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Mexico Economic Updates June 2006

Tony Burton

20 billion dollars in FDI

Foreign direct investment in Mexico reached 17.8 billion dollars last year, and the Economy Secretary predicts it will top 20 billion dollars this year. Total FDI during the first five years of the current administration has reached 93.78 billion dollars, 57% more than during the equivalent period of the previous administration.

This year's major investments include several by U.S., Asian and European automakers, as they gear their production up to meet expected demand in the U.S. market and throughout the Americas.

The positive investment news should help push economic growth slightly over the official target of between 3.5 and 4.0%. Led by surging industrial production, Mexico's economy grew 5.5% in the first quarter.


What would it take for minimum salaries to recover?

The president of the National Minimum Salary Commission (Comisión Nacional de los Salarios Mínimos), Basilio González Núñez, has said it would take a sustained period of economic growth averaging 5% over the next 15 years for minimum salaries to be fully restored to their previous level. Over the past decade, minimum salary raises have failed to keep pace with inflation and increased living costs.

The Commission believes that the existing salary differentials between different geographic zones should be eliminated, so that a single minimum wage operates throughout the country.


Insurance against a major quake

The government has issued 160 million dollars in catastrophe bonds, which provide an alternative to conventional insurance coverage in the event of a major earthquake. The net cost to the government is 26 million dollars over three years. The bonds are part of a 450-million-dollar package contracted with Swiss Reinsurance Co., the world's second largest insurer.

Payment would be triggered by a quake of magnitude 8.0 or higher along the Pacific coast, or 7.5 or higher in central Mexico.

Insurance premiums for a range of natural hazards rose sharply in the wake of last year's severe hurricanes. The government is reported to be still examining hurricane insurance options.


Top tier of Periférico opened

Mexico City has officially opened the second level of the Periférico. It took more than five years to build the five kilometers of upper level highway, designed to relieve congestion on one of the city's busiest traffic arteries, between San Jerónimo and Las Flores, south-west of the city center. The project had been talked about for more than twenty years, but previously rejected as too expensive.


Polling station doubts

The Electoral Commission of the state of Nuevo León is concerned that up to 80% of the polling station officials in some municipalities are unlikely to be at their posts during nationwide polling on July 2, because they have crossed the U.S. border in search of employment.

According to the National Population council, the state has a population of about 4 million; 500,000 former residents now live in the U.S. The Commission is amalgamating some polling stations in order to ensure that each station complies fully with the regulations, which require that each voting station have eight officials.


Mothers in the workforce

There are 27.7 million mothers in Mexico, according to the National Population Council. Of the 22.3 million households nationwide, only 4.6% are headed by a woman, though the figures vary greatly from region to region, with the highest rate (26%) being registered in the Federal District.

Mothers are increasingly active in the workforce. In 1970, only 12.7% of mothers worked, but this figure has now risen to more than 31%.


Another new airline

Competition in the skies continues to heat up. Later this month, Alma de México will begin flights from Guadalajara, becoming the first new airline to be based in the nation's second city. The airline will operate Bombardier regional jets on routes linking Guadalajara with Los Mochis, La Paz and Puebla, and plans to introduce further aircraft and additional routes in the coming months.


Business information bureau

The Federal Consumer Protection Agency (Procuraduría Federal del Consumidor, Profeco) is testing a business information bureau which will enable consumers to have on-line real-time access to the number of complaints and previous cases registered against any particular company. This should mean that consumers can make more informed choices and decisions.

The system is expected to be fully operational before the end of the year, and includes provision for the on-line registration and resolution of consumer problems.


Overdue credit card payments

In the past year, the number of consumers falling behind on their credit card payments has risen considerably. At the end of 2005, overdue payments totaled 3.196 billion pesos, 466% higher in real terms than twelve months earlier, according to the National Banking and Securities Commission. The problem has been exacerbated by banks relaxing the guidelines for obtaining a card - during 2005, they issued 14.7 million credit cards, 3 million more than the year before.


A hurricane's silver-lining: better planning

Last year, Hurricane Wilma pounded parts of the Quintana Roo coast, causing extensive damage to beaches and resorts. After an unprecedented 19-million-dollar restoration effort, which involved pumping almost 3 million cubic meters (95 million cubic feet) of sand from offshore deposits onto about 12 kilometers (7.2 miles) of beach, Cancun's beaches are now back to normal.

The governor of Quintana Roo, Félix González, has announced that artificial reefs and dikes will be built to protect the state's beaches from future hurricanes. The precise style of dikes has not yet been decided, but the purpose will be to prevent beach sand from being dragged back out to sea in the event of storm winds.

State authorities have also revised their evacuation plans in the light of problems encountered during Wilma to ensure that all vacationers can be evacuated and that airlines do not continue to bring more travelers into the region after a hurricane warning has been issued.

Later this month, the First Luxury Travel Expo is being held on the Riviera Maya coast to showcase the opportunities for premium-quality trips designed specifically for romantic and luxury getaways.


Tax system less corrupt

The annual report of the Tax Administration Service (Servicio de Administración Tributaria, SAT) suggests that there has been a significant drop in the number of reports alleging corrupt practices by its workers. Fighting corruption has been one of SAT's internal priorities in recent years.

The latest round of reforms to the fiscal code are considered to be among the most important to be implemented for a decade. They include improved procedures for automatic tax repayments, the elimination of the requirement that firms ask clients for copies of their tax registrations, and procedures for all individuals to obtain a tax registration number (Registro Federal de Contribuyentes, RFC), even if they are not gainfully employed.


Pymes now in the dictionary

Pyme, the Spanish acronym for a small or mid-sized firm ( pequeña y mediana empresa), has now been accepted by the Royal Academy of Spain as a regular word, and accorded a place in the Academy's latest dictionary.

The current administration has promoted the importance of pymes in bolstering the nation's economy. The Economy Secretariat says that pymes have provided 78 out of every 100 new jobs in recent years, and now account for about half of the nation's GDP.

The Secretariat continues to promote technological developments for pymes. Together with the U.S. Small Business Association, it recently launched an Internet portal designed specifically for all small and mid-sized business owners.


Carbon black plant

The world's largest tire firm, Bridgestone, is opening an 81-million-dollar carbon black plant in the port of Altamira, Tamaulipas. Manufactured from natural gas, carbon black is a very fine particulate form of carbon used to provide reinforcement in rubber articles such as tires. It also increases tires' resistance to scraping.

Bridgestone's two existing carbon black plants are in Japan and Thailand. The new plant will be operated by Bridgestone's wholly owned subsidiary Mexico Carbon Manufacturing. The plant will employ 110 workers, produce 35,000 tons of carbon black each year, and is due to open in June 2088.


The text of this report was not submitted to any Federal Mexican Authorities or approved by them prior to publication. It is based on sources we believe to be reliable, but its accuracy is not guaranteed.

Published or Updated on: July 20, 2006 by Tony Burton © 2008
Contact Tony Burton

Author of Mexican Kaleidoscope: myths, mysteries and mystique (Sombrero Books, 2016),  Western Mexico, A Traveler's Treasury (4th edition, Sombrero Books, 2013) and "Lake Chapala Through the Ages; an anthology of travelers' tales" (Sombrero Books, 2008), available from all good book stores, and via his author's page at Amazon.com. Co-author of "Geo-Mexico, the geography and dynamics of modern Mexico" (Sombrero Books, 2010). His blog is at geo-mexico.com.

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