Lloyd Mexico Economic Report - April 2001
Table of Contents
PRODUCTIVITY ON THE RISE
BOEING TO OPEN MEXICO CITY OFFICE
RECORD FOREIGN RESERVES
TELMEX CHOOSES INNOWAVE
NEW OIL FIELD DISCOVERED
BUTTONS BY THE MILLION
LONG-TERM FORESTRY PLAN
HERBAL MEDICINE - ALTERNATIVE EMPLOYMENT?
THE COST OF WATER
THE SIGNIFICANCE OF REMITTANCES
SHOE-MAKERS TAKE ON CHINA
TEQUILA - A MIXED YEAR
WAL-MART REFLECTS CONSUMER CONFIDENCE
PRODUCTIVITY ON THE RISE
The latest figures show that manufacturing employs 9.268 million workers in Mexico. Their productivity increased by 45% between 1993 and 2000, according to the National Statistics Institute, INEGI. INEGI's Labor Productivity Index for manufacturing industry compares increases in total manufacturing production with the number of man-hours worked each year. The greater productivity was due mainly to the adoption of technological improvements in the workplace.
The Productivity Index increased more in Mexico than it did over the same time period in the U.S. (44%), Canada (13.5%) or Japan (27.7%). According to a study by the Economics Faculty of the National University, UNAM, despite the higher productivity of workers in the manufacturing sector, average wages increased, in dollars per hour, by only 5.2% over the seven year period, compared with an increase of 22.1% in the U.S.
BOEING TO OPEN MEXICO CITY OFFICE
When the holding company Cintra sells off the nation's two major airlines, Aeroméxico and Mexicana, within the next 12 months, the new owners of the airlines are expected to begin immediate upgrading of their fleets. Industry analysts estimate that, to remain competitive, the airlines will need 360 new planes over the next 20 years, at a cost of about 18 billion dollars. The two major suppliers of aircraft worldwide are the European-based Airbus company and its U.S.-based competitor Boeing.
In an effort to get a head-start over its rival, Boeing is opening a sales office in Mexico City later this year and is planning to form a Mexican subsidiary which will manufacture aircraft parts for both the domestic market and for export.
At present, the fleets of Aeroméxico and Mexicana include only 86 Boeing planes, but several of the corporations interested in purchasing one or other of the airlines are already committed Boeing clients. A strong presence in Mexico would help Boeing further consolidate its lead in aircraft provision throughout Latin America.
RECORD FOREIGN RESERVES
The central bank, Banxico, has released figures showing that the nation's net foreign reserves totalled 39.759 billion dollars as of March 2, a new record and 4.130 billion dollars more than at the end of last year. Most of the recent increase is a direct result of the continued high price of oil on world markets.
TELMEX CHOOSES INNOWAVE
Telmex has chosen InnoWave ECI Wireless Systems, a subsidiary of ECI Telecom, a global leader in fixed wireless access solutions, and its MultiGain Wireless (MGW) Local Loop technology to improve Telmex's wireless telecommunications services in Mexico. The contract is valued at 11 million dollars. The InnoWave technology will enable Telmex to deliver voice, high-speed data and Internet services to its subscribers using radio links instead of conventional telephone lines.
NEW OIL FIELD DISCOVERED
Petroleos Mexicanos (Pemex) has discovered a sixth major oil field in the gigantic Cantarell complex, located offshore in the Gulf of Mexico. The new field contains light crude, of which Mexico is a major importer, and which commands much higher prices on the international market than the heavy crude that Mexico exports in considerable quantities.
Pemex recently awarded a 36.2-million-dollar contract to construct and position an offshore oil-field platform in the Akal oil field in the Cantarell complex to the Spanish construction company Dragados. The contract is for a 1,000-ton drilling platform, complete with living-quarters, that will take 18 months to complete.
BUTTONS BY THE MILLION
Grupo Loren has opened a state-of-the-art plant to make buttons in Tizayuca, in the central Mexican state of Hidalgo. The plant is in the heart of one of the nation's major clothing manufacturing regions. Loren will close its existing factory in the state of Mexico, transferring all production to the new 20 million-dollar, 10,000-square-meter Tizayuca facility.
In the first stage, the company will produce 80 million buttons a month but it expects production to rise to about 240 million within a few years.
Loren is on course to become the world's most important button manufacturer within five years with projected investments of 100 million dollars and expansion plans that will provide up to 4,000 jobs. Loren exports about 50% of all production; export sales brought the firm more than 500 million dollars last year.
LONG-TERM FORESTRY PLAN
A report in the Mexico City daily El Economista provides details of the government's ambitious 25-year Strategic Plan for Forestry, which envisions an increase in production of 1,400% and the provision of 20,000 new jobs. Of Mexico's 56 million hectares (134 million acres) of forest, 21.6 million are considered suitable for forestry but only 7 million are being used at present.
The plan calls for fiscal incentives to be offered for long-term projects, together with new insurance products to protect investments in the sector from possible adverse climatic or economic conditions. Special emphasis is placed on providing help to marginal rural communities where sustainable forestry and the production of value-added wood products could offer valuable employment opportunities. Some of Mexico's forest is likely to enter the incipient "carbon market", designed to limit global warming by allowing large-scale emitters of carbon dioxide in industrialized nations to pay for the preservation of forests, which extract carbon dioxide from the atmosphere, elsewhere.
To further help reverse the current rate of deforestation, estimated at 680,000 hectares each year, subsidies would be offered for commercial forestry plantations. If the plan succeeds, the area under commercial plantations would increase from its current level of 34,000 hectares to 875,000 hectares in 2020 and to 2.8 million hectares by 2025.
HERBAL MEDICINE - ALTERNATIVE EMPLOYMENT?
Another possible alternative source of employment for people in marginal rural areas is cultivating the plants used in herbal medicine. In the past 20 years, there has been a phenomenal worldwide growth of interest in using herbal remedies either in place of, or alongside, so-called conventional medicine or allopathy. This trend has seen the annual market for herbal remedies in Europe skyrocket to over 5 billion dollars.
Mexico has an extraordinary biodiversity, one of the richest on the planet, and a long tradition of herbal practitioners. More than half the population regularly use herbal remedies. Firms based in industrialized nations may have the research funds needed to develop new herbal therapies, but do not necessarily have easy access to all the most likely species of flora from which such remedies will be derived.
Studies show that indigenous communities in Mexico use about 50% of all the plant species growing in their immediate surroundings for medicinal purposes. On a national scale, this suggests that more than 15,000 plant species might be worthy of serious investigation. Such a large figure obviously means that considerable opportunities exist for the research, development and commercialization of new herbal products, as well as for the cultivation and harvesting of the plants involved.
THE COST OF WATER
One of the conclusions of a report on water resources recently published by the Organization for Economic Cooperation and Development (OECD) is that Mexico needs to invest in water treatment and distribution systems in order to upgrade its potable water supplies.
Now, the National Water Commission (CNA) has announced it is spending 30 billion dollars over the next 10 years in improving the country's "hydraulic infrastructure" of reservoirs, wells, pumping stations and pipes, to prevent water being wasted because of defects in the distribution system. For example, in Mexico City, the CNA estimates that up to half of the total water available from wells and aqueducts never reaches the end consumer.
This means that the CNA can only collect for 500 of every 1,000 liters entering the distribution system. According to the CNA, the true cost of providing water, excluding government subsidies, is about a dollar (10 pesos) per 1000 liters. Assuming an average usage of 200 liters per person per day, the average household would face an annual water bill in excess of 350 dollars.
At present, consumers in many parts of the country pay less than 50 dollars a year, regardless of their water consumption. RELATED NEWS The municipal authorities in Matamoros, across the border from Brownsville, Texas, are supporting the construction of a joint U.S.-Mexico reservoir. The proposed 28- million-dollar dam would be built 13 kilometers downstream from the Puerta de México international bridge.
THE SIGNIFICANCE OF REMITTANCES
Many Mexican families have one or more members living and working in the U.S. for at least part of the year and sending money home. In fact, government figures reveal that last year the 8.5 million Mexicans living in the U.S. sent 6.28 billion dollars back, a figure that exceeds the country's income from tourism and is half the total annual amount of direct foreign investment.
About 80% of all remittances are sent to states in the north and west of the country, stimulating construction in these areas and boosting sales of consumer goods.
The Mexican Population Council estimates that 1.2 million households are dependent on remittances. The Fox administration, anxious to reduce the commissions charged on money sent back home, wants migrants to have access to computerized ATM systems and cards that will slash transaction costs to only 2 or 3% of the amount transferred, well below the 20% or more currently being charged. The change would add hundreds of millions of dollars a year to the national economy.
One new fund transfer system is being organized by the 7-Eleven chain. It plans to install financial services kiosks in 37 Mexican 7-Eleven stores. Currently being tried in the U.S., the kiosks not only serve as ATMs but also enable users to send and receive money orders, make international money transfers and cash checks.
SHOE-MAKERS TAKE ON CHINA
Mexican shoe manufacturers continue to lobby for the government to maintain its severe anti-dumping measures restricting shoe imports from China. Besides a 35% import tariff, there is also a compensatory tariff of 1,100% on Chinese-made shoes. About 43% of all the shoes made in the world are made in China and, according to the Mexican Chamber of Shoe Manufacturers, if restrictions are lifted, Chinese-made shoes could flood the domestic market, harming its members.
Despite the high import tariff, officials allege that up to 50 million pairs of shoes made in China are still entering the country, either as contraband or repackaged as originating in the U.S. Last year, the combined production of Mexican shoe manufacturers reached 270 million pairs, only 20,000 pairs more than in 1999 as shoe-makers struggled to overcome declining export markets.
TEQUILA - A MIXED YEAR
The figures are in for last year's tequila production and exports. Because of the problems connected with a continuing shortage of agave, the plant from which the drink is distilled, only 181.6 million liters of tequila were made, 4.9% less than in 1999. Of the 98.8 million liters of tequila exported, 83% went to the U.S., 11% to Europe and 6% elsewhere.
Overall, export sales were actually 1.5% higher than the previous year, though this year's export figures are not expected to be as good, mainly because of the downturn in the U.S. economy.
WAL-MART REFLECTS CONSUMER CONFIDENCE
Wal-Mart de México, the nation's leading retailer, announced last month that it plans to invest 464 million dollars between now and the end of next year to open 62 new stores. The figure includes more than 51 million dollars that will be spent in converting 30 Aurrera stores into Wal-Mart Supercenters.
Wal-Mart's plans reflect the retailer's confidence that the Mexican economy has entered a new period of sustained long-term growth. Consumer demand is booming and helped fuel Mexico's 7% economic growth rate last year.
Wal-Mart's operating profits for 2000 were 17.5% higher than for 1999, reaching 404 million dollars, on sales which totalled 7.6 billion dollars.
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2001 Operadora de Fondos Lloyd, S.A.
© 2001 Allen W. Lloyd, S.A. de C.V.