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Lloyd Mexico Economic Report April 2004

Table of Contents

Consumer confidence on the rise
National population
Housing credits from abroad
A golden future
Querétaro refrigerator plant
Multinationals
Franchise opportunities
Publicity on the rails?
Billionaires
A multi-use forest
Quantifying the informal sector
Where do best paid executives live?
Recycling plant for pet
World water forum

Consumer confidence on the rise

According to the national statistics agency, INEGI, the consumer confidence index, based on interviewing a random sample of the population, was 95.5 points in February, compared with 93.7 points for the same month a year earlier. The change reflects the continued improvement in the domestic economic situation, Consumers are more optimistic about their likely income levels over the next few months, and their ability to make purchases.

The nation's economy is predicted to grow by between 3 and 3.5% this year. The leaders of several important private sector business groupings agree that the economy could grow much more quickly if certain key structural reforms are passed.

Renewed consumer confidence, coupled with economic growth predictions, should result in a significant injection of new capital into the domestic stock market this year. The IPC (Índice de Precios y Cotizaciones), the main index of the Mexican Stock Market, hit record highs (over 10,150 points) in early March.


National population

Mexico is the world's 11th largest country in terms of population. According to the National Population Council, the country's population is increasing by about one million a year and currently stands at 104.8 million inhabitants, double the number of 30 years ago.

Life expectancy at birth is 77.6 years for females and 72.7 for males. Predictions suggest that the total population will continue to increase for about another 20 years, before entering a gradual decline.


Housing credits from abroad

Questions are sometimes raised about the eventual use of some of the 13.3 billion dollars in remittances sent home each year by Mexicans resident in the U.S. For instance, in some cases, funds sent home for the purchase of a home have been "diverted" to pay for non-essential consumer items. At the same time, many families in Mexico have difficulties meeting the qualifications for a property mortgage to buy a home.

Last year, seeing an opportunity, Hipotecaria Su Casita, one of the country's largest mortgage lenders, opened an office in Denver, Colorado, to offer peso-denominated mortgages that will enable Mexicans resident in the U.S. to finance the purchase of a home for relatives in Mexico. Now, Hipotecaria Su Casita has been upstaged by the nation's largest private mortgage company, Hipotecaria Nacional (HN). HN (77 offices nationwide) has opened its first international office in the city of New York, but has already announced its intention to open additional offices in U.S. cities close to the border later this year. Possible locations include San Diego, Los Angeles, Nogales, El Paso, Laredo, McAllen and Brownsville.

Those seeking a loan must be aged 21-55 and present proof of stable employment. Credit will be available for up to 80% of the value of the home with payments spread over a period of up to 15 years.


A golden future

Judging by the increased investments in the sector this year, it looks as if gold and silver mining are entering another boom period in Mexico. Three large projects in the state of Chihuahua, all involving Canadian mining companies, mean that Chihuahua should soon replace Sonora as Mexico's leading gold producing state.

Glamis Gold is investing 100 million dollars in El Sauzal which will exploit 18.5 million metric tons of gold-bearing ore in the Copper Canyon region to supply a new processing plant located in the isolated canyon-floor community of Urique. Gammon Lake Resources is set to mine a gold deposit near Ocampo, while Minefinders is working a deposit in Dolores.

Elsewhere in the country, even an abandoned "ghost" town is getting a new lease of life. Speculators have often harbored hopes that there might be workable minerals left in the old mines near the small village of San Pedro in the hills overlooking the city of San Luis Potosí. Now, Minera San Xavier, a subsidiary of Canadian firm Metallica Resources Inc., is starting to exploit the 61 million tons of low-grade gold and silver ore that remain there.


Querétaro refrigerator plant

Samsung Electronics is one of the world's leading manufacturers of twin-door refrigerators. Twin-door refrigerators have steadily gained market share at the expense of their older single-door ancestors. Samsung Electronics México reports that during 2003 sales of single door refrigerators fell to 610,000 units, 2% lower than in 2002, while sales of twin door units rose to 1.406 million, a 6% rise.

The firm is investing 80 million dollars this year to build a factory in Querétaro to boost its output, with further expansions over the next five years already being planned. Samsung estimates that it supplies 9% of the market demand (just over 2 million units) for refrigerators in Mexico, but is confident that this figure will reach 11% this year. The new Querétaro plant is expected to generate 6,000 direct jobs and a further 5,000 indirect jobs.


Multinationals

Only a handful of Mexican firms have been able to benefit from globalization, according to Gregorio Vidal, a researcher at the Azcapotzalco campus of the Autonomous Metropolitan University (UAM), and author of two books on the subject.

Success stories include Gruma, the world's largest producer of corn flour; Bimbo, dedicated to bread and other food products; Cemex, the world's third largest cement maker, and Grupo Carso, the telecommunications giant. Several others, such as Vitro, formerly one of the world's leading manufacturers of glass bottles, and Savia-Pulsar, who dominated the world market for genetically improved seeds, have failed to retain their dominance in the face of competition.


Franchise opportunities

The 27th International Franchise Fair, held last month in Mexico City, attracted 35,000 visitors. According to the Mexican Franchise Association, 470,000 workers have jobs in the 550 franchises (42,000 points of sale) already operating in the country, with 180 new franchises (and 7,000 additional points of sale) likely to open before the end of the year.

Total franchise sales are predicted to rise 17% over the year. About three out of every five franchises are of national origin, with most of the remainder being companies from the U.S. or Spain. Franchises are gradually becoming more dependant on domestic inputs; the MFA estimates that 75% of all inputs are now of national origin, and 25% imported.

Why open a franchise? MFA figures suggest that 95% of franchises survive to their second year, compared with only 60% of other new businesses. Want a franchise but have only limited capital? The MFA has named Hawaiian Paradise, a snow cone maker with 367 outlets, the best choice for investments of less than 10,000 dollars.


Publicity on the rails?

Carlos Slim, the telecommunications magnate, is the richest person in Latin America, according to the annual Forbes Magazine list of the world's 500 richest people. Slim's fortune of 13.9 billion dollars was sufficient for 17th place on the list. Nine other Mexicans make the top 500: Jeronimo Arango, Lorenzo Zambrano, Eugenio Garza Laguera, Alberto Bailleres, Roberto Hernandez, Alfredo Harp Helu, Ricardo Salinas Pliego, Maria Asuncion Aramburuzabala and Carlos Peralta.


A multi-use forest

The small indigenous Purépecha community of Nuevo San Juan Parangaricutiro in the state of Michoacán has been awarded the prestigious United Nations Development Programme 2004 Equator Prize. The community was competing with 340 other projects from 65 different countries.

Founded in 1944 by refugees fleeing the eruption of Paricutín volcano, the community manages 11,000 hectares of forest and has established more than a dozen successful eco-enterprises based on sustainable forestry, timber products (including furniture, fruit packing cases and resins used in shoe polish), ecotourism, agroforestry (avocados and peaches) and wildlife management.

These enterprises have provided 800 jobs, boosted local incomes and reduced poverty while ensuring that the resource base upon which the community depends is sustained for future generations. Next on their business list is the bottling of local spring water from one of the community's 44 active springs. The bottles will feature a marketing slogan along the lines of "helping an indigenous community preserve its forest".


Quantifying the informal sector

A study carried out by the Tax authorities (Servicio de Administración Tributaria), together with the Autonomous University of Nuevo León, suggests that the unregistered informal economy generates 1,294 billion pesos nationwide, equivalent to 22.2% of GDP. By way of comparison, the world average is believed to be around 33% of GDP.


Where do best paid executives live?

Patricia Mañón, the Director for Mexico and Latin America of Mercer Human Resource Consulting, says that top executives living in the cities of Irapuato, León and Querétaro now command slightly higher salaries than their counterparts elsewhere, even those working in Mexico City. She ascribes this surprising situation to the higher cost of living in cities which have become very attractive to business and are experiencing rapid industrial growth. The growth has resulted in a relative shortage of executive-level housing and recreational facilities, pushing prices and living costs up.

The possibility of a higher salary is not the only reason an executive may want to leave Mexico City for a smaller city like Irapuato. Mercer's Worldwide Quality of Life Survey 2003, published last month, looked at 215 major world cities and considered 39 factors affecting the quality of life ranging from political stability, environmental policy and security, to public services, education and traffic. The annual survey is designed to help multinational companies formulate appropriate recruitment policies and employment packages. Mexico City placed 127th on the list. The only other Mexican city in the study was Monterrey which placed 91st. The top cities on the list were Geneva and Zurich; the worst was Baghdad.


Recycling plant for pet

Three major corporations - Coca Cola México, Femsa and Alpla - have clubbed together to form a joint venture, Industria Mexicana del Reciclaje, to build a recycling plant for containers made of polyethylene terephthalate or PET, the clear, rigid, plastic resin used as an alternative to glass for soft drink and water bottles. Mexico produces 500,000 metric tons of PET annually, and studies have shown that about 90 million PET containers are discarded each year.

Located in Toluca, 60 kilometers west of Mexico City, the recycling facility will cost 20 million dollars and should be fully operational by the end of the year. It will have the capacity to process 25,000 metric tons of post-consumer PET a year. PET can be recycled into a variety of items, including textile and carpet fibers, imitation wood, plastic sheeting and new PET containers. The potential market for recycled PET is estimated to be worth up to 700 million dollars a year.

Mexico has led the world in average per capita consumption of Coca-Cola products since 1997. Last year, per capita consumption reached 527 8-ounce bottles, almost twice the equivalent figure for milk, and 10% higher than in 2002. Femsa (2003 sales: 3.309 billion dollars) is the largest Coca-Cola bottler in Latin America. Alpla de México is one of the main suppliers of bottles made of PET.


World water forum

Mexico has been chosen to host the IV World Water Forum in March 2006. The event is held every three years. The Forum is to be jointly organized by the National Water Commission (CNA) and the World Water Council with the theme "Local Action for a Global Challenge." Cristóbal Jaime Jáquez, director of the CNA, said it will provide an ideal opportunity for the country to showcase various innovative projects designed to ensure sustainable water use.

 




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.

2004 Operadora de Fondos Lloyd, S.A.
© 2004 Allen W. Lloyd, S.A. de C.V.

Published or Updated on: July 20, 2004
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