Weekly Report 113 by PRODENSA

GENERAL SITUATION IN MEXICO

Weekly Review #113 I July 13, 2022

MANUFACTURING INDUSTRY NISSAN PRESENTS ITS SOLUTION TO BOOST THE USE OF ELECTRIC CARS IN MEXICO In the urgency to pollute less, the lack of affordable electric vehicles, as well as the limited availability of charging stations for electromobility in the country, Nissan presented its new initiative to promote the use of electric motors in the Mexican market. This is a technological development that the Japanese company created to reduce the stress of driving a car that could run out of a plug. The model in which the e-power technology will be available, as the company named it, is the Kicks. In the 100% electric version of this car, a combustion engine and an electric motor will be combined, and both will drive a unit that, according to the automaker’s executives, will provide multiple benefits. “The car obtains an electric vehicle hologram, obtains the tenure savings, and allows you to drive it every day,” says Gerardo Fernandez, Senior Sales Director of Nissan Mexicana. In addition, the range is 900 kilometers, which frees you from the stress of driving an electric car, and the frequency with which you go to refuel has larger spaces, he said in an interview as part of the presentation of the non-plug-in electric car. “There is also a decrease in a load of pollutants to the environment, and the infrastructure barrier is broken, that you don’t necessarily need to install it (the charging station),” he added.

SOURCE: Forbes Mexico

PUSH FOR ELECTRIC VEHICLES With the launch of the Nissan Kicks with 100% electric motor, the automaker seeks to support electric mobility in Mexico. “We believe we are contributing directly to the growth and penetration of electric vehicles,” said Rodrigo Cantera, Nissan Mexicana’s marketing director, during his participation in the event. Luciana Herrmann, Director of Corporate Communications of Nissan Mexicana, explained that Nissan is a pioneer in electric cars in Mexico, so they consider that they have already made part of the transition and cooperation to introduce electricity to the market. Although the car price was not disclosed, Cantera said that the car with e-power technology, “although it has a component with a higher price compared to a traditional technology such as internal combustion, it is not as expensive as a fully electric technology.

MANUFACTURING INDUSTRY FIRST ROUND OF MEXICO-U.K. FTA NEGOTIATIONS BEGIN

Mexico and the United Kingdom began this Monday the first round of negotiations to reach a Free Trade Agreement (FTA) between them, with the prospect of closing negotiations in 2022 and achieving its entry into force possibly before the modernization of the Free Trade Agreement between the European Union and Mexico (EU-Mexico FTA) is put into effect. Comparatively, the first round of negotiations for the update of the EU-Mexico FTA took place on June 13-14, 2016, in Brussels, Belgium, and against all initial forecasts, it has not even been signed yet. In contrast, Anne-Marie Trevelyan, UK Trade Minister, indicated that the aim is to conclude the FTA negotiations with Mexico before the end of 2022. If so, the latter treaty could enter into force more quickly than the new EU-Mexico FTA, given the lengthy ratification processes in the European Union, given that it has 27 member nations. “Negotiations last as long as they have to,” said Luz Maria de la Mora, Undersecretary of Foreign Trade of the Ministry of Economy, in reference to the uncertainty of these processes, including their subsequent ratification. The war conflict between Russia and Ukraine has further delayed the signing of the modernization of the EU-Mexico FTA. When the translations have been completed, in the case of the European Union, the European Commission’s proposal will be transmitted to the Council and the European Parliament for signature and conclusion. De la Mora informed that the Mexican government plans to sign the EU-Mexico FTA in 2022.

MANUFACTURING INDUSTRY

Among other changes, the modernized EU-Mexico FTA expands market access in the agricultural and fisheries sector; standardizes investment provisions; creates a trade facilitation chapter; guarantees the non-existence of monopolies for the export and import of raw materials; and creates a digital trade chapter.

Different agencies of the Federal Public Administration will participate in issues related to market access for goods, rules of origin, customs cooperation and trade facilitation, government procurement, sanitary and phytosanitary measures, technical barriers to trade, services, and investment, among other disciplines.

The Ministry of Economy informed Monday that the first round of negotiations, which will last until July 15, will be chaired by Ismael Ortiz, chief negotiator for Mexico, and Charlotte Heyes, chief negotiator for the United Kingdom.

For Mexico, the United Kingdom is the 16th largest trading partner globally. In 2021, bilateral trade exceeded US$5 billion. Likewise, the United Kingdom is the 8th largest source of foreign direct investment in Mexico.

Discussions at the more than 30 negotiating tables will focus on defining the scope for access to the goods and services markets of both countries, as well as the disciplines to be agreed upon in each of the topics that comprise it.

SOURCE: El Economista

In bilateral product trade, Mexican exports to the British market totaled 1.21 billion dollars from January to May 2022, while UK sales were 895 million dollars, according to data from the Bank of Mexico.

KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S Morning Press Conference July 6 – 11, 2022 INTERNATIONAL • U.S. visit: In response to a question about the position of both countries on security matters, President Lopez Obrador said that the meeting will reaffirm the commitment to work together for the benefit of both peoples. He mentioned that there are bilateral issues such as migration, which will include the relationship with Mexico and support to countries in Central America. He said that the inflationary problem, which is a global issue, will be addressed in order to control inflation with bilateral measures. President Lopez Obrador highlighted that on Wednesday they will have a meeting with businessmen from Mexico and the U.S.A. The Business Coordinating Council and other businessmen will be present. He commented that this meeting is organized by the private sector. • Migration: Regarding the death of migrants in San Antonio, Texas, a reporter pointed out to the President that he is in the right historical condition and position to bring the issue and the demand to the table of US President Joe Biden. He added that several U.S. administrations (Democrat and Republican) have blocked the possibility of promoting immigration reform. On this point, the President assured that the immigration issue is central to the July 12 meeting, in which he will present a good alternative for both countries. He indicated that he

has great confidence in President Biden and the proposal he will present incorporates greater unity, integration with sovereignty (which does not mean subjugation), and respect for independence. • Texas Border: Regarding the Texas Governor’s decision to return undocumented migrants to the border, Lopez Obrador commented that the SRE has already made a statement and pointed out that the Texas Governor is making a decision that does not correspond to him, however, in view of next November’s electoral process, he considers that he will have sympathy. He emphasized that Mexico is respectful of sovereignty; however, it is not well seen that there are these types of campaigns with electoral motives. • Nationalization of electric energy in France: The President pointed out that things are changing in the world and asserted that if the economic models, administrative procedures, and ways of governing are not reviewed, it will be impossible to move forward in the face of the energy crisis generated by the Russian-Ukrainian war. He pointed out that what the French did was correct and mentioned that the state must exercise the steering role in some things. He explained that in Mexico it was foreseen that if the loss of oil production continued, there would be a crisis. He mentioned that since he took office, investments have been made in oil field exploration, oil extraction, and refining.

KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S

ECONOMY • Welfare Bank: The president mentioned that progress is being made in bankarization. There will be close to 600 branches operating around the country. He also stated that 2,000 branches will be completed by the end of this year and 3,000 by the middle of the year. • Credit rating for Mexico: Andres Manuel Lopez Obrador, commented that there was a favorable rating because it is considered that Mexico has healthy finances, and this allows it to be well-positioned in the financial world, which is also demonstrated by the stability of the exchange rate and the arrival of investment. — Trade with the U.S. grew by 20% in five months (January-May), compared to the same period last year, around 250 mmdd to 310 - 320 mmdd.

— With an increase in inflation, but not excessive, it has not reached 8%, however, in relation to other countries, Mexico has been one of the least affected, and measures are being taken to control inflation. — He revealed that today he received the income report, of which he mentioned that there is a good collection, with no deficit. — VAT, which in the first months was falling, brings 3% up in real terms. — Since almost one million barrels per day are being sold, the surplus allows gasoline not to increase and keeps inflation under control as much as possible. • Problems with SAT and tax payments: When asked by a reporter about the problems related to tax certificates and the lack of appointments at the SAT, the president stated that he will ask Raquel Buenrostro to report on the corresponding procedures and progress. He pointed out that the attitude of the taxpayers has been exemplary. He mentioned that those who previously did not pay taxes are now doing so since the tax waivers no longer exist. • UMAS in INFONAVIT and FOVISSSTE loans: The President said that work is being done to restructure the housing debt, however, he said that he will request that the heads of INFONAVIT and FOVISSSTE agencies report on the progress made. He mentioned that, together with the business sector, it was agreed to increase the employer’s contribution, legal modifications, and the reduction of commission charges in the management of the afores, so that the worker could save more.

KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S INFRASTRUCTURE • Report on cultural recovery of the Mayan Train: The Ministry of Culture and the National Institute of Anthropology reported on the support they are providing to the Mayan Train project from the perspective of cultural recovery. They pointed out that it is divided into four aspects: — Archaeological salvage and recovery of archaeological findings found along the train route. — Improvement of the archaeological zones, which is directed to 21 zones in the 5 states where the Mayan Train passes through. — Development of visitor centers in 9 archaeological zones. — Cultural promotion, community work, and safeguarding of the language and traditions of the Mayan peoples present. • Removal of the Director of AICM: Regarding the removal of Mr. Carlos Moran as head of the AICM, the President informed that the Engineer would support him in other functions, of which he acknowledged that he did not know. This change will serve to resolve some discrepancies and passenger discomfort, improve service, and shake up the administration system that has been in place for a long time. POLITICAL AGENDA • Support for journalists: Jesus Ramirez, Coordinator of Social Communication of the Presidency reported on the program of protection and social security for journalists. He commented that according to INEGI there are 6 thousand journalists who do not have social security. The program will allow those who enroll in the program to have the

benefits granted by the IMSS: illnesses, work, daycare, social benefits, retirement, and old age. • Banamex sale process: He pointed out that privatizations bring with them the dismissal of workers. Therefore, he pointed out that the process for the sale of Banamex will be monitored and must comply with the following conditions: That it be Mexican capital, that those participating as shareholders be up to date with the payment of their taxes, that the cultural heritage of Banamex remains in Mexico and that workers are not laid off.

KEY POINTS OF PRESIDENT ANDRES MANUEL LOPEZ OBRADOR’S • Report of financial operations of politically exposed persons: Pablo Gomez, head of the Financial Intelligence Unit (“UIF”) informed about the detection of several millionaire transfers to companies of relatives and persons related to former President Enrique Peña Nieto. He mentioned that it was detected that the former president obtained economic benefits for more than 26 million pesos, through transfers made by a blood relative. He pointed out that all the information has been delivered to the FGR, which has opened an investigation file. For his part, the President pointed out that the instruction given by the head of the UIF is that all information related to politically exposed persons must be analyzed and delivered to the Attorney General’s Office, including that related to current federal government officials. He pointed out that the UIF depends on the President and no information will be hidden. HEALTH • COVID-19: Operations are reported to be in the green, and there is no overcrowding in hospitals. There is always a review of the pandemic if any state requires urgent action. Fortunately, most people are vaccinated. Actions concerning the pandemic will depend on the behavior of the pandemic and will continue to be reported next week.

NEWS BY STATE

BAJA CALIFORNIA The Health Secretary of Baja California reports 3,509 active cases in the past 14 days and only 728 new active cases in the past 24 hours. The vaccination plan continues this week, and more than one hundred thousand children have been vaccinated against COVID-19.

SONORA Official reports confirm 1,720 new cases in the last week. The vaccination plan continues this week with the vaccine application to children from 5 to 11 years old and the adult population in different municipalities. The Governor of Sonora toured the United States, where he met with directors, secretaries, and industry members to discuss foreign investment issues.

NEWS BY STATE

NUEVO LEON Nuevo Leon entered the most complicated stage of the water crisis since the Cerro Prieto dam stopped supplying water to Monterrey metropolitan area and peripheral municipalities. The National Water Commission informed that the reservoir located in the municipality of Linares can no longer extract any more water, and the situation could become more complicated in the next few days since the La Boca dam is also in agony, only that the latter still provides water to the population. COAHUILA Posco invests 100 million dollars in an electric car component plant in Coahuila. The governor of Coahuila, Miguel Angel Riquelme Solis, anticipated that in 2023 the state will start producing electric cars, as a result of the planning and promotion of the entity, its connectivity infrastructure, competitiveness indicators, security, and rule of law.

TAMAULIPAS Tamaulipas has invested 1.7 billion pesos to guarantee water supply. The Governor of Tamaulipas, Francisco Garcia Cabeza de Vaca, highlighted that the aforementioned amount has been invested in the El Camalote Estuary to solve a problem in Tampico, equipment was also rehabilitated in Reynosa, the Ciudad Victoria aqueduct and the Ciudad Mante aqueduct.

NEWS BY STATE

SAN LUIS POTOSI In March, the industrial activity of San Luis Potosi rebounded by 9.5% compared to the immediately previous month, as well as 9.6% compared to March but 2021, confirmed seasonally adjusted figures from the National Institute of Statistics and Geography (INEGI). At a monthly rate and based on original figures from the Monthly Indicator of Industrial Activity by Federal Entity (IMAIEF), Potosi production reported the second-best performance at the national level, only lower than Guerrero, which advanced 19.7% compared to February 2022. At an annual rate, the production of San Luis Potosi also stood out as the third with the best performance in Mexico, behind the activity of Guerrero and Tabasco, which grew by 22.4% and 9.5%, respectively. Within the main economic sectors of San Luis Potosi and through original figures, construction was the industry that advanced the most with a variation of 19.5% at the annual rate. The manufacturing industry was the second-best performer, growing 13.1% in the same comparison period. JALISCO To position the manufacturing industry in Jalisco as a competitive supplier solution at a global level, the Specialized Meeting for the Manufacturing Industry (EMANJAL) was presented. This event is the first cluster model in Mexico and is organized by the Jalisco Automotive Cluster, the Jalisco State Foundry Cluster, and the Jalisco Tooling Cluster, organizations that

join forces and experience to work together on the cluster model. the triple helix, to bring together the main buyers and suppliers of the automotive, tooling and foundry sectors. This business meeting is specialized in disruptive and effective mechanics, seeking to strengthen the global supply chain in the manufacturing industry. AGUASCALIENTES Among the main challenges for Aguascalientes are: the issue of water, the urbanization of the metropolitan area, economic growth, economic diversification, and the improvement of salaries, explained Jael Perez Sanchez, regional vice president of the National Federation of Economists Association. He asserted that the entity is ceasing to grow since the hard data of the last two years indicate this. He explained that in 2020, regarding the Quarterly Indicator of State Economic Activity of the Inegi, in the first three months, still without a pandemic, an annual rate of decrease of -3.3% was already detected; in the second quarter, with the pandemic taking off, it was -23.1% and for the third quarter it was -5.1% and the last quarter was -1.4%. For 2021, a recovery rate of 4% was recorded compared to 2020 and for the second quarter, compared to the same period in 2020, it brought growth of 23.3%; but the rest of the quarter continued to decrease. He reiterated the recommendation made by the entity’s economists regarding the importance of diversifying the economy of Aguascalientes so that it stops depending on the automotive industry.

NEWS BY STATE

GUANAJUATO According to John Wright, President of the National Council of the Maquiladora and Export Manufacturing Industry (Index) Guanajuato is incredible how the companies seek to substitute imports in all products, from metalworking, food, pharmaceuticals, and even machinery. “Definitely unprecedented, and it’s time for us to wake up because there is a great opportunity at all levels,” he said. Not only is it what was done in Asia, but products that are manufactured in the United States and Canada are now creating opportunities to make by-products in Mexico, he added. This explosion of need to have the products closer, even though in theory it could be more expensive than in Asia, has caused those companies that are prepared to shorten or are shortening their expected times for recovery, these being the ones that are causing a vast job offer in these parts of Mexico. Because the industrialist told me well, even though Guanajuato is one of the entities that graduate the most Engineers, today the demand is greater and that is why the number of people who come to settle in this entity to find work is growing.

QUERETARO Bombardier Recreational Products (BRP) inaugurated its new Machining Center for the North American market, located in the Queretaro Industrial Park, in the state capital. With this new unit, the Canadian firm generates 100 permanent jobs in both the operational and administrative areas. The director of the BRP Plant in Queretaro, Mario Geberthusber, said that this center expands the company’s manufacturing production in the entity. Meanwhile, the vice president and Global Manager of Manufacturing and Operations of BRP, Patrick Dussault, highlighted that this space was equipped with the latest technology such as soft machining, induction heat treatment, grinding, polishing, and assembly to manufacture aluminum parts that are the heart of the engines. From this location, the firm operates the Composite Manufacturing Center, for the production of the cover and hull for Sea-Doo personal watercraft; as well as the North American Machining Center.

NEWS BY STATE

STATE OF MEXICO Mario Delgado, Morena’s national leader, announced that this week they will begin with the first survey to choose the standard-bearer for the State of Mexico’s candidacy in 2023. At the end of the three-hour meeting, the leader said that 28 of the 67 aspirants to the governorship were present, who signed an agreement with the rules of the process; however, he said that all of them will be included in the surveys. The private meeting in a Mexico City hotel was attended by representatives of the Secretary of Education, Delfina Gomez; Senator Higinio Martinez, and the head of the National Customs Agency, Horacio Duarte. In statements to the media, Delgado Carrillo explained that the first survey will be conducted via telephone and will be divided into three blocks, one for women and two for men, with 1,200 respondents in each, that is, a total of 3,600. The leader explained that the results will be made known to the runners next week so that up to 7 profiles will go to a second survey.

CDMX For the first half of 2022, four of the nine industrial corridors in the Metropolitan Zone of Mexico City and Toluca had 100% occupancies, which means that these markets are experiencing one of their best moments, Newmark reported. According to the real estate company, these occupancy levels denote the high levels of demand requested by the market, precisely, the regions reached a Class A industrial inventory of just over 13 million square meters (m²) in the second quarter of 2022. “The occupancy levels of the corridors give a guideline not only to increase the construction and accelerated planning of the 13 industrial parks but also to encourage the expansion of existing corridors. The industrial sector is the main source of real estate growth in the current situation,” said Vianey Macias, analyst of Newmark’s Market Research division.

ECONOMIC RECOVERY

ECONOMY AND INVESTMENTS IN MEXICO

NORTHWEST - JABIL Starts construction of a new plant in Chihuahua; will invest $336 million dollars.

dustrial Park. It also represents the generation of 100 permanent jobs. - FERRERO Ferrero confirms an investment of $50 million dollars to expand its Guanajuato plant.

NORTHEAST - CONTINENTAL Will build a hydraulic hose plant in SLP; will invest 40 million dollars.

- SAMSUNG Samsung will invest $500 million dollars to increase its production of home appliances in Mexico. The capital injection will be destined for manufacturing complexes in Queretaro and Tijuana.

CENTRAL MEXICO - BRP BRP inaugurated its North American Machining Center (NAMC) at its facilities in the Queretaro In-

- POSCO INTERNATIONAL Posco International invests $123 million dollars in Ramos Arizpe to manufacture electric motors.

ECONOMIC RECOVERY NEARSHORING BROUGHT THE COMPANY THAT MANUFACTURES TESLA’S BRAIN TO NUEVO LEON.

Ivan Rivas Rodriguez, Secretary of Economy of Nuevo Leon, assures that the relocation of companies from Asia to Mexico led to Tesla’s brain being manufactured by a Mexican supplier in the metropolitan area of Monterrey. That advanced technology auto parts company is one of the 228 companies from the United States, China, Japan, South Korea, Germany, Spain, England, and France that see Nuevo Leon as a gateway to the North American market, says the official. “Today, many companies are looking to Nuevo Leon as their gateway to the North American market,” acknowledges the economist from the Instituto Tecnologico y de Estudios Superiores de Monterrey. During Samuel Garcia Sepulveda’s administration, 73 investment projects have been confirmed for more than 3 billion dollars for Nuevo Leon and counting. “We expect to close the year with another 55 projects and 2023 with a positive trend to close with 100 investment projects of all sizes,” Rivas Rodriguez tells Forbes Mexico. In the last quarter of 2021, the foreign investment that entered Nuevo Leon was 1 billion dollars: “The interesting thing about that is that it was 25% of foreign investment in Mexico, meaning that 1 out of every 4 dollars entered Nuevo Leon.”

SOURCE: Forbes Mexico

ECONOMIC RECOVERY

In 2021, Nuevo Leon attracted an investment of 4 billion dollars, a level never recorded in the state’s history. U.S. companies are the main investors in Nuevo Leon, followed by companies founded in China. The rest of the capital comes from Japan, South Korea, Germany, Spain, England, France, and other countries, recalls the official of Samuel Garcia Sepulveda’s government.

Foreign companies are investing in Nuevo Leon because there is good, competitive, and productive human capital, as more than 8 thousand engineers and more than 20 thousand technicians graduate every year. Currently, the state has more than 140 industrial parks, and we are talking about a period of a year, a year and a half, for a company to decide to start production.

Nuevo Leon has been generating confidence since six years ago when many companies arrived due to the start-up of the automobile manufacturer Kia, says Jesus Garcia Cavazos, general director of ICAMI Northern Region.

NUEVO LEON IS ON THE RADAR The Secretary of Economy of Nuevo Leon recalls that high-tech companies such as German, Japanese or Korean companies have plans to regionalize their chains.

The arrival of Kia gave certainty to other Asian companies to invest in manufacturing in Monterrey and other municipalities of Nuevo Leon says the representative of the first center for comprehensive training and management development of middle executives (managers, chiefs, and supervisors).

“I produce in China for the Chinese, in Europe for the Europeans, but the logistics issue is complicating the situation, so they see Nuevo Leon as a market for them to produce and sell to the United States,” said Ivan Rivas Rodriguez.

Today, companies in the home appliance industry are setting up in Nuevo Leon, which has triggered greater demand for products among industries, says Garcia Cavazos. “I was in an assembly of the automotive cluster, -where people who are in the plastics industry and specialized plastics engineering-, have requests from appliance companies to see if they are capable of supplying the new demand for their installation in Nuevo Leon, which is oriented to serve the U.S. market,” says the director of ICAMI Northern Region.

“The companies come here, buy inputs from companies in Nuevo Leon and transform them with high added value, with that they already have the regional content that is required to be considered a product of this North American market so that it can enter without tariffs”, says the official of the government of Samuel Garcia Sepulveda. He adds that the arrival of the companies are not the typical maquilas that were there before, but come to manufacture products with high-quality regional content for the automotive, metal-mechanic, and other industries.

ECONOMIC RECOVERY

“There is a German company that manufactures cameras for autonomous vehicles. In other words, they are not only the typical companies that come to make plastic injection auto parts or engine parts, we do have all of that, and it continues to grow, but we are making new products,” the Secretary of Economy explained.

Ivan Rivas Rodriguez, Secretary of Economy of Nuevo Leon.

“Another example is that Tesla’s brains are made here in Nuevo Leon, and these are very advanced auto parts,” Rivas Rodriguez emphasizes.

“We will also have a Japanese plant that will manufacture all-terrain vehicles, several home appliance companies, and companies that manufacture batteries to store renewable energies. Let’s say they are the usual sectors but with a high range of innovation and technology,” adds the official.

“We are working very closely with Tesla because it is inviting its suppliers to settle as close as possible and is considering Nuevo Leon as an ideal place for them to establish themselves. so we are in close contact with Tesla’s purchasing department and they are presenting us with new suppliers to attract them to the state.”

SOURCE: Forbes Mexico

“We have a record in the sense that a Tesla supplier company told us that it had to produce in six months, and it was done. Now, it has a thousand employees,” assures the Secretary of Economy of Nuevo Leon.

Nuevo Leon is prepared to take all these investments and put them to work as soon as possible, just as it is an armored state against organized crime and delinquency, he concludes.