of Azteca shares. The two companies will also explore joint Internet business opportunities in both the U.S. and Mexico.
DECREASING INFLATION
According to figures released by the central bank, Banxico, the National Consumer Price Index (INPC) rose 0.57% during April bringing the inflation over the past twelve months to 9.73%, its lowest level since 1994. Of the 46 cities used to compile the INPC, the largest increases were recorded in Tulancingo (1.07%), Puebla (0.92%), Monclova (0.81%) and Torreón (0.80%) and the lowest increases in Villahermosa (-0.23%), Campeche (-0.21%), Veracruz (-0.06%) and Iguala (0.13%).
NEW INTERNET REGULATION
Last month, the Chamber of Deputies approved a law regulating Internet-based commerce. The law makes all agreements and contracts binding once any offer or contract has been accepted, even if both offer and acceptance are made using electronic means such as e-mail. Companies have to keep all relevant "documents" used to define contracts, rights and obligations for a minimum of 10 years. There are an estimated 2.5 million Internet users in Mexico. A group of representatives from the principal portals and sites in Latin America, together with service providers, has formed an organization to promote the use of the Internet for publicity and trade. The Mexican Association for Internet-based Commerce and Publicity is the first such grouping in the country.
LOAN TO BUILD POWER PLANT
The Interamerican Development Bank has approved a 136-million- dollar loan to finance a new power plant to be constructed in San Luis de la Paz, 250 kilometers north-west of Mexico City. The 600-megawatt, gas-fired plant will be owned and operated by Aztec Energy Corp., a joint venture of InterGen and AEP Resources Inc. RELATED NEWS A subsidiary of U.S.-based Enron is promoting a 245-megawatt plant near the city of Monterrey, that will supply power to several industries, including Vitro, the major glass manufacturer.
REMOTE OIL TERMINAL
Pemex is to build a new remote oil storage and distribution terminal in Progreso, in the state of Yucatán. The port of Progreso is currently being modernized by the federal government. The terminal will be used to supply the entire Mexican Caribbean coastline region, including the resort of Cancún, by means of a 280-kilometer pipeline connecting it to Leona Vicario in the state of Quintana Roo. The terminal will be accessible to tankers which have a capacity of up to 55,000 barrels.
GIFT INDUSTRY ON SHOW
The XL Gift Industry Exhibition will be held in Mexico City during August. Some 22,000 people, from 50 different countries, are expected to attend the 600-plus stands set up for this event. Exports of gift items were worth an estimated 1.15 billion dollars last year. While some 60% of all items exported were destined for the U.S. and Canada, the remaining 40% were spread across numerous other countries. Lack of financing and the difficulties of international marketing are the two largest handicaps most small gift-manufacturing businesses have to overcome, according to industry analysts.
Mirrored with permission from Lloyd S.A. de C.V.
See their Page on Mexico Connect.
© 2000 Operadora de Fondos Lloyd, S.A.
© 2000 Allen W. Lloyd, S.A. de C.V.