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Lloyd Mexico Economic Report April 2005

Table of Contents

Inflation continues to fall
New banks
Bank associations merge
Technology accelerator
Future of Pemex
Farms for tuna
Changing families
Highway 15 contract
Airline sale
Consumer credit
Franchise growth
One price stores
Chedraui buys Carrefour stores
Employment figures

Inflation continues to fall

Mexico's annual inflation rate fell to 4.27% in February. The central bank target for inflation is less than 4% by year-end.

Central bank governor Guillermo Ortiz has said that the bank is considering replacing the "short" system it currently uses to control inflation with a target rate-setting system. The latter system is similar to that used by many OECD countries, including the U.S., to control key interest rates.

GDP grew 4.4% last year, led by good returns in the construction sector and services, including commerce, restaurants and hotels.


New banks

There are 27 banks currently licensed to operate in Mexico. The Finance Secretariat reports that applications are being processed for five new banks. The applications are by Autofin, Sofol Compartamos, Banco Regional de Chihuahua, Agropecuario del Noroeste, and BAC, a Honduras-based bank.

Autofin is owned by Juan Antonio Hernández, whose business interests range from a soccer team to real estate, gas stations and car sales. Sofol Compartamos has specialist experience in loans and micro-loans for the low-income sector.


Bank associations merge

The Association of International Financial Institutions, which is a grouping of foreign banks represented in Mexico, is to merge with the Association of Mexican Banks (Associación de Bancos de México, ABM). The reformed ABM will have over 70 members, ranging from commercial banks to stock brokerages, financial groups and exchange houses.


Technology accelerator

Economy Secretary Fernando Canales opened TechBA, Mexico's first technology business accelerator in San José, California, earlier this year. TechBA represents 13 Mexican high technology firms, with a further 12 expected to join them during the course of the year.

Supported by the Economy Secretariat, ITESM (Instituto Tecnológico de Estudios Superiores de Monterrey), IPN (Instituto Politécnico Nacional) and UP (Universidad Panamericana), TechBA will ensure that these firms have the opportunity to promote their ideas to Silicon Valley corporations and venture capitalists.


Future of Pemex

Luis Ramírez Corzo, the managing director of state oil giant Petroleos Méxicanos (Pemex), has outlined three very different alternatives for the company's future. In his view, investing 5 billion dollars a year would lead to a need for crude oil imports within a decade. Investments of 10 billion dollars a year would enable Pemex to add reserves at a rate fast enough to continue current rates of exports. With annual investments of 20 billion dollars, Pemex would be transformed into a major exporter, not just of oil, but also of natural gas and petroleum derivatives.

Ramírez Corzo believes Mexico's oil industry needs strategic alliances with foreign companies to tap deep water oil fields. Before this is possible, however, political consensus is needed to modify legislation that restricts the level of foreign investment in the petroleum sector.


Farms for tuna

Dohsui, a subsidiary of Japanese conglomerate Mitsubishi, is investing 150 million dollars in building "fish farms" for tuna in La Paz, Baja California Sur. Mitsubishi, one of world's most diversified transnationals, is the world's largest tuna trader.

The operation will produce bluefin tuna (which commands higher prices than yellowfin or big-eye) for export to the U.S. and Japan. About 30 million dollars worth of the nation's total tuna exports in 2004 (88.7 million dollars) went to Japan.

The national's tuna fleet, comprised of 60 vessels operating in the eastern Pacific, caught 128,914 tons of tuna in 2004.


Changing families

The nation officially celebrated Family Day for the first time on the first Sunday in March. The accompanying advertising campaign stressed the values of the traditional "nuclear" family, where a husband and wife live with their children under one roof, even though such families now account for only about half (52%) of all the nation's 23.9 million households.

A National Statistics Institute survey found that 9% of Mexican households are now single parent, 7% are childless couples, 23% are "composed" (husband and wife living with children of two or more relationships), 23% are extended (where the home is shared with other relatives) and 1% are co-habiting. One clear trend is the rapidly growing number (now about 1.5 million) of single person households.


Highway 15 contract

A 30-year concession for the building, operation and maintenance of a toll highway on the west coast has been awarded to the construction firm Promotora Inbursa, owned by Carlos Slim, the fourth richest man in the world according to the latest Forbes magazine list.

Construction of 130 kilometers of high speed highway between Estación Yago, Nayarit, and Escuinapa, in Sinaloa, will complete the toll highway (15D) between the border city of Nogales and Guadalajara. The new highway will be welcome news to any frequent travelers between California or Arizona and central Mexico.


Airline sale

Mexicana and Aeroméxico, responsible for 80% of all domestic air travel, and their regional partners, are controlled by Cintra, a holding company belonging to the government. The government has planned to privatize Cintra for several years, and is now preparing to sell it off in three packages, with the sale likely to be completed sometime next year.

The first package on offer will be Mexicana, together with Aerocaribe. The second package will be Aeroméxico and its regional partner Aerolitoral. The third package will be the ground services currently run as Servicios de Apoyo en Tierra (Seat).

Analysts predict that Cintra should sell for a total of around 2 billion dollars.


Consumer credit

A year ago, the central bank (Banxico) called on financial institutions to reduce fees and make more loans. The banks have responded. Fees for servicing checking accounts, credit cards and overdrafts have all been lowered and should continue to fall as inter-bank payment charges are reduced over the next three years.

Lending to consumers increased 25% in 2004 to 20 billion dollars, and consumer credit has become easier to obtain. For example, a household with a monthly income of 1,070 dollars can now qualify for a mortgage of 35,500 dollars, compared with 12,400 dollars in 2000.

Credit card financing has risen from 2.6 billion dollars to 7.8 billion dollars since 2002. Credit card purchases account for 51% of all consumer credit; the average debt per card has remained stable over the past four years.


Franchise growth

Franchise operations are responsible for generating about 5% of national GDP. The Mexican Association of Franchises recently announced that the sector grew 19.5% last year and created 76,000 jobs. The 730-member association expects as many as 100 new members this year, representing total investments of about 58 million dollars.

About two-thirds of all franchises operating in the country are Mexican in origin. Franchises offer a relatively secure way of doing business. While 60% of non-franchise start-ups fold within two years, an estimated 95% of franchise operations survive beyond their first five years.


One price stores

One trend in retailing is the increasing number of one-price stores, where all merchandise is sold for the same price. The current leaders in this field are El Mundo de a 3 Pesos (155 stores) and La Tienda del Dólar (39 locations). U.S.-based Waldos (124 stores) also joined the competition.

Now, two retailing giants are expanding their own single-price stores. Wal-Mart's version, Prichos, will operate alongside its 163 existing Bodega stores and 89 Supercenters. Last year, Grupo Sanborns bought Dorian's, which includes 22 Sólo un Precio (Only One Price) stores; it has plans to open many more.


Chedraui buys Carrefour stores

Chedraui, a supermarket chain with a strong presence in eastern, south-eastern and central Mexico has purchased the 29 stores formerly owned by French retailer Carrefour for an undisclosed sum.

Chedraui (2003 sales: 1.2 billion dollars) began as a family firm in Veracruz 100 years ago. Prior to the acquisition, it operated 61 supermarkets, as well as numerous mini-supers, convenience stores, bakeries and wholesale outlets. The acquisition strengthens Chedraui's position in Mexico City, while opening up new opportunities for the company in such cities as Guanajuato and Guadalajara.


Employment figures

Figures from diverse sources all suggest that the employment situation in Mexico is improving. At the end of February, the Mexican Social Security Institute (IMSS) had 12.55 million workers registered, its highest figure ever.

The National Statistics Institute, INEGI, reports that employment in the construction sector rose by 5.2% last year and in maquiladora companies by 4.7%.

INEGI recently changed the precise definitions used in calculating some of its employment indices to match the methods used in other OECD countries. The open unemployment rate, based on the new criteria, was 4.14% of the workforce in January 2005.

 




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.

2005 Operadora de Fondos Lloyd, S.A.
© 2005 Allen W. Lloyd, S.A. de C.V.

Published or Updated on: July 20, 2005
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