Lloyd Mexico Economic Report September 2004
Table of Contents
Streamlining the tax system
Domestic tourists' spending power
Free trade with Uruguay
Enhancing Puerto Vallarta
Revenue from cruise ships
The cost of highway accidents
Liverpool stores
Lala buys Parmalat
Booming cell phone market
The plight of coffee growers
Fairs and exhibitions
Opportunities abound
Exporting adventure parks
Park for computer chips
Streamlining the tax system
The national Tax Administration Service (SAT) currently uses 66 different computerized databases across the country. In order to integrate and update the systems onto a single platform, the government recently awarded a 50-million-dollar contract to U.S.-based PeopleSoft Inc. The work to unify the existing databases and introduce upgrades will take two years to complete, but should make it much easier for SAT to serve all Mexico's taxpayers more speedily and efficiently.
One innovation in the project will be the setting up of a call center to assist all taxpayers with information about tax regulations, payment dates and respond to general queries. Taxpayers will also have on-line access to their tax accounts, enabling them to check the status of payments and requests for clarifications.
Domestic tourists' spending power
Each summer, national tourists spend about the same amount as foreign tourists spend during the entire first half of the year, according to a study by the Center for Higher Studies of Tourism.
This year, foreign tourists spent about 5.6 billion dollars during the first six months, 14.1% higher than the corresponding period in 2003, according to the Tourism Secretariat. The Secretariat's occupancy figures for the first part of summer reveal that hotels were 63.57% full across the country.
The highest occupancy rates were recorded in the planned resorts of Cancún (92.86%), Los Cabos, Huatulco, Ixtapa and Loreto. Other beach areas with high figures included the Riviera Maya and Rincón de Guayabitos on the Pacific coast of Nayarit. In general, interior locations had lower occupancy rates, though several cities registered rates well over 60%, including Nogales, Hermosillo and Mexico City.
A study by the World Travel and Tourism Council suggests that Mexico has the second lowest prices for tourist-related services of any major destination in the Americas.
Free trade with Uruguay
A free trade agreement between Mexico and Uruguay took effect in July. In terms of manufactured items traded between Mexico and Uruguay, all items except for footwear can now be traded tariff free. Tariffs on footwear will be phased out over a ten year period.
Uruguay is the first Mercosur (South American Common Market) member to sign such an agreement with Mexico. Other Mercosur members such as Argentina and Chile are expected to follow suit in the near future.
Enhancing Puerto Vallarta
To make Puerto Vallarta even more attractive as a tourist destination, various improvements and beautification programs are being undertaken. The measures include fully pedestrianizing the center of the port, linking it to the beach-front promenade, developing a new museum and opening a Cultural Center for exhibitions. A related project aims to restore a truly "traditional" appearance to the facades of stores in all the city's main shopping areas.
Conscious of the importance of cruise ship traffic to Puerto Vallarta, authorities are considering building an additional wharf, likely to require an investment of 15 million dollars, suitable for large cruise ships bringing up to 4,500 passengers at a time.
An additional 1500 hotel rooms are also under construction and should be ready by the end of next year. Three of the largest hotel additions, representing a combined investment of 150 million dollars, are located in Marina Vallarta.
With an eye to attracting more business visitors, work is expected to begin shortly on a 25-million-dollar Convention Center, large enough to host events attracting up to 10,000 participants. This is tentatively scheduled to be fully operational by early 2006.
Revenue from cruise ships
The nation has 21 cruise ship ports including Ensenada, Acapulco and Cozumel. The Mexican Caribbean zone, including Cozumel, is the most visited part of the planet for cruise ships, visited by 46.6% of all cruise ship passengers worldwide in 2002.
In 2003, Mexico received 6.619 million cruise ship passengers, 28.9% more than during 2002; they contributed 384 million dollars to the economy. This figure may well be broken this year since arrivals were 1.9% up for the first five months.
Official figures suggest that the average expenditure per passenger is only 61 dollars at present. In order to ensure that cruise ship passengers make a larger contribution to national coffers, authorities have proposed that passengers be levied a 10 dollar fee per cruise for entering Mexican ports, with part of this revenue dedicated to infrastructure improvement projects in the corresponding regions.
In Manzanillo in the state of Colima, a committee of local businesses serving the cruise ship sector has been formed to offer better options for cruise ship passengers taking trips ashore. At present, cruise ships have a virtual monopoly on organizing such trips and the average cost of each shore trip is close to 100 dollars. Local operators believe they can lower this figure to around 25 dollars and still make a profit.
The cost of highway accidents
Most people agree that traffic accidents are far too common in Mexico. According to figures published by the National Statistics Institute (INEGI), highway accidents are now the fourth leading cause of death among Mexicans in their economically productive years, from age 15 to 64.
The INEGI report shows that there were 399,000 recorded traffic accidents in 2002, the most recent year for which reliable figures are available. This represents a dramatic increase on the 248,000 accidents recorded five years earlier. In 2002, there were 5,091 fatalities (an average of 36 a day) as a result of traffic accidents, and 169,000 persons injured.
Besides the tragic and unnecessary loss of life, traffic accidents have a considerable economic impact, resulting in 2.5 million lost working days each year.
Liverpool stores
The domestic department store firm, Liverpool (2003 sales: almost 2 billion dollars), has coped well with the changes in retailing that have occurred since the implementation of the North American Free Trade Agreement (NAFTA). The firm operates 52 stores under either the Liverpool or Fábricas de Francia name. More than 1.6 million shoppers now use the firm's own credit card.
Responding to the recent surge in the domestic economy, Liverpool has opened new stores in several mid-sized cities, including Morelia, León and Oaxaca, and is adding four more this year, in Chetumal, Cuernavaca, Ecatepec and Mexico City. The company is also beginning work on a new distribution center in Hueheuetoca and is remodeling warehouses in downtown Mexico City and Tampico. These developments represent a combined investment of 230 million dollars.
Lala buys Parmalat
The nation's leading milk processor, Grupo Lala, has acquired the Mexican brand names and assets formerly belonging to a subsidiary of failed Italian dairy products firm Parmalat. The main asset is a dairy processing plant in Lagos de Moreno, in the state of Jalisco, which has a capacity of 7 million liters a month.
With the acquisition, worth around 50 million dollars, Lala now supplies 47% of the domestic market for dairy products, followed by Alpura with 17%. The market is growing at almost 3% a year. Of the nation's estimated 10 billion liters of milk consumed each year, 1.122 billion are of ultra-pasteurized ("long life") products.
Booming cell phone market
Mexico was one of the first countries in the world to promote cell phone usage by means of pre-paid cards or plans and these are now used by 92% of all cell phone owners in the country. The total number of users nationwide, as of June 30, was 32.317 million, 18% higher than a year earlier. The total market for cell phone service is estimated at 7 billion dollars a year.
A recent report from the Federal Telecommunications Commission, shows that tariffs for pre-paid plans fell by 31.25% between 1997 and 2003, though, depending on the provider, the rates vary greatly from a low of about 7 cents to a high of 85 cents U.S. a minute for national long distance plans.
The plight of coffee growers
Excessive rains earlier this year have led coffee analysts to predict that Mexico's upcoming 2004-2005 harvest will be considerably less than the 4.5 million 60-kilo sacks gathered in the 2003-2004 season.
The plight of the nation's 480,000 growers is compounded by the continued low coffee prices on international markets. The average 2003 market price was 72 dollars for a 100-pound sack, but the average production cost in Mexico is around 85 dollars per 100-pound sack, according to the National Coordination of Coffee Organizations. Even after receiving a 10 dollar per sack subsidy from Mexico's Fund for Coffee Price Stabilization, it is obvious that growers face a bleak year.
Analysts argue that the best way forward is for more growers to produce higher quality coffee which commands far higher prices. Another strategy is to increase domestic consumption.
A spokesperson for the Mexican Coffee (CMC) says that there has been a significant increase in the domestic consumption of coffee over the past few years from an average of 1.5 pounds per person each year to about 2.6 pounds, but that these figures remain very low in comparison with many other countries. For instance the average Belgian consumes 21.1 pounds a year.
With campaigns like "let's have a second cup", the CMC hopes to boost the annual per capita consumption to 4.4 pounds.
Fairs and exhibitions
Arturo Gamboa de Buen, the president of the Mexican Association of Exhibition, Fair and Convention Professionals, says the number of trade fairs and exhibitions is increasing by 15% a year. Association members organized 482 trade shows last year.
About 40% of them were held in one of the country's three foremost exhibition centers - the World Trade Center in Mexico City, Cintermex in Monterrey, or Expo Guadalajara - but several smaller cities, such as León, Mérida, Veracruz and Chihuahua, are also hosting important shows.
Opportunities abound
The Hispanic market in the U.S. is growing very rapidly, making it an enticing prospect for many smaller and mid-sized Mexican firms looking for export opportunities. By 2010, the U.S. will house about 53 million Hispanics including 36 million of Mexican origin. In terms of numbers, the Hispanic population is growing 5 times faster than the U.S. population as a whole; its purchasing power is growing 9% annually.
A University of Georgia study quantifies the value of the Hispanic market as being largest in California (about 170 billion dollars), followed by Texas (94 billion), Florida (48 billion) and New York (45 billion).
The National Foreign Trade Bank has agreements in place with several U.S. organizations in on-going efforts to ensure that potential Mexican exporters have access to accurate and timely information about suitable markets in the U.S.
Exporting adventure parks
Grupo Mágico, a division of Corporación Interamericana de Entretenimiento, operates numerous amusement parks in Mexico including Divertido, Perimágico, México Mágico, Selva Mágica and Cici. Now, it is about to open a huge amusement park in Sawgrass Mills mall in Fort Lauderdale, Florida.
Once inside the Wanadoo park, which cost 40 million dollars to develop, children will be able to shop at small-scale supermarkets, cash checks, earn more money by working at one or more of the games, and act out a variety of occupational roles such as firemen, doctors and businessmen. The annual revenues from Wanadoo are expected to exceed 30 million dollars.
Assuming the park is successful, similar parks will follow in other cities. Miami, Chicago, New York, Los Angeles and Atlanta are all considered likely locations.
Park for computer chips
At present, almost all computer chips used worldwide are manufactured in Asia, but this may be about to change. A group of U.S. businessmen has announced an ambitious plan to open a specialist industrial estate in Mexicali, in the state of Baja California, for the manufacture of computer components such as semiconductors, chips and advanced electronic circuits.
Construction of the 400-million-dollar facility, to be known as Silicon Border, is expected to begin next year and take a decade to complete. The president of the Silicon Border Development company is Daniel J. Hill, who said that the choice of location was based on the excellent infrastructure, the availability of ample water and electricity supplies and on the educational levels of the local workforce.
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.